EU insurer deal hangs in the balance

By Huw Jones

LUXEMBOURG (Reuters) - A deal on shaking up how insurers in the European Union are supervised and set aside capital to offset risk hung in the balance on Monday as many states still balk at losing influence over their own markets.

Adoption of the Solvency II reform is the first acid test of commitments made by EU leaders to streamline oversight of financial groups and make markets safer and more efficient.

The bloc's finance ministers meet in Luxembourg on Tuesday to agree on a "general approach," or broad outline of the reform authored by the European Commission that updates existing EU solvency rules for insurers.

"It's 50:50 at the moment," a German diplomat said. "It all comes down to the supervision question."

EU lawmakers say failure by EU states to reach a deal could hamper similar efforts to set up a lead supervisor system for cross-border banks to enable swifter intervention in times of crisis.

Solvency II aims to introduce a "group support" system based on colleges of supervisors so that the home regulator of a cross-border insurer has the final word on how much capital the group overall must set aside.

But many ex-communist states like Slovakia, the Czech Republic and Poland, as well as Spain, say this system overrides their regulators, who oversee offshoots of cross-border groups like Generali, Aviva, Allianz and Axa.

Supervisors in these "host" countries want to retain powers to force an insurer to top up its local capital.