According to reports in the media, the Association of British Insurers (ABI) is to step up its campaign to ensure that new European legislation on solvency does not become a major burden on UK insurers.

The Financial Times reports that the ABI is lobbying the EU to ensure that the changes to solvency laws in the region reflect the changing nature of the insurance industry in the UK.

The European Commission’s ‘Solvency 2’ regulation is designed to harmonize rules on the capital held by insurers to meet their payouts. The directive is intended to replace a patchwork quilt of national frameworks and better protect consumers, the newspaper says.

However the ABI is concerned that the regulation will require insurers to put extra ‘deadweight’ capital onto their balance sheets, at great cost to their businesses.

This is currently the case with existing EU rules, but not with those imposed by the UK regulator, the Financial Services Authority. Capital is the essential raw material used in producing insurance products. The UK industry is lithe, lean and dynamic. If the present system lives on, this could dump a brick in a rucksack on its back, Paul Barrett, policy adviser at the ABI, told the newspaper.