Capital requirements to be boosted in EU insurance reforms

Major changes to the supervisory framework of the insurance industry have been mapped out by EU policymakers.

A vote in the European Parliament passed new legislation known as Solvency II, aimed at boosting the financial stability of providers by tying them in to tougher capital requirements.

Parliament voted in favour by 593 to 80.

The sector as a whole has come under intense scrutiny from officials as the financial crisis has worsened.

One of the most high-profile victims of the crunch has been insurance giant AIG - which has cost the US government well over $100 billion in bailout funds after almost collapsing last year.

The firm’s practice of building profits through selling risky financial instruments, known as Credit Default Swaps, to private banks and other clients has been well-publicised and has provided impetus for tougher regulations for insurers worldwide.

Insurance industry lobby group CEA commented: ’We welcome the vote and thank the parliament for its hard work in ensuring that an enhanced regulatory regime for Europe’s insurers will become reality.’

Solvency II is currently due to come into effect in 2012.

Member states will vote on the reforms next month - although these votes are expected to prove a formality. ADNFCR-2318-ID-19138290-ADNFCR