LONDON (Reuters) – Strict new capital rules forEuropean Union insurers could be delayed after talks aimed atironing out disagreements over the final shape of the so-calledSolvency II regime ended fruitlessly, Britain's insurance industrylobby said.

Thursday's failed talks between EU officials and lawmakers meanthere will now be no deal until the European Parliament returnsfrom its summer break, squeezing an already tight legislativetimetable, and putting Solvency II's January 2014 start date atrisk.

"This result raises questions about the timetable for SolvencyII and will leave insurers in limbo until an agreement is reached,"said Hugh Savill, Director of Prudential Regulation at theAssociation of British Insurers.

"This delay was not caused or asked for by industry who are keento see the outstanding issues on Solvency II resolved."

Solvency II, designed to make European insurers hold capital instrict proportion to the risks they underwrite, has been held up bydisagreements between EU countries over how to calculate thereserving requirements for long-term life insurance contracts.

The rules were originally intended to take effect this year, andinsurance executives have said prolonged uncertainty over theindustry's future capital requirements has deterred investors frombacking the sector.

Under the current timetable, EU lawmakers had been due to voteon a final draft of Solvency II in September or October, clearingthe way for national governments to adopt the rules by June 2013,and giving insurers just six months to comply with thelocally-applicable version of the regime.

The industry could push for the 2014 start date to be put backif a delayed parliamentary vote threatens to eat into their finalsix-month preparation period.

"Every time the legal process is delayed it really cuts intoindustry's time," said Janine Hawes, a director at auditor KPMG'sinsurance practice, speaking before Thursday's talks fellthrough.

"With such a major change they've got to allow industry enoughtime."

Pan-European industry lobby Insurance Europe said it was tooearly to comment on the impact of the failed negotiations.

Solvency II, ten years in the making, is expected to lead tohigher capital requirements for many insurers, although largerEuropean players such as Allianz, Axa and Generali say they arewell prepared for the new rules.

Some insurers have complained about the cost of complying, andothers fear the regime could make their overseas units lesscompetitive against local rivals.