(Adds more detail)
By Huw Jones
LONDON, Dec 3 (Reuters) - Britain's insurers should maintain
"high levels of prudence" when it comes to paying dividends
given high uncertainty due to the coronavirus pandemic, a senior
Bank of England official said on Thursday.
"Firm-specific stress testing of affordability is a key
input to board's decisions," Charlotte Gerken, the BoE's
executive director for insurance supervision, said in a speech.
"And we expect firms to continue to do this and maintain
high levels of prudence in the face of continuing high
uncertainty."
Like bikes, insurers across Europe have come under pressure
from regulators to conserve capital until a clearer picture of
the fallout from the pandemic emerges. British life insurer
Legal & General has kept its final dividend payment for
2020 flat.
Gerken said stress-testing will play an increasingly
important role in determining if insurers have enough resources
to pay claims from policyholders.
The BoE conducted a "crude but rapid" emergency test after
Britain went into lockdown in March to fight the pandemic,
helping it spot potentially vulnerable companies, she said.
The sector is locked in a legal battle with customers over
payouts for businesses interrupted by the pandemic.
Insurers and banks in Britain face a climate-risk related
BoE test next year, with insurers' next regular sector-wide test
in 2022, but so far the BoE has not published results for
individual insurers as it does for banks.
"We should also think about whether it will be valuable in
the longer term not only to give a sector view but a
firm-specific view as well," Gerken said.
Britain is reviewing insurance capital rules, known as
Solvency II, that use complex models to determine capital
requirements.
Gerken said that stress-tests could be a "top down tool" to
inject an element of "big real world risks and shocks".
"We should look at a more flexible approach where models sit
alongside other inputs to capital requirements."
(Reporting by Huw Jones; Editing by Alex Richardson and Hugh
Lawson)
