LONDON (Reuters) — UK insurers must improve their risk management, working harder to define and understand their strategy beyond procedure manuals, the Financial Services Authority said yesterday.The regulator, in an insurance sector briefing, said practices in the sector had evolved since a 2003 review, but it said firms needed to work further on areas like risk appetite and oversight.

It said managers with oversight powers frequently lacked the appropriate knowledge and experience to question risk matters.

“In our view, firms now need to move on from building the structural foundations of strong risk management,” FSA Insurance Sector Leader Sarah Wilson told a conference.

“Many need a clearer vision of how they might develop their approaches to risk management, looking at the issue strategically in the overall context of where they want to take their business.”

The FSA introduced Individual Capital Adequacy Standards for insurers two years ago, requiring firms themselves to assess the level and quality of capital needed to ensure there is no significant risk.

The move, along with a further step to extend “realistic” capital requirements earlier this year, was a key step towards the European Union’s new risk-based capital adequacy regime, known as Solvency II.

The regulator said firms needed to set up integrated risk and capital management frameworks to benefit from Solvency II.

|0x95|A report last week from KPMG gave Bermuda reinsurers high marks for risk management, saying all the companies surveyed had an overall capital model in place, and most saw Solvency II as driving a global risk standard for risk-based capital management.

“However, they don’t feel that this will represent a major change, as risk modelling and economic capital is already well established in the market, so at most it should lead to fine tuning,” the report said.

“The disasters of 2004 and 2005 have demonstrated on a worldwide basis that models are not quite as infallible as many had previously thought, and that even in a highly developed environment such as Bermuda, continuous improvement is essential.”