EU regulators put off decision on insurers' capital

* CEIOPS to work further on the issue -- spokesman


LONDON, Oct 30 (Reuters) - European Union insurance regulators put off a decision on whether to dilute proposed new rules which could push British insurers into a 50 billion pound ($82.8 billion) capital raising.

Regulatory body CEIOPS had been scheduled to decide at a two-day meeting concluding on Friday whether the EU's proposed Solvency II capital regime should be watered down so as to limit its capital impact on annuity providers.

But CEIOPS has opted instead to carry out a more detailed assessment of the proposals, a spokesman for the organisation said on Friday.

"CEIOPS will work further on the issue. That is the decision made by members," the spokesman said in an e-mailed statement.

As currently drafted, Solvency II would force annuity writers to hold extra capital in case of declines in the market value of the corporate bonds they use to fund payments to their customers.

This would have a disproportionate impact on British insurers including Legal & General Plc, Prudential Plc and Aviva Plc, which sell far more annuities than their continental European rivals because Britain's less lavish state pension system forces more consumers to invest in private retirement savings products.

The Association of British Insurers warned in August that Solvency II, if implemented in its current form, could expose a 50 billion pound capital shortfall for its members.
British insurers, with some support from mainland Europe, say the proposals are overzealous, arguing that since annuity holders cannot cash out their policies, they would never be forced to sell their corporate bonds at a loss.

They want Solvency II to be redrafted to allow for an "illiquidity premium," which would recognise that falling bond prices during times of stress reflect potential difficulty in selling the bonds as well as increased risk of default.

CEIOPS is tasked with drawing up recommendations for final Solvency II legislation which will be submitted to the European Commission early next year.
Its recommendations could be altered again during the formal EU legislative process, before Solvency II -- aimed at protecting policyholders by matching insurers' capital more closely to the risks they face -- comes into force in Oct. 2012. (Editing by David Holmes)

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