This will make annuity providers happy; UK pension annuity rates should be okay. The EU watchdog has altered its view on pension annuity business, and, as a result, insurance company (the annuity providers) shares are up. EU insurance regulators have suggested that they could be open to altering their rules for annuity providers that, in their present format, could force UK insurance companies to raise £50bn of capital. As currently drafted, EU Solvency II rules for insurance companies would force annuity providers to hold extra capital as reserves in case of declines in the market valuations of the corporate bonds they use to fund annuity payments to their customers. This would have a significant effect on British insurers including L & G, Prudential, and Aviva, which sell far more pension annuities than their continental European rivals.
Relief regarding this news from Frankfurt, where regulatory body CEIOPS is situated, helped the insurance company shares trade higher. Analysts said continental insurers could also benefit from the potential for increased sales of annuity related products to replace dwindling state pension incomes in the future. CEIOPS, which a fortnight ago postponed a decision on the rules in order to carry out an assessment, indicated in a submission to the EU Commission late on Tuesday it could be open to something like an “illiquidity premium”, which reduces the liabilities insurance companies have to hold, allowing to keep UK pension annuity rates on a sensible level.