FRANKFURT (Reuters)—A political deal on new risk-capital rules for Europe's insurers is needed by the autumn to prevent further delays in the decade-old project and deter individual countries from adopting their own rules, the head of the EU's insurance watchdog told Reuters.

The watchdog, the European Insurance and Occupational Pensions Authority, has started informal consultations with industry groups and actuaries even before final rules have been agreed in a bid to keep the project on track for a 2014 launch, EIOPA Chairman Gabriel Bernardino said in an interview.

"We need to have a political decision by early autumn this year," said Mr. Bernardino, who warned EU financial market chief Michel Barnier in a letter this year any delay could prompt EU states to come up with their own rules, hampering the industry and hurting the single market.

Mr. Bernardino is keen to start the official, public consultation by the end of the year on the rules, which will bring sweeping changes to insurers' risk management and capital buffer calculations.

To do that, the EU executive, member states and parliament must agree on the final text of the so-called Solvency II rules. A European Parliament vote is due in September.

"The timeline to have Solvency II go live in 2014 is very challenging," Mr. Bernardino said, adding that there was still a very good chance of meeting the implementation deadline.

Mr. Bernardino said the rules making insurers more closely match capital buffers to the risks on their books were unlikely to cause widespread capital raising in the industry.

"There will be some companies that will need it—there are always some when you change the rules of the game—but even for them there will be transition periods," he said, adding that the industry and regulators would negotiate the length of the phase-in for different parts of the rules.

"If it is then 2 years, 3 years or 5 years, this is then the usual bargaining. The transition period will enable a soft landing with the new regime," he said.

Big, complex insurers like Allianz, Axa and Generali are expected to benefit from Solvency II because the rules allow them to develop their own risk-capital models tailor-made to their business, potentially letting them trim capital buffers compared with current levels.

Analysts say those models could complicate the understanding of insurers' capital positions and make comparisons across companies more difficult, but Mr. Bernardino rebutted that view.

"Insurers won't be forced to disclose the way they developed their model, but they will need to disclose the assumptions and the main results," he said.

"We will not have models that work as black boxes."

Smaller insurers have complained that internal models are too costly to develop and get approved by their national regulators, leaving them no option but to use a standardized, potentially less favorable Solvency II model.

Mr. Bernardino said he expected a more flexible approach.

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"At the beginning, we will have more use of partial models," he said. "You can have an internal model for group solvency calculation that leaves out some of the companies in some countries, if you don't have the capacity to model all the types of risk."

EIOPA is working to promote the smooth approval of internal models across Europe and will have a team of experts in place next year to provide support to national supervisors, he said.

Supervisors are working to identify gaps in companies' planning for the 2014 deadline, but overall EIOPA is confident in the industry, Bernardino said.

Solvency II is expected to give supervisors better insight into how insurers are managing their risks in the face of low interest rates, which have been choking the income stream from traditionally safe investments like government bonds.

EIOPA is seeing more involvement by insurers in repo transactions, securities lending, real estate financing and liquidity swaps as insurers seek alternatives to boost income.

"Low interest rates are pushing insurers to search for yield, which is also riskier, so it is very good that we have Solvency II implemented in due time, because it will definitely capture these situations," Mr. Bernardino said.

The mismatch between investment income and obligations to policy holders is especially painful for life insurers, but Mr. Bernardino said it could take 10 years before risks become intense, giving insurers and supervisors time to react.

The euro debt crisis has highlighted the problems with insurers' heavy reliance on sovereign bond investments, but Mr. Bernardino said any rule change aimed at addressing sovereign risk could not apply to insurance alone.

"It is not just a European Union discussion. This needs to be a comprehensive package for the financial system as a whole."

Supervisors might consider looking at the concentration of sovereign bonds holdings as a way around potentially prickly discussions on the risk rating of individual issuers, he said.

International insurance watchdogs will start discussing how to identify "systemically important" insurance companies in June and what policies may need to be applied to them later in the year, but Mr. Bernardino said there could be no "one-size-fits-all" treatment of insurers and banks.

"We need to be cautious on the need for capital buffers and look at it from a worldwide perspective," he said, adding that unlike the Basel II rules for banks, there was no international agreement yet on solvency and other capital definitions for insurers.

EIOPA represents the insurance industry on the European Systemic Risk Board, Europe's new super-watchdog designed as an early warning system to prevent future financial crises.

Mr. Bernardino downplayed concerns that the ESRB had little to show so far for over a year of work and stressed it needed time to prove its worth.

"You would not expect the Systemic Risk Board can take some decisions to deal with a systemic crisis which is already there. That is not the role of the ESRB, that is the role of governments, politicians and of course central banks," he said.

"We are building up the capacity to look at the risks from a macro perspective because that is currently not there... This is new territory everywhere. Macro supervision is still something that is in its infancy."