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By Huw Jones
LONDON, Sept 18 (Reuters) - The Bank of England is lookingat whether better rules are needed to handle failed insurers sothat policyholders don't face disruption.
Insurers in Britain held 1.9 trillion pounds ($3 trillion)in assets at the end of 2014, broadly equivalent to thecountry's economic output.
Researchers at the BoE, whose Prudential RegulationAuthority supervises insurers like Aviva and Prudential, said that unlike with banks, there is no tailor made,legally-backed regime for protecting all policyholders whenwinding down a failed insurers.
"Even though the current regime to manage insurancecompanies' failures in the United Kingdom is generally robust,there remain some potential challenges," the BoE said in itsQuarterly Bulletin on Friday.
Britain's financial compensation scheme covers motor andemployers' liability insurance cover but not reinsurance,marine, aviation, transport business and credit insurance.
"These are important lines of business for the real economyand the failure of a large provider could therefore lead todisruptions for existing policyholders if no competitor werewilling to acquire the portfolio of policies underwritten," thebulletin said.
"The Bank of England and other UK authorities are workingwith international partners to ascertain whether the currentframework for dealing with insolvent insurance companiesprovides adequate protection or needs to be reviewed."
Insurers have insisted they don't pose a threat to financialstability and played no role in the 2007-09 financial crisisthough the near collapse of U.S. insurer AIG triggered closerregulatory scrutiny.
Earlier this month, the European Union's insurance watchdogEIOPA said it too was looking at what rules were needed to dealwith an insurer in trouble to avoid disruption to policyholdersand the wider market.
As regulators complete work on making banks more stableafter the financial crisis, they are now turning their attentionto other parts of the market, such as insurers and assetmanagers.
When an insurance company fails in Britain, regulators canintervene to stop it writing new business and allow the existingpolicies to mature or "run off", or transfer the policies toanother insurer.
There are over 100 insurance companies in run-off in Britainbut the worry for the BoE is if a run-off is not possible andanother insurer isn't be willing to take over the policies.($1 = 0.6399 pounds) (Reporting by Huw Jones)
