UK's BoE to scrutinise insurer investment in infrastructure

* Policymakers look to insurers to fund infrastructure

* Bulley says board members must understand solvency rules (Adds more detail from speech)

By Huw Jones

LONDON, June 2 (Reuters) - The Bank of England (BoE (Shenzhen: 000725.SZ - news) ) will scrutinise whether insurers are taking on too much risk by investing in infrastructure projects which may not be suitable for traditional portfolio management, it said on Tuesday.

Insurers have been coming under pressure from policymakers to invest in economic growth through building new roads, bridges and telecoms networks, projects that can offer higher yields than government bonds.

Any suggestion that insurers should not invest in such projects could endanger a 315 billion euro ($346 billion) European Commission plan for loans to infrastructure and small businesses.

These infrastructure investments can be attractive to insurers, but present "idiosyncratic risks" that are not suitable for traditional portfolio level management alone, said Andrew Bulley, director of life insurance at the BoE's supervisory arm, the Prudential Regulation Authority (PRA).

New European Union insurer solvency rules that come into force next January will help the sector judge whether to invest in infrastructure, Bulley said in a speech in London.

He said the PRA was "neutral" on whether insurers should increase their exposure to the sector, but said: "We shall continue to review the evidence as the new regime beds down."

As banks rein in lending following the financial crisis, governments are turning to the vast pools of money held by insurers, hoping they can be put to work to boost economic growth.

Legal & General (LSE: LGEN.L - news) , for example, has allocated 1.5 billion pounds ($2.3 billion) to a British infrastructure fund and is seeking external financing to expand the fund to 15 billion pounds.

Bulley also spelled out what board members should know about the new models insurers will use, vetted by regulators, to calculate capital requirements under the EU rules, known as Solvency II.

Regulators want board members to be more accountable for what goes on in the company.

"In general, we would expect executives to have a more detailed understanding than non-executives, and we look to the executives to ensure that their non-executive colleagues are adequately trained and informed about all aspects of the model," Bulley said.

Chairs and members of an insurer's risk and audit committees should have a more detailed understanding of Solvency II models than other board members.

"But we would expect all board members, both individually and as a collective unit, to be rigorously inquisitive, critical and challenging of the model, regularly questioning the outputs," Bulley said.

($1 = 0.6564 pounds)

($1 = 0.9111 euros) (Additional reporting by Carolyn Cohn; Editing by David Clarke and Mark Potter)