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Bank of England fires warning shot to insurance company over the capital Libor



(Reuters) – The Bank of England said it closely monitored falling capital levels of insurance companies using proprietary computer models to calculate capital requirements.

David Rule, Chief Executive of Insurance Supervision at the Bank of England Precautionary Authority, also warned the insurer that the ultimate use of the tarnished Libor interest rate was top priority.

Large insurance companies may use their own models, while smaller companies must use the so-called standard targeting set by the regulatory authorities. 19659002] Mr. Rule said he has not seen a general decline in standards.

"However, the significant reduction in internal model capital compared to the standard formula is not a trend we expect to continue over time. We will closely monitor it," Mr Rule told a conference held by the Association of British Insurers Tuesday.

Models are approved by PRA according to EU rules called Solvency II, introduced in 201

8. PRA has allowed 24 insurance companies to use their own models, the highest number in any EU country.

Mr. Rule said the PRA has conducted an intensive review to check the model's "operation" or misuse of models to keep less capital.

"There is a problem with model operation," he said later in response to questions. Unacceptable capital reductions will be resolved when the PRA reviews change to models.

"The more insurers can reveal the models in a simple way so users can understand it better … They can do better, but I understand it's not easy."

BoE and the Financial Conduct Authority have written to insurers and bank managers and ask them to spell out their preparations to effectively kill the use of Libor by the end of 2021.

BoE wants insurance companies to refer their agreement overnight to SONIA in contracts and balance sheets after the banks are fined billions of pounds for to try to target Libor.

"We and the FCA have shown that this is a significant change and that achieving a proper transition is a high priority for us," said Mr. Rule.

PRA and FCA will soon publish finds from a "Dear CEO's letter" which was sent in September last year.


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