The European Union’s Economic and Financial Affairs Council has agreed to adopt a major insurance regulatory reform framework proposal.

Solvency II – the Directive on Solvency Requirements for Insurance and Reinsurance Undertakings – is a regulation that is supposed to set standards that will help European governments update existing EU insurance company capital standards and “harmonize” member countries’ insurance regulatory systems.

The European Parliament approved the directive in April.

The Economic and Financial Affairs Council and the European Parliament agreed to support a compromise version of the regulation after a single reading, according to Charlie McGreevy, the European internal market commissioner.

McGreevy said he himself dislikes some of the changes made to the regulation, including amendments to equity risk provisions.

But “we need Solvency II more than ever as a forced response to the present financial crisis,” McGreevy said.

The European Union still must develop regulations for implementing the Solvency II standard.

Policymakers should have the implementary measures developed well ahead of the October 2012 Solvency II deadline, McGreevy said.

Solvency II sets governance and disclosure requirements, along with “principles-based,” rather than formula-based, requirements for factors such as capital levels.

The CEA, Brussels, the European insurance and reinsurance federation, has welcomed formal approval of the Solvency II framework.

“The new regulation’s focus on more sophisticated risk management is great news for the insurance industry and consumers,” CEA Director General Michaela Koller says in a statement.

The directive should help create a more united, more competitive insurance market throughout Europe, Koller says.

Another group, the Federation of European Risk Management Associations, Brussels, has expressed concerns about the Solvency II standards, suggesting that they could favor larger, publicly traded insurers and increase the cost of some types of coverage.