The Solvency II Directive, the commission noted, is a framework that confines itself to setting out the principles to which the new system would be subject. On a large number of issues, "more detailed implementing measures will be set down by the Commission, following consultations with market participants and member states, under the scrutiny of the European Parliament."

The commission described Solvency II as "a ground-breaking revision of EU insurance and reinsurance law designed to improve consumer protection, modernize supervision, deepen market integration and increase the competitiveness of European insurers."

Under the new system, the commission said, insurers and reinsurers would be required to take account of all types of risk to which they are exposed, as well as to manage those risks more effectively and with increased transparency.

In addition, insurance groups would have a dedicated "group supervisor" that would enable better monitoring of the group as a whole.

"By approving the [EU] Commission's proposal, the European Parliament has contributed to lasting economic recovery," said Commission President Jos? Manual Barroso said. "An integrated and competitive insurance sector, supervised consistently across borders, is essential for every consumer and every business in Europe."

According to Mr. Barroso, Solvency II "will help protect policyholders from bad practice. It will help shield our economies against a repeat of the disastrous excessive risk-taking by financial institutions, including certain insurance operators, that has contributed to the global crisis. It will be good for insurers and reinsurers themselves, by giving them new opportunities and helping restore confidence."

Internal Market and Services Commissioner Charlie McCreevy added that "we need Solvency II more than ever as a first response to the present financial crisis. We need regulation that requires companies to properly manage their risks, that increases transparency, and that ensures that supervisory authorities cooperate and coordinate their activities more effectively…"

Mr. Charles at Tillinghast said one of the proposals for the framework would have allowed corporate groups to capitalize centrally and use minimum capital levels in subsidiaries in different EU countries.

He explained the idea was that capital could be used for an entity in the group as the need arose. But Mr. Charles noted there was resistance among regulatory supervisors in smaller territories, who were "concerned their policyholders would be at risk if this didn't work and weren't comfortable with that risk."

Commissioner McCreevy said he had "considered the group-support regime to have been one of the most innovative aspects of the proposal and a key element in the modernization of the supervisory arrangements for cross-border insurance and reinsurance companies. I personally regret that it is not now part of the package. I hope, however, that this will be rectified in due course"

Solvency II, the commission said, is part of its "better Regulation strategy" and its "firm commitment to simplify the regulatory environment and cut red tape. It will mean replacing 14 existing directives with a single directive."