EU insurance watchdog EIOPA on Friday blasted "stagnation" in political talks to finalize new risk-capital rules for the insurance sector in a strongly worded letter to the EU Commissioner in charge of regulation, Michel Barnier.

The rules, known as Solvency II, are aimed at better protecting consumers by forcing sweeping improvement in insurers' risk management systems and capital strength, but the regulation is now stuck in talks between the Commission, the European Parliament and EU national governments.

Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), said national supervisors had "major worries" that there was still no clear and credible timetable for the rules, which are supposed to take effect in 2014.

Supervisors would be left using outdated rules if EU political institutions did not come to agreement quickly, he said.

"If we have to continue with supervision on that basis, there is a huge danger that supervisors will not be able to identify and analyze risks correctly and will not be able to take the necessary supervisory actions in time, which may have serious consequences for policyholder protection," Bernardino wrote.

In the absence of new rules, European supervisors would be forced to come up with their own procedures for monitoring insurers like Allianz, Axa or Generali and conflicting national solutions would emerge, he added.

Furthermore, uncertainty over Solvency II, which is supposed to become a model for insurance supervision worldwide, is "undermining EU credibility in international discussions," Bernardino said.

Once a realistic timetable for the rules is agreed, policymakers should consider earlier implementation of some aspects of the rules, Bernardino said.

(Reporting by Jonathan Gould; Editing by David Holmes)