XL Group boss Mike McGavick has criticised new solvency rules for insurers being introduced by the European Union.

Mr. McGavick, chief executive officer of the Ireland-domiciled business insurer, said the new Solvency II regulations, due to take effect in 2013, could lead to an outflow of capital from the industry.

Speaking at the Standard & Poor's/PWC Bermuda (Re) insurance conference on Wednesday, the XL boss's fellow panellist Costas Miranthis, PartnerRe's chief operating officer, said the main concern of Solvency II for his company was the impact on access to business and increased costs.

Speaking on a panel at the Standard & Poor's/ PWC Bermuda (Re)insurance conference on Wednesday, Mr. McGavick said: "When you step back and think about it, the whole Solvency II drive — while some of its features are healthy for the industry — is an effort by one set of nations to impose a set of capital regimes on the rest of the world. I am relatively distrustful of a position like that."

Solvency II's impact will require insurers to hold more capital and enhance standards of transparency and corporate governance. The Bermuda Monetary Authority has been toughening its own insurance regulation regime in an effort to earn regulatory equivalence with the new rules, so companies based on the Island will be able to do business in the EU without being competitively disadvantaged.

Mr. McGavick said one of the consequences of Solvency II would be to reduce the return on equity achieved by the industry, since insurers will need to hold larger pools of capital to comply with the new rules.

This would make the industry less attractive to investors and encourage the outflow of capital to other sectors where it could reap higher returns.

Last month at the ALARYS Congress in Bermuda, Mr. McGavick suggested that regulators should not take the lessons learned from the failings of the banking sector during the financial crisis and apply them to the insurance industry, which had passed the test of the market meltdown and come through relatively unscathed.

Mr. Miranthis, who is due to succeed Patrick Thiele as CEO of PartnerRe at the end of this year, also had concerns about Solvency II.

"When we talk about regulation, it's really Europe that is driving it right now," Mr. Miranthis said.

"As a Bermuda company, the key concern for us is access to business, not capital levels. Also we are concerned about the cost of doing business, because this will impose considerable additional costs of compliance for the industry as a whole.

"This will either put certain territories at a disadvantage or it will mean extra costs being passed on to the consumer."

One of the greatest concerns for reinsurers is soaring inflation that could eat into the value of their huge investment portfolios while increasing the size of claims.

Joseph (Jeff) Consolino, chief financial officer of Bermuda reinsurer Validus Holdings Ltd., said: "A big pop-up in inflation is the most damaging scenario we can see for our portfolio."

Some of the discussion featured emerging risks and the ability of the industry to deal with the unknown.

Mr. McGavick said he had seen a tendency, during periods of "hyper pricing" such as during the ongoing soft market, for appreciation of the unknown element to be thrown out of the window.

"We tend to stop pricing for the x factor because we don't know what it is," Mr. McGavick said. "Then we get something like 9/11, or the multiple storms hitting Florida in 2004. We are constantly brought up short when something unexpected happens.

"We are in that space now and we have to fight through it with as much focus on realistic pricing as possible."