Sunday, 20 December 2009

EU rules may force Legal & General to leave the UK

In what probably won't be the last such case, today's Telegraph reports that one of the UK's oldest insurance companies - Legal & General - may move its headquarters to outside the EU to avoid new 'extreme' EU regulations.
Legal & General (L&G), the FTSE-100 group, is considering a move outside of Europe ahead of the introduction of Solvency II, a framework which will govern insurers based in the European Union from 2012
Solvency II is a fundamental review of the capital adequacy regime for the European insurance industry designed to standardise single capital requirements across the EU.

It is a replacement for (rather predictably) Solvency I and seeks to update the set of regulatory requirements for insurance firms but, surprise surprise, it has a wider scope.

The insurance industry is not happy, and has warned of the consequences that these new regulations will create:
Last weekend, [Tim Breedon, L&G's chief executive,] told The Sunday Telegraph about his fears of over-regulation.

In an article on the future of the insurance industry, he said: "The risk now is that competition between regulators – at the national, the EU, and broader international levels – will simply bid up the amount of capital the sector is required to carry to levels which are unnecessarily high and which prevent us from doing business.

The initial impact of Solvency II would be to force British insurers to massively increase their capital and reserves requirements. This will lead to some companies exiting, as L&G have indicated, the EU altogether.

For those companies that remain, the money to recapitalise will need to come from somewhere, inevitably leading to falling investment returns, price rises, and reduced cover.

And guess who will more than likely take the burden of the extra costs?
the value of UK pension savings could be cut by up to 20pc as companies passed on the costs to pensioners in the form of lower incomes.
Yep, pensioners.

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