The global insurance industry could see a ‘big wave’ of consolidation over the next few years, XL chief executive officer Mike McGavick told delegates at the Airmic conference in Birmingham last week.

Mr McGavick, speaking during the Airmic forum debate on the current state of the insurance market, said the number of insurers would shrink over the next decade, largely due to increased regulatory pressures.

Under the European Union’s Solvency II capital regime, due to be implemented on January 1 2016, insurers will have to hold sufficient capital above a minimum threshold. They will also be required to aim for a higher target level of capital.

“Because of what’s going on right now, between low interest rates and, particularly, regulatory pressures, all these are going to cause some consolidation over time,” Mr McGavick said, according to The Insurance Insider.

He also highlighted the problem of regulators applying banking capital standards to the insurance industry, adding: “Obviously, regulators would want to do anything they can to make this sector safer, in light of the financial crisis.

“The problem is that so many of the regulators come from a banking background.”

McGavick explained that thinking in terms of banking requirements has led to a focus on retaining more capital as a way of preventing future crises.

“Capital is not necessarily a solution in our business model and can actually make a firm perform less well,” McGavick warned.

“If you’re going to put capital to inefficient use, it’s not going to lead to greater conditions in the sector, it will lead to consolidation and utility blanket regulation,” he added.