Britain's insurers fear having to raise tens of billions of pounds from investors to meet a regulatory shake-up of the EU insurance sector, the Financial Times reported yesterday.

In March, the European Union reached a deal to change regulation of the insurance sector across the bloc after two years of tough negotiations.

"In the UK, the impact is close to requiring fresh equity capital equal to the industry's current market capitalisation," Stephen Haddrill, head of the Association of British Insurers (ABI) said in a letter to Britain's finance minister. The British insurance sector's current market value is more than £50 billion, the FT said.

"It is hard to see how such a massive recapitalisation could be achieved," Mr Haddrill added in his letter to Chancellor of the Exchequer Alistair Darling dated August 12 and seen by the FT.

"This huge over-capitalisation will mean investment returns in insurance will fall. Companies will exit the market, prices will rise, cover will reduce and innovation will lessen," said Haddrill.

According to the FT, British government insiders said it was not surprising that industry lobbying was intensifying in the closing stages of negotiations. Officials cited by the paper said ministers would listen to industry concerns but were holding back from any specific pledges on seeking to change the directive.

The EU reform is supposed to update rules on how insurers set aside capital to cover losses and how the industry is overseen, by bringing 14 different existing texts into one sole European law.

Until March, the shake-up had floundered on differences over how to organise oversight of the sector and the role of group supervisors and their power over subsidiaries in other EU countries.