EU insurance watchdog seeks consistent insurer models

* Watchdog to benchmark insurers' internal models

* To analyse treatment of sovereign bonds

* EU's Solvency II rules take effect on Jan. 1 (Adds EIOPA chairman comment, context)

By Jonathan Gould

FRANKFURT, Nov 18 (Reuters) - EU insurance watchdog EIOPA will work to ensure consistency among insurers' internal risk-capital models under new capital rules that take effect in six weeks' time, to avoid the models simply becoming a means to optimise capital, EIOPA said on Wednesday.

Differences in internal models could have a huge impact on the level playing field among competing insurers and on policy holder protection, Gabriel Bernardino, chairman of the European Insurance and Occupational Pensions Authority (EIOPA), said in a speech at an insurance conference.

Bernardino said EIOPA would focus on the benchmarking of internal models under the new Solvency II rules, which come into force in the European Union on Jan. 1.

Large European insurers such as Allianz, Axa (EUREX: 486352.EX - news) , Generali (Swiss: ASG.SW - news) and Aviva (Other OTC: AIVAF - news) plan to use their own tailor-made models, which they feel better reflect their actual risk and capital buffers under Solvency II. Smaller insurers are expected to use a uniform or standard model.

Many analysts expect internal models, which national supervisors are due to approve in coming weeks, to show big insurers are holding too much capital relative to the risk and are banking on higher dividends in future as a result.

Bernardino said EIOPA would work to make sure internal models do not become a capital optimization tool.

"A race to the bottom will kill the underlying idea of an internal model," he said.

As part of a review of Solvency II in coming years, EIOPA plans to analyse the official risk-free status of government bonds, which were revealed as potentially risky in the euro debt crisis.

Ideally, revised treatment of government bonds should be consistent for banks and insurers, to avoid regulatory arbitrage, Bernardino said.

"The regulatory treatment should focus on building appropriate incentives to avoid excessive concentration on a specific sovereign," he said. (Editing by Maria Sheahan and David Holmes)