(Reuters) — The future profitability of the pensions market will determine whether insurers keep their head offices in Britain rather than tougher new European Union capital rules, a top Bank of England official said Tuesday.

The E.U.'s new Solvency II rules come into force in January, and BoE Deputy Gov. Andrew Bailey said British insurers were on course to meet the deadline.

Legislators on the British parliament's Treasury Select Committee asked Mr. Bailey if the stricter E.U. rules would prompt some insurers to reduce their presence in Britain.

With a referendum on Britain's membership of the E.U. due before the end of 2017, British politicians are highly sensitive to any regulation that causes disadvantages to firms that do not use the euro as a currency.

"The bigger issue in the U.K. is what the retirement savings market is going to be in the future," Mr. Bailey said. "Arguably it looks more like an asset management industry in the future."

The British government has introduced reforms to pensions that allow people to cash in their pension pots rather than being forced on retirement to buy an annuity that pays out until death.

The net cash flow of traditional life insurance products in Britain had also been negative for the past eight years, Mr. Bailey said.

But the BoE — where Mr. Bailey heads the Prudential Regulation Authority, which supervises banks and insurers — is also concerned about how the new E.U. rules will work in practice in the early years.

Mr. Bailey said British insurers would initially be at a disadvantage to their eurozone rivals when firms begin reporting the new solvency ratios from January.

Eurozone insurers will be allowed to use a much higher interest rate yield curve than British insurers to discount future liabilities, creating a comparison that market analysts should not overinterpret, Mr. Bailey said.

Firms are already facing market pressure to show by how much their ratio surpasses the 100% minimum threshold.

"What we are interested in is that the firm has met the minimum standards," Mr. Bailey said.

"Some people say you have got to have a number that is 160 or 170. Well not in our book. In our book, it's they meet the capital requirements. I am not interested in the significance of individual numbers," he said.

The PRA has said that introducing Solvency II was its single biggest task this year.

"It's a more robust risk management system than has been there in the past," Mr. Bailey replied.