ZURICH (Bloomberg) — The European Union is considering phasing in new capital rules for the life insurance industry over seven years, easing the burden on insurers who had criticised the changes.The European Commission, the EU’s executive arm, is considering the change as it negotiates with insurers and members of the European parliament about the transition from the current Solvency I regime to Solvency II rules, Karel van Hulle, the EC’s head of pension and insurance, said in a telephone interview from Brussels yesterday.“One of the measures that is foreseen in this transition deals with existing life contracts, though it is not an exemption from the regime, but rather a phasing-in,” he said.The proposal is being discussed at a meeting in Brussels this afternoon, according to Stefaan de Rynck, a spokesman for Michel Barnier, the European Commisioner for Financial Services. Solvency II, which is scheduled to be applied in 2014, aims to improve policyholder protection by forcing insurers to hold more capital as a buffer against potential investment losses.About 40 percent of German life insurers would have problems complying with the new rules, Financial Times Deutschland reported today. Prudential Plc, the UK’s biggest insurer by market value, has threatened to leave Britain if Solvency II hinders its US business.Most insurance stocks in Europe rose yesterday, with the Stoxx 600’s index of insurers advancing 0.9 percent. Aviva Plc, Britain’s second-largest insurer, climbed 3.9 percent.The seven-year transition could buy the industry time to come up with a long-term solution to its struggle with the low interest-rate environment that reduces yields insurers earn on their investments, according to Stephan Kalb, who heads Fitch Ratings’ insurance ratings team.“If we are back in times of normal interest rates, then it will help insurers,” Kalb said of the EU talks in an interview in Zurich. Failing that, “probably it will not solve the problem substantially”, he said.Life insurers currently use discount rates based on asset yields when calculating so-called technical provisions, the amount an insurer requires to fulfill its insurance obligations and settle all expected commitments to policyholders. The phase- in would allow them to progressively move to the risk-free discount rate required by Solvency II, van Hulle said.“For a period of seven years you can apply the existing discount rate under Solvency I” while transitioning to the market discount rate, which is used to determine the value of liabilities, he said. “It could be used for any member state. The problem is that the discount rate that is presently applied is higher than the market rate, which today is very low.”If Solvency II were to be applied immediately, “your technical provisions would jump to the ceiling,” meaning that liabilities would increase, van Hulle said.The Council of the European Union and the European Parliament will vote on the plans, which could be finalised at the beginning of July, van Hulle said.