UK insurers warned about reserves by the Prudential Regulation Authority

British insurers have been warned by the Prudential Regulation Authority about the hazards of using their accumulated reserves against claims to shore up profits.

The Prudential Regulation Authority (PRA) is the UK’s banking and insurance regulator, it oversees the activities of about 1,700 financial institutions.

Some insurers have been releasing previous years’ accumulated reserves to bolster their annual performance. Reuters news agency says it has seen a letter dated November 13th from the PRA to CEOs of insurance companies, warning them that they risk not having adequate reserves should market conditions deteriorate.

In the letter, PRA director for general insurance, wrote:

“The PRA will question the robustness of the underwriting practices at firms that rely unduly on prior year reserve releases to support ongoing underwriting activity for any substantial period of time. Firms should stand ready to demonstrate the robustness of their reserving governance frameworks” as part of “regular supervisory interactions.”

The Prudential Regulation Authority is part of the Bank of England.

British insurers are only a few weeks from preparing their full-year results.

Regulators worldwide have been monitoring institutions more much closely since the 2007/2008 financial crisis.

The Bank of England announced earlier this year that it would monitor top insurance officials and actuaries much more carefully to make sure misconduct was detected and dealt with.