Britain has received a chilly reception in talks to shape new European Union capital rules for insurers as payback for Prime Minister David Cameron’s veto last month on a plan to tackle the eurozone debt crisis, insurance and EU sources said.
Britain’s isolation is making it harder for it to influence key aspects of the so-called Solvency II capital regime, potentially putting its insurance industry, Europe’s biggest, at a competitive disadvantage.
“It is a bit harder to get stuff done around Solvency II since the veto,” said a Brussels-based industry source.
“There’s a heightened sense of not wanting to do any special favours for the UK.”
Britain last month blocked changes to a European Union treaty that would have pushed tougher budget rules on eurozone members, angering other EU nations and drawing criticism from British business leaders and bankers, who said the move could weaken the UK’s influence in Europe.
The backlash has made it harder for Britain to forge allegiances in the European Parliament as it attempts to relax the capital treatment under Solvency II of long-term life insurance contracts such as annuities, more widely sold in the UK than in any other EU country.
“The general attitude seems to be ‘you didn’t help us with the big thing, so we won’t help you with the little thing,'” said a senior British industry source.
British insurers are also keen to influence the criteria under Solvency II for recognising other countries’ capital regimes, amid fears too strict an approach could penalise companies, such as Prudential and Aviva, with big U.S. operations.
The British veto has opened opportunities for other EU countries to give their insurers a helping hand at the expense of their UK rivals, said Peter Skinner, a Labour member of the European Parliament who sponsored the main Solvency II directive in the assembly.
“People would love to have the UK lose its business to them, and I’m sure this is something many multinational insurers are aware of,” he said.
“We’re not being helped, and in normal times we would be.”
Solvency II, scheduled to come into force in 2014, is designed to make European insurers hold capital reserves in proportion to the risks they underwrite, replacing a patchwork of less-sophisticated national rules that set capital requirements according to turnover.
Some insurers are worried the rules could lead to an excessively high capital burden, putting them at a disadvantage to US rivals, while others have complained about the cost of getting ready for the new regime.
Britain’s loss of influence over the Solvency II debate means it will have to argue its case strictly on the merits of the proposed rules rather than by seeking political allegiances, the Brussels-based source said.
“The important thing is that the technical provisions stand on their merits and have potential relevance across a number of jurisdictions,” he said.
Britain has already successfully lobbied for changes to Solvency II after the Association of British Insurers warned in 2009 that the first draft of the rules would leave its members facing a £50 billion capital shortfall.
