LONDON (Reuters) – Strict new capital rules for European Union insurers could be delayed after talks aimed at ironing out disagreements over the final shape of the so-called Solvency II regime ended fruitlessly, Britain's insurance industry lobby said.

Thursday's failed talks between EU officials and lawmakers mean there will now be no deal until the European Parliament returns from its summer break, squeezing an already tight legislative timetable, and putting Solvency II's January 2014 start date at risk.

"This result raises questions about the timetable for Solvency II and will leave insurers in limbo until an agreement is reached," said Hugh Savill, Director of Prudential Regulation at the Association of British Insurers.

"This delay was not caused or asked for by industry who are keen to see the outstanding issues on Solvency II resolved."

Solvency II, designed to make European insurers hold capital in strict proportion to the risks they underwrite, has been held up by disagreements between EU countries over how to calculate the reserving requirements for long-term life insurance contracts.

The rules were originally intended to take effect this year, and insurance executives have said prolonged uncertainty over the industry's future capital requirements has deterred investors from backing the sector.

Under the current timetable, EU lawmakers had been due to vote on a final draft of Solvency II in September or October, clearing the way for national governments to adopt the rules by June 2013, and giving insurers just six months to comply with the locally-applicable version of the regime.

The industry could push for the 2014 start date to be put back if a delayed parliamentary vote threatens to eat into their final six-month preparation period.

"Every time the legal process is delayed it really cuts into industry's time," said Janine Hawes, a director at auditor KPMG's insurance practice, speaking before Thursday's talks fell through.

"With such a major change they've got to allow industry enough time."

Pan-European industry lobby Insurance Europe said it was too early to comment on the impact of the failed negotiations.

Solvency II, ten years in the making, is expected to lead to higher capital requirements for many insurers, although larger European players such as Allianz, Axa and Generali say they are well prepared for the new rules.

Some insurers have complained about the cost of complying, and others fear the regime could make their overseas units less competitive against local rivals.

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