S&P warns that CEIOPS advice changes the playing field.

Standard & Poor's has said new advice from CEIOPS, the association of European insurance supervisors, increases the amount of capital insurers and reinsurers will need to hold under Solvency II regulations.

The rating agency has issued a report, European Insurers Eye Solvency II With Trepidation, and said insurers are changing their previously positive views towards Solvency II due to increasing concern about capital requirements.

It follows the publication of the latest advice on implementing the directive from CEIOPS, the Committee of European Insurance and Occupational Pensions Supervisors.

"The industry has broadly supported the passage of the Solvency II directive to date, but CEIOPS' advice on capital requirements has changed that," said Standard & Poor's credit analyst Rob Jones.

"Based on the advice provided by CEIOPS up to November 10, 2009, average capital needs would increase by approximately 70% compared to the levels tested during the fourth Quantitative Impact Study (QIS 4). Even though this is likely to be reduced by the recent finalisation of the third wave of advice, in our opinion, this would still result in substantial industry-wide capital raising."

Jones added: "Supervisory capital adequacy would also become a much more relevant consideration for determining ratings of EU insurers, reducing the emphasis likely to be placed on the outcome of our own capital adequacy model. We expect that negative rating actions could also be a likely consequence for Europe's insurers."