It also provides incentives to develop good risk management tools such as internal economic capital models that regulators will review and then use the tools they validate in their supervision of their capital adequacy, he said.

It was this element of Solvency II that prompted Mr. Zeller's remark.

The Hannover Re leader explained that reinsurance groups calculate their capital in three ways:

o Solvency capital required by supervisory authorities.

o Economic capital, determined by internal models to support a company's risks at a targeted level of financial strength, or to achieve an individual risk management goal.

o Rating capital

Under Solvency II, the regulatory capital will be based on reinsurer's own economic capital models, he said. "Then we present this to the de facto regulators and they say economic capital is one thing, but S&P requires something else," he said.

Mr. Zeller said the most important aspect putting reinsurers at odds with the rating agency on required capital is S&P's lack of recognition of diversification by line of business or geography to lower the requirements.

"The diversification credit in our model is 47 percent," he said. "In other words, the economic capital is 47 percent lower than what you calculate," he told the S&P analyst.

While Mr. Zeller said he doesn't expect S&P to ever go as far as to accept everybody's proprietary models, "I would simply expect or hope that you would come closer to, or tackle the differences between our model and your formulistic requirements," he said.