LONDON—Buyers would pay more for insurance coverage and capacity would shrink under proposed Solvency II reforms scheduled for implementation in 2012, the Assn. of Insurance and Risk Managers warned Monday.

Companies that pay more for insurance will have less money to invest in their business and will buy less coverage, the London-based association said in a statement.

AIRMIC’s remarks came after last week’s report by the Committee of European Insurance and Occupational Pensions Supervisors that said large European insurers that underwent stress tests are capitalized well enough to weather even severe economic crises.

Under the stress tests, the 28 insurers’ capital levels fell just 3% under an “adverse scenario” mirroring the capital markets between September 2008 and September 2009, CEIOPS said. However, the insurers’ capital fell as much as 25% when tested under two “severe scenarios”—a deep recession and inflation.

“The sharp increase in capital requirements for insurance companies under Solvency II means that there will be less choice of insurance, less flexibility and greater cost,” John Hurrell, chief executive of AIRMIC, said in the statement. “Insurance companies do not pose systemic risk to the economy and, unlike many banks, they have not been found wanting in the recent financial crisis.”

AIRMIC members “are concerned that they’re going to take a lot of pain for very little gain” under the proposed risk-based capital framework, said Mr. Hurrell. “There’s a feeling that the E.U. is addressing a problem that doesn’t exist.”

As proposed, Solvency II also would make captives more expensive to operate and “far more bureaucratic,” Mr. Hurrell said.

“I would urge the E.U. to return to basics and the original intentions of Solvency II, which was to ensure that insurers are well run, transparent and sufficiently well capitalized for the risks that they carry,” Mr. Hurrell said.