Karel van Hulle, head of insurance at the European Commission said: “We should try to convince the coalition of the unwilling that what we have in mind is that there is a legal commitment on behalf of the parent to provide capital where needed.”

It will be down to France as EU president from July to thrash out a deal among EU states and parliament.

European Commission proposals known as Solvency II are before the European Parliament and EU states for approval but even if the law is adopted by the end of the year, implementing measures will not be finalised until 2010 or 2011. Critics say that gives the industry too short a time to adopt them properly.

Fabrice Pesin, a deputy assistant secretary at the French treasury said: “A solution is that we have to solve legal issues with respect to transferability of funds between parent and subsidiaries. It's a key issue to find a compromise in the group of 12 states.”

Peter Skinner, the British socialist steering the measure through the EU parliament, expects a deal on group supervision by tweaks in language rather than radical amendments.

In an interview with Reuters he added: “What we are looking for is an enhancement of the relationship between local and group supervisors but not necessarily changing the roles.”

He further explained how a local regulator could be party to how a company's overall capital requirements were calculated though not have a veto.

Van Hulle said that 2012 was still a realistic target for getting all measures on the statute book and that industry could end up getting more time after that to introduce the rules

However, Van Hulle was quick to add, “Even if it's 2013, it's not a disaster.”

A provision to radically reshape how cross-border insurers are supervised is also dividing EU states, raising further concerns about the overall timetable. Sally Dewar, managing director of wholesale markets at the Financial Services Authority said: “Eventual success very much depends on getting the detail right.”

She said: “It would be a lost opportunity if we were pushed into hasty implementation and in the process got the detail wrong.”

She pointed out that eventual date for switching on new rules must be carefully set. However, EU Internal Market Commissioner Charlie McCreevy said many states opposed his plan for group supervision of cross-border groups that collect the bulk of premiums in the 7 trillion euro sector.

Under the proposal, the home country supervisor of a cross-border company would have the last say on how much capital the company must set aside to cover overall liabilities, including those held in subsidiaries elsewhere in the EU. 

Big groups such as Generali, Allianz, Axa and Aviva say this will cut compliance costs and save money to reinvest in new products.

But it has left countries with branches of big groups in eastern Europe fearing they will hold little sway over how capital requirements are determined and worry that requests for a parent elsewhere to top up capital locally will not be heeded.

The FSA’s Dewar also cautioned against “absolute and prescriptive harmonisation of supervisory practices”. She said: “More of the smaller firms need to start engaging in the process. Solvency II will happen and the best approach of dealing with it is not to bury your head in the sand.”