FRANKFURT/LONDON June 20 (Reuters) - The European Union may temporarily exempt existing life insurance policies from its tough new Solvency II capital regime for insurers, making it easier for the industry to adapt, the European Commission said on Wednesday.
"There is an idea on the table to provide for a transition of existing life insurance contracts to the new Solvency II regime," a spokesperson for internal market commissioner Michel Barnier said.
"Nothing has been decided yet - the final decision will be taken by the co-legislators."
The proposed seven-year exemption for existing life contracts was put forward by Burkhard Balz, the German member of the European Parliament tasked with steering the final version of Solvency II through the assembly, FT Deutschland reported.
Balz could not immediately be reached.
The partial exemption would ease the impact of the rules for some insurers when they come into force in 2014, helping to ease fears that the new regime could impose an excessively high capital burden on the industry.
"For the short term, this is positive news as it takes away pressure in terms of capital requirements," analysts at stockbroker Cheuvreux wrote in a note.
The Stoxx 600 European insurance index was up 1 percent at 0945 GMT, outperforming a flat European stock market .
But one industry source said the proposed transition period did nothing to address a bias within Solvency II in favour of short-term investments, making it harder for life insurers to fund long-term payouts to customers.
"This won't solve the industry's problems," the source said.
The proposal will be discussed later on Wednesday at a meeting between Barnier and officials from the parliament and European governments aimed at ironing out some of the remaining disagreements over the final shape of the new rules.
A final deal is not expected until July, clearing the way for the parliament to vote on the new capital rules in September.
Solvency II, ten years in the making, is designed to make European insurers hold capital reserves in strict proportion to the risks they underwrite, making the industry more resilient in the event of financial crises.
Some insurers have complained that the rules as they now stand would make their regulatory capital requirements more volatile and hurt their business, although big insurers like Allianz, Axa and Generali are seen as well-prepared for the new regime. (Reporting by Jonathan Gould in Frankfurt and Myles Neligan in London, additional reporting by Ilona Wissenbach in Brussels; Editing by Dan Lalor and Mark Potter)
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