| LONDON, April 30
LONDON, April 30 Britain intends to implement a
tougher version of European Union rules on capital adequacy for
its own insurers, even at the risk of a legal challenge in the
bloc's courts, a top regulator has said.
Andrew Bailey, chief executive of Britain's Prudential
Regulation Authority (PRA), said EU rules known as Solvency II,
due to come into effect in 2016 at the earliest, would not be
"To mitigate this risk, we plan to use 'early warning
indicators' in our supervisory work," Bailey said in a letter to
Andrew Tyrie, chairman of parliament's Treasury Committee.
The PRA wants to avoid a repeat of the Equitable Life
scandal, which saw the world's oldest life assurer nearly
collapse after making promises to policyholders that it could
It is the latest example of Britain, which is home to the
EU's biggest financial centre and had to bail out a number of
its banks in the wake of the 2008 financial crisis, losing
patience over EU curbs on national supervisors.
Solvency II is a set of European rules requiring insurers to
use approved in-house models to calculate their capital buffers.
Bailey said the indicators to be applied to British-based
insurers, which he did not detail, would trigger "immediate
supervisory action" if they suggested that insurers were using
the models to cut back on capital.
Tyrie said this was probably necessary as complex models are
all too easily circumvented.
Solvency II ia part of an EU drive for "maximum
harmonisation" that leaves little wiggle room for national
insurance supervisors to top measures up or water them down.
"We believe we can implement these early warning indicators
in the UK within the S-II framework, but in any event we would
pursue this approach and accept the risk of EU challenge,"
If it imposes add-on rules, Britain could be taken to the
European Court of Justice, which has the power to enforce their
Britain has also been fighting for discretion to introduce
extra capital requirements on banks beyond EU-agreed levels from
2014; the insurance indicators echo moves by Bailey to counter
investor scepticism over how banks use in-house models to
determine capital requirements.
Bailey said flexibility was needed in the regulation of
insurers because Solvency II did not fully address risks such as
troubled sovereign debt.
Solvency II has been a decade in the making and was due to
come into effect this year, but has been delayed until at least
2016 because of disagreements over some of the fine detail.
"In particular, it is unclear to us that the French
authorities will now be able to agree to any directive that we
consider prudentially acceptable," Bailey said. Germany is also
looking for a long phase-in of a decade or more, he added.