Bank of England says will apply new insurance rules "proportionately"

LONDON, March 20 (Reuters) - The Bank of England said on Friday that 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 so-called Solvency II rules, which take effect in 2016, aim to ensure that insurers such as Britain's Prudential and Aviva (Other OTC: AIVAF - news) hold enough capital to honour policyholder commitments even when markets turn sour.

In a statement on Friday about how he intended to police the rules, BoE Deputy Governor 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 judgement-based regulator," he said.

BoE Governor Mark Carney said there would be "robust implementation" of the rules, which he called "revolutionary".

In January, a senior BoE official, Paul Fisher, said the central bank did not intend to use the new rules to require insurers to hold more capital has a buffer against losses.

"We can't and won't gold-plate," Fisher said, dismissing suggestions Britain might implement a tougher version of the EU rules.

However, the BoE 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 BoE's Financial Policy Committee, Alex Brazier, said there could be a case to make insurers undergo bank-style stress tests. (Reporting by David Milliken)