Bank of England says will apply Solvency II insurance rules 'proportionately'
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(Reuters) — The Bank of England on Friday said it would apply new European Union insurance regulations "proportionately" following industry fears that the central bank might seek to add extra rules for companies based in Britain.
The Solvency II rules, which take effect in 2016, aim to ensure that insurers such as Britain's Prudential P.L.C. and Aviva P.L.C. hold enough capital to honor policyholder commitments even when markets turn sour.
In a statement on Friday about how he intended to police the rules, Bank of England Deputy Gov. Andrew Bailey said the British insurance industry already managed risks in the way the rules intended, unlike elsewhere in Europe.
"Solvency II must be applied proportionately, with the emphasis on substance over form, if we are to maintain our focus as a forward-looking and judgment-based regulator," he said.
Bank of England Gov. Mark Carney said there would be "robust implementation" of the rules, which he called "revolutionary."
In January, a senior Bank of England official, Paul Fisher, said the central bank did not intend to use the new rules to require insurers to hold more capital as a buffer against losses.
"We can't and won't gold-plate," Mr. Fisher said, dismissing suggestions Britain might implement a tougher version of the E.U. rules.
However, the Bank of England has said that it is considering subjecting the insurance industry to some of the tougher rules that it has imposed on British banks since the financial crisis.
Senior insurance executives will face higher levels of scrutiny. And earlier this week, a new member of the Bank of England's Financial Policy Committee, Alex Brazier, said there could be a case to make insurers undergo bank-style stress tests.
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