By Huw Jones and Carolyn Cohn
LONDON (Reuters) - The European Union's capital rules for insurers should be copied into UK law after the country leaves the bloc to avoid "regulatory limbo," with only some elements changed to work better for UK consumers, an industry group said on Thursday.
The Association of British Insurers (ABI) lobby group said there was no appetite among members to completely replace the EU's Solvency II capital rules, which took years to adopt, and 3 billion pounds ($3.7 billion) to implement by January 2016.
"Solvency II has been part of the UK regulatory landscape and on UK insurers' radars for almost a decade," Hugh Savill, the ABI's director of regulation, said in a statement.
"Dismantling this regulation so soon after implementation means considerable time and money spent would have been wasted."
Britain's government has said it will adopt all EU rules into British law in a Great Repeal Bill at the point of departure from the bloc.
But Parliament's Treasury Select Committee said in September that Brexit created an opportunity to rethink Solvency II, and it was opening an inquiry.
The ABI said the risk margin component of Solvency II - which reflects the theoretical cost of transferring all policies of a failing insurer to a stable one - should be changed as it makes writing new business unattractive and bumps up costs for consumers.
The EU's insurance watchdog has already said the risk margin would be included in a review of Solvency II.
Britain has the world's third-largest insurance and long-term savings industry in the world, and the largest in the EU.
But Lloyd's of London and some of the underwriters that operate on its market may shift some operations to the EU if Britain fails to secure access to the bloc's single market for financial services after Brexit.
Firms that do move operations would almost certainly have to keep complying with Solvency II in some form.
Prudential (L:PRU), one of Britain's biggest insurers and which does little business in continental Europe, told its investor day on Wednesday that Solvency II was not a good fit.
"In an ideal world, we'd like to see the whole thing dropped," Prudential's chief financial officer, Nic Nicandrou, said.
The ABI said the Bank of England's Prudential Regulation Authority had "erred on the side of caution" in implementing parts of Solvency II and this should be "reassessed".
Changes to Solvency II should also help Britain's insurance sector enhance its global position after Brexit, the ABI said.
($1 = 0.8022 pounds)