Last checked at 
By Jonathan Gould
FRANKFURT, May 22 (Reuters) - Regulators are expected to goeasy on the life insurance industry in the wake of a study by EUinsurance watchdog EIOPA on long-term savings guarantees made tolife insurance policy holders, credit rating agency Moody'ssaid.
Insurance products with guaranteed returns are popularparticularly in Germany and the Netherlands but insurers havesaid rules proposed by the European Insurance and OccupationalPensions Authority (EIOPA) were flawed and needed re-drafting.
EIOPA is studying options for determining how much capitalinsurers must hold to meet the guaranteed returns to policyholders years - sometimes decades - into the future, and plansto publish its results next month.
On Wednesday, Moody's predicted insurers would ultimatelyget relatively generous treatment, partly because politicianshad recognised that punitive rules would place a heavier capitalburden on insurers selling guaranteed products and also becauseEurope wanted insurers to be able to finance the wider economy.
"We expect an outcome that will be relatively lessdisruptive to the industry," Moody's Senior Credit OfficerDominic Simpson said of the long-term guarantee debate which hasbeen a major sticking point in finalising a bigger package ofrisk-capital rules for insurers known as Solvency II.
Solvency II is expected to take effect in 2016 following aseries of delays. Policy officials indicated rising hopes thisweek that the rules could be finalised and passed into EU lawbefore European Parliamentary elections in June, 2014.
The volatility of insurers' regulatory capital cushionsunder Solvency II could make investors in the sector skittishand prompt regulators to intervene more frequently than in thepast, Moody's warned.
Life insurers are suffering from low interest rates, caughtin a bind between the relatively high guarantees they gave totheir customers in the past and the low yields they can earn ontheir investments in safe government bonds now.
"A product with a guaranteed return and a low interest rateenvironment is a difficult combination at the moment," Simpsonsaid.
EIOPA's study will be taken into account by the EuropeanCommission and Europe's politicians in setting the final rules.
Small, stand-alone life insurers will be particularlyaffected by the outcome of the long-term guarantee discussion,Moody's said.
Big insurers like Aegon, Allianz, Axa, Generali, ING, Munich Re and Zurich will see relatively less impactbecause they benefit from their business diversification,Moody's said.
British annuity writers like Legal & General andPrudential have products that share risk with policyholders and also benefit from having diversified business,Moody's added.
For the Moody's press release, which links to the agency'sInternet site, please click on:
