LONDON (Reuters) - The European Union (EU) is nearing a final deal to make the bloc's multi-trillion euro insurance sector safer for policyholders, diplomats and lawmakers said on Wednesday.

The Solvency II reform has been bogged down in arguments for months with a core element jettisoned to seek a consensus. EU governments and the European Parliament have joint say on the reform.

Big cross-border insurers like Generali, Aviva, Allianz and Axa want a more streamlined system for setting aside capital to cover risk and report routine data to supervisors.

EU states officials met on Wednesday to discuss what parliament had termed its final offer.

"The points of view were very consensual," an EU diplomat who attended the meeting said. Another diplomat expected a deal to be formally sealed next week.

Member states proposed some last minute changes of a largely technical nature before they can give a green light to the measure that would be adopted by full parliament in April and take effect at the end of 2012.

"If these issues are ok with parliament the states can go ahead and adopt," the diplomat said.

Peter Skinner, a British socialist lawmaker steering the measure through parliament, said a response will be sent to EU states early yesterday.

"I am relieved that Council has finally come up with a political response after months of negotiation at the technical level," Mr. Skinner said.

"The directive is there to be had and it looks like we are getting the political agreement finally to make it happen."

One suggestion that has been put to parliament is for a better deal that would allow French insurers to sell life insurance products that have retirement benefits on the home market only in return for tying up less capital than for pure insurance products.

However, Britain, the Netherlands and other member states want this provision tightly ring-fenced so the products do not end up on markets in other countries.

"What is a deal breaker here is not having sufficient safeguards...to ensure there is no spill-over effects to other countries, that the ring-fence stays intact," Mr. Skinner said.

A deal will come at a heavy price of ditching a radical reform of supervision which would have given a cross-border insurer's regulator the last word on capital across the whole group.