The European Union is preparing to adopt a new regulatory framework for the reinsurance industry by the summer that seeks to break down national barriers and create a single European reinsurance market.

Reinsurers will be allowed to operate across all 25 EU member states, as long as they meet the requirements of their home country supervisor.

The new regime will also harmonise rules on how much capital reinsurers must set aside to meet commitments.

The legislation was proposed by the European Commission last year, but has been held up by a dispute over whether reinsurers may be asked by national supervisors to provide collateral for the potential damages covered. France and Portugal demand such collateral, for example, in the form of letters of credit or bonds. The industry opposes such demands, claiming it ties up capital without justification.

The European parliament and EU member states have now agreed that such requirements must be phased out as part of the new directive.

The new EU regime is likely to increase the pressure on the US to drop the collateral requirements it imposes on non-American reinsurers.

The commitment to phase out the requirements is contained in a key European parliament report on the draft law that will be presented today.

The amended version of the law is expected to be voted on by parliament in the coming months, and could be adopted by EU finance ministers in June.