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* Industry has nine weeks to test Solvency II options
* Test may lead to re-drafting of some risk-capital rules
* Rules mustn't hinder long-term investment-industry
By Jonathan Gould
FRANKFURT, Jan 28 (Reuters) - The European Union's insurancewatchdog has launched a new study of proposed capital and riskmanagement rules which insurers fear will make some of theirstaple products unviable.
The European Insurance and Occupational Pensions Authority(EIOPA) on Monday set a nine-week deadline for insurancecompanies to test what impact changes to the so-called SolvencyII rules would have on their operations.
Insurers expect the study to show that a major rewrite ofrules applying to life insurance will be needed, adding torepeated delays in the introduction of the new regime.
EIOPA expects Solvency II will come into force no earlierthan Jan. 1, 2016 but Germany's insurance watchdog has alreadysaid that a 2017 start may be more realistic.
"If these seemingly technical details of the new regime arenot correct, the impact on the European insurance industry, itsclients and the economy would be severe," said Olav Jones,deputy director general of Insurance Europe.
Some life insurance companies have said that Solvency IIwould make their products unworkable because they would beforced to hold so much more capital in exchange for sellingproducts guaranteeing returns to customers.
With traditional guaranteed life insurance products, theinsurance company bears the risk of covering the futureguarantee, as opposed to index-linked life insurance, where theconsumer bears all the investment risk.
The former type of products are particularly popular inGermany, France and Spain.
"Solvency II must not create unnecessary barriers toinsurers providing guarantees for customers and investinglong-term, not least because the insurance industry is by farthe largest institutional investor in Europe, with over 7.7trillion euros in assets," Jones added.
European life insurance premiums totalled 633 billion euros($853 billion) in 2011, according to industry trade bodyInsurance Europe.
FURTHER DELAY
Auditing firm KPMG said the long-term guarantee test and theanalysis of its results meant a key European Parliament votewould probably take place after the parliament's summer recess,months later than expected.
"The time required for EIOPA to produce its report, expectedin the second half of June, could itself result in furtherdelays to the Solvency II timeline," KPMG said in a statement.
In the meantime, EIOPA hopes to bring forward parts of therules where there is widespread agreement.
The Chairman of EIOPA said in a statement on Monday that thestudy would provide a "reliable basis for an informed politicaldecision" on what requirements for long-term guarantees will beincluded in Solvency II.
"It is essential for policyholder protection and financialstability that Solvency II appropriately reflects the long-termfinancial position and risk exposure of insurance andreinsurance undertakings carrying out insurance business of along-term nature," Gabriel Bernardino said in the statement.
Insurers are not required to participate in the assessmentbut EIOPA said it hoped as many as possible would take part.
Big insurers like Allianz, Axa andGenerali are expected to be well-prepared for SolvencyII, but many smaller insurers feel the rules are too complex orshould not apply to them to the same extent.
Industry representatives on Monday complained the long-termassessment would sap resources just as companies were preparingtheir year-end accounts.
Insurers have until March 31 to carry out the assessment,with national supervisors reviewing the data in April and Maybefore handing them over to EIOPA and the European Commissionfor analysis and a final report in the second half of June.
