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Financials

UPDATE 1-Be prudent over dividends, Bank of England tells insurers

(Adds more detail)

LONDON, Dec 3 (Reuters) - Britain’s insurers should maintain “high levels of prudence” when it comes to paying dividends given high uncertainty due to the coronavirus pandemic, a senior Bank of England official said on Thursday.

“Firm-specific stress testing of affordability is a key input to board’s decisions,” Charlotte Gerken, the BoE’s executive director for insurance supervision, said in a speech.

“And we expect firms to continue to do this and maintain high levels of prudence in the face of continuing high uncertainty.”

Like bikes, insurers across Europe have come under pressure from regulators to conserve capital until a clearer picture of the fallout from the pandemic emerges. British life insurer Legal & General has kept its final dividend payment for 2020 flat.

Gerken said stress-testing will play an increasingly important role in determining if insurers have enough resources to pay claims from policyholders.

The BoE conducted a “crude but rapid” emergency test after Britain went into lockdown in March to fight the pandemic, helping it spot potentially vulnerable companies, she said.

The sector is locked in a legal battle with customers over payouts for businesses interrupted by the pandemic.

Insurers and banks in Britain face a climate-risk related BoE test next year, with insurers’ next regular sector-wide test in 2022, but so far the BoE has not published results for individual insurers as it does for banks.

“We should also think about whether it will be valuable in the longer term not only to give a sector view but a firm-specific view as well,” Gerken said.

Britain is reviewing insurance capital rules, known as Solvency II, that use complex models to determine capital requirements.

Gerken said that stress-tests could be a “top down tool” to inject an element of “big real world risks and shocks”.

“We should look at a more flexible approach where models sit alongside other inputs to capital requirements.” (Reporting by Huw Jones; Editing by Alex Richardson and Hugh Lawson)

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