More eu red tape throttles insurers

There is nothing like a bit of scaremongering to put the skids under nervous investors and yesterday it was the turn of the eu to stir things up.

The catalyst for another bad day in the London share market was a letter from the Association of British Insurers, the industry body, to Alistair Darling in which it gave notice that its members may need to ask investors for £50 billion to cover new European capital requirements.

The prospect of a large recapitalisation is pinned on concerns about the proposed Solvency II rules, which come into force in 2012 and essentially would require insurers to hold more capital. 

Companies such as Legal & General, which have big pension annuities books, could be hit hard as the rules would force them to hold less risky, low-yielding assets that may not match their obligation to pay out to annuity holders over time.

Such fears, combined with news that Odey Asset Management, the hedge fund, had increased its short position in the sector, made L&G the biggest blue-chip faller, closing 6½p, or 8 per cent, down at 68p. Aviva fell 15p to 390¼p and Prudential slipped 11p to 514½p.

The FTSE 100 dropped 2.15 points to 4,817.55, further fuelling concerns of a stock market correction after its recent good run.

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