BoE flags it may unilaterally ease EU insurance rule

LONDON, Jan 16 (Reuters) - Britain might ease a European Union rule blamed by insurers for jacking up capital requirements, the Bank of England said on Tuesday.

British lawmakers want the BoE (Shenzhen: 000725.SZ - news) to "urgently" amend the risk margin in EU insurance capital rules known as Solvency II. This refers to a capital add-on to cover what a third party would need to safeguard policies if an insurer goes bust.

"In our view the calculation in Solvency II is wrong," Bank of England Deputy Governor Sam Woods told parliament's Treasury Select Committee.

The risk margin means that 50 billion pounds ($68.81 billion) worth of insurance liabilities are tied up, he said.

Britain has asked the EU to amend the risk margin but has made no progress.

Meanwhile, UK insurers are shipping out longevity risk to firms offshore via reinsurance contracts to minimise risk margin capital.

"They are allowed to do that, but we don't think it's a sensible arrangement," Woods said.

"We do want to fix that, and I think we will be minded to take that forward, particularly as we haven't got to where we wanted to in Europe on it," Woods said.

Britain is due to leave the EU in March 2019, but is expected to continue applying the bloc's financial rules for a further two years or so until new trading relations are in place.

($1 = 0.7266 pounds) (Reporting by Huw Jones; Editing by Gareth Jones)