* Around 20 UK insurers seek to use internal models from Jan 2016
* Models must remain fit for purpose under new rules
* Risk margin under new rules can cause more volatility
* No gold-plating seen by individual regulators
* EU looking at changes to rules on securitisation investment (Adds detail, quotes, European Commission comments)
By Carolyn Cohn
LONDON, Nov 3 (Reuters) - Around 20 British insurers are applying to use their own internal solvency models from Jan 2016 and must ensure the models remain appropriate after new European capital rules are introduced, Britain's top insurance regulator said on Tuesday.
The internal models should enable insurers to cut capital costs under the new rules, in comparison with a standard model.
The Bank of England will announce all the models it has approved on the same date in early December.
"For those who do gain model approval this December, they should make sure their models remain fit for purpose on an ongoing basis and will need to assure us that this is the case," Sam Woods, executive director of insurance supervision at the Bank of England, told an Association of British Insurers' conference.
Woods reiterated insurers will be able to use transitional measures to smooth the path to complying with Solvency II requirements, considered more onerous than current capital rules.
Woods also said the way risk margin is calculated under the new rules could mean heavy fluctuations in the level of capital buffers, depending on government bond yields, or "risk-free" interest rates.
"A 50 bps (basis points) increase in risk-free rates would reduce the risk margin for the UK life sector by around 20 percent," he said.
"Personally, I am sceptical that such a high degree of volatility is desirable from a microprudential or macroprudential point of view."
Both Woods and Nathalie Berger, head of insurance and pensions in the financial stability directorate of the European Commission, denied there was "gold-plating" of the new rules by individual regulators, a criticism made by some industry players.
"We don't see things that way," Berger told the conference.
Berger also said the EU was discussing ways to reduce capital charges for insurers investing in securitised assets, as part of its efforts to boost growth in the region.
The EU has already announced plans to cut capital charges for insurers' infrastructure investments. (Editing by Jason Neely and David Holmes)