City minister Lord Myners has warned against making an ‘ill-conceived’ implementation of the second phase of Solvency II and overvaluing risks associated with annuity liabilities.

Speaking at the Association of British Insurers (ABI) in London Myners (pictured) said it was important to ensure that the standards set for solvency capital requirements were 'evidence-based' and appropriately reflected the economic risks of business. 

He stressed that times had changed since the first phase of Solvency II was completed and the new economic environment must be factored into any legislative decisions.

'Solvency II was conceived under benign economic circumstances. It is now being negotiated in a starkly different climate. It is important for legislators to resist calls for sweeping reform in the absence of robust data and analysis demonstrating a need for this,' he said.

Risks associated with annuity liabilities must not be overvalued, resulting in overly prudent levels of capital, he added.

‘Capital must be sufficient to provide security and assurance, but setting capital at an excessively conservative level will have very real consequences in terms of disincentivising retirement provision and adversely impacting pensioner income,’ he said. 

The insurance industry needed to be ‘crystal clear’ that the risk was increased costs for pension businesses and ultimately pensioners, something that 'absolutely' could not be allowed to happen. 

He said other areas of the Solvency II directive deserved attention and risk factors, such as operational risk, must not be given unwarranted uplift without a solid base of empirical evidence to justify it.