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At the start of last month, the Committee of European Insurance and Occupational Pensions Supervisors, known as CEIOPS, issued 24 consultation papers (numbering 1100 pages in length) on the implementation of Solvency II.

Solvency II rules look at the prudential regulation of insurers, including capital requirements, and aim to be standardised across the EU.

The current raft of papers recommend insurers' risk free interest rate structure should normally be based on the yield on relevant government bonds, which is a change from early rules where swap rates were used.

The papers set out a number of criteria that risk free term structures should fulfil, the default choice being government bonds unless they do not meet one or more of these criteria.

But it states UK government bonds do not currently meet these criteria.

Jonathan French, assistant director of media relations for the ABI, said the committee had been overly cautious about the capital adequacy of insurance companies and this approach would be detrimental to the industry.

Annuity providers will be particularly affected by the increased capital levels, according to Mr French.

He added the UK has an unique system of annuity provision and it is an issue that affects the insurer and the customer.

He said: "The committee has taken the worse case scenario and the most cautious approach and wants insurance companies to increase its capital requirements.

"We already have enhanced capital requirements in the UK as a result of issues with pensions in the 1990s and at the start of the 21st century."

David Trenner, technical director of Glasgow-based IFA Intelligent Pensions, said: "If there is less chance of insurance companies failing then the new requirements are a good thing.

"In the past we did not have to worry about insurance companies going bust. You cannot afford insurance companies going bust because it undermines the public confidence in annuities and pensions.

"As result of the Solvency II regulations we might see less generous annuity rates, but there are so many factors involved. We do not have a balance with regulation."

Meanwhile, consultants Towers Perrin revealed it could take more than 1000 man hours of specialist resources to properly analyse, understand, respond and train senior management on the implications of the new regime.

It said the supervisors have already issued more than 24 consultation papers, which total more than 1100 pages detailing the new framework.

Naren Persad, senior consultant within the Tillinghast insurance consulting business of Towers Perrin, said Solvency II requirements were likely to be the number one priority for companies in the next few years.

He said: "The investment is essential as in the end it will ensure the final Solvency II system sets standards which are practical and achievable. The insights from the consultation projects will also help companies as they launch their internal Solvency II projects."