Urgent action is needed to address the potential impact Solvency II could have on the UK pension annuity market, the director general of the Association of British Insurers, Otto Thoresen, said today.
Speaking at an insurance summit, Mr Thoresen said addressing the issue was also 'critical' to enabling insurers to contribute to economic growth and to play role in infrastructure investment.
Long-running discussions have taken place on the issue between the ABI, European Commission, European Parliament and the European Insurance and Occupational Pensions Authority, he said.
'We have seen progress with the development of a package of measures, including a mechanism to reflect the way assets are held to back these long term liabilities.'
'We urgently need to clarify the wording on how this mechanism operates, if we are to avoid a major crisis for the UK Government's pension reform agenda, where annuities play a key role. The mechanism is also fundamental to allowing insurers play a major role in infrastructure investing as outlined in the Chancellor's autumn statement last year.'
He added: 'A restricted mechanism, or none at all, will make annuities poor value and limit the types of investment that insurers can make.'
Mr Thoresen also called for third party equivalence to be pushed up the policy agenda.
'The industry is investing hundreds of millions of pounds to implement Solvency II, but as yet, there is still no clarity on how large global businesses headquartered in Europe will be dealt with once the new rules are transposed from 1 January 2013,' he said.
'The EU insurance sector is a global market leader. If this is to continue EU companies must not be placed at a competitive disadvantage against local players in international markets.'
In particular, he warned of a situation where it could be almost impossible to write any third country business from an EU headquartered group as companies find themselves unable to compete with prices offered domestically in those markets.
'Many of these countries represent the world's fastest growing markets with GDP growth far outstripping Europe's,' he noted.
Turning to domestic issues, he set out his vision for the Financial Conduct Authority, which will be set up as part of the new 'twin peaks' approach to financial services regulation, replacing the Financial Services Authority in early 2013.
'First, the FCA must be about more than preventing negative outcomes for consumers. It must also be about supporting and promoting positive outcomes,' he said.
'Second, one of the most positive outcomes we need to see is that more consumers get better access to the financial products and services that they need.
The FCA should also work towards the correct statutory objectives, which emphasise effective competition, he added.