UPDATE 1-EU watchdog still eyes 2016 start for insurance rules
* Solvency II start in 2016 difficult but possible -EIOPA
* EIOPA head says heard encouraging signals on negotiations
* Says sees Europe-wide use of early warning indicators
FRANKFURT, Sept 6 (Reuters) - New risk capital rules for Europe's insurance sector could still take effect in 2016, although the timetable for getting them finalised is tight, the head of the EU insurance supervisor EIOPA said on Friday.
Gabriel Bernardino also said the British Prudential Regulation Authority's plans to use "early warning indicators", to check the accuracy of the complex mathematical models that insurance companies use to monitor their risks and capital, would be rolled out across Europe.
The indicators would form an integral part of the new risk rules, known as Solvency II, which have been delayed by disagreement between the European Parliament, the EU Commission and EU member states over their final form.
A 2016 start for Solvency II was "difficult but possible," said Bernardino, who is chairman of the European Insurance and Occupational Pensions Authority (EIOPA).
Efforts to finalise the rules had run into trouble last year particularly over the treatment of certain long-term life insurance savings policies but EU talks to resolve the problems are due to start again next week.
"I am hearing encouraging signals that things are in the right direction," Bernardino told a press briefing.
Big insurers like Allianz, Axa and Generali are thought to be well prepared for the rules, which require insurers to introduce more sophisticated managerial and technical systems for measuring and managing the risks on their books.
Larger insurers expect to use complex, tailor-made mathematical models to demonstrate those risks in dealing with regulators, which they hope will give them an advantage.
The UK's Prudential Regulation Authority (PRA), which regulates banks as well as insurers like Prudential Plc. and Legal & General, has said it wants to avoid relying too much on capital models and plans to introduce "early warning indicators" as an extra safeguard.
Bernardino said the use of early warning indicators was encompassed within Solvency II and should be rolled out Europe-wide, rather than used on a company or country basis.
"It is not a question of believing or not believing in models," he said, adding that early warning indicators would help supervisors ask the right questions about companies' risks.
"We are in close cooperation with the UK PRA right now. We know they are doing a pilot exercise," Bernardino said.
"At some point in time we will come out with some indicators to be used on a European level," he said, adding that the indicators would give supervisors a tool to challenge companies on the behaviour of variables in their models and the development of the models themselves.
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