The Prudential Regulation Authority warns insurance bosses in letter over prior year releases

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The insurance regulator has turned up the heat on motor and home insurers that ‘unduly rely on prior year reserve releases’.

The Prudential Regulation Authority fired off the warning in a letter to chief executives on November 13, according to Reuters.

Chris Moulder director for general insurance, said in the letter: “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.”

The regulator said “firms should stand ready to demonstrate the robustness of their reserving governance frameworks” as part of “regular supervisory interactions”.

The PRA has yet to release more specific details about its concerns. One concern could be that some insurers are releasing a large quantity of prior years releases, which could then leave them thinly capitalised if their claims experience develops worse than expected in those prior years.