The FSA has warned that many insurers are underestimating the amount of money they need to hold to meet potential liabilities.
David Strachan, insurance sector leader at the FSA, said the individual capital guidance (ICG) given by the FSA to 20 general insurers was in most cases above the amount of money the insurers had calculated they needed to set aside - known as their individual capital assessment.
"Clearly it is still early days, but I can say that so far most ICGs are higher than the firms' individual capital assessments. We are working with firms during the process to minimise the differences," Strachan said.
Last year the FSA introduced a wholesale revamp of UK insurers' capital requirements. Under the new risk-based rules, the FSA wants general insurers to more accurately match their capital reserves to risk.
Strachan said some general insurers had relied too much on their senior management taking business decisions that would mitigate possible risk charges.
He gave the example of some firms not taking into account the underwriting cycle on the basis that management would take action to mitigate risk, such as reduce premium volumes.
He said: "While we do not dismiss taking into account such management actions, we would expect them to be discussed within the context of the firm's control environment and the wider competitive market."
But Strachan added that he was pleased with firms' attitudes to the new capital rules.
"I can also report that we have been encouraged to see evidence of improving risk management systems.
"We have also (on the whole) been pleased by the level of engagement in the process by firms' senior management up to - and including - board level."
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