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The measures agreed on Thursday will shield insurers from the capital impact of market fluctuations and provide added protection to policyholders, Peter Skinner, the British socialist member of the European Parliament, told Reuters.
"The sovereign debt crisis in the eurozone could have been exacerbated without this deal", he said. "Insurance companies would have moved away from holding sovereign debt without these measures in place, but there are safeguards also in place for policyholders that any temporary adjustments are in line with their expectations."
These allow insurers to hold less capital against annuities in recognition of the fact that since annuity holders cannot cash in their policies, losses on the bonds insurers buy to fund annuity payments need never be crystallised.
The agreement also allows insurers to hold so-called countercyclical premiums to smooth out the capital impact of short-term market fluctuations, and to use extrapolation techniques to estimate future interest rates.
Solvency II, due to become law in January 2013 ahead of full implementation a year later, is designed to make insurers hold capital in strict proportion to the risks they underwrite, replacing a patchwork of less sophisticated national rules. But the industry has warned that Solvency II, expected to lead to higher capital requirements, could force up the cost of insurance and pension products for European consumers.
There are fears that European insurers with operations in countries deemed to have less exacting regulations could be forced to hold extra capital against their local subsidiaries, potentially making them uncompetitive.
Under Thursday's agreement in the European assembly, all three concessions would be reviewed by the European Commission, the European Systemic Risk Board and the European Insurance and Occupational Pensions Authority, to check they are "fit for purpose" after an as yet undecided period, Skinner said.