Executives have been warned that the Bank of England could step in to limit the flow of assets overseas to places like Bermuda unless controls are increased to protect pension savers, according to a report.

The Financial Times has reported that a letter from the bank to life insurance chief executives, said “firms had not done enough to improve their risk management of so-called funded reinsurance deals”.

It said that these were where British life insurers pass some of their pension liabilities, and the assets backing them, to overseas reinsurers in jurisdictions such as Bermuda.

The report said that Gareth Truran, executive director for insurance supervision at the BoE’s Prudential Regulation Authority, had told insurers it was “concerned that the growth in funded reinsurance transactions could, if not properly controlled, lead to a rapid build-up of risks in the sector”.

According to the FT, he said that UK insurers were using funded reinsurance “in a way that is not consistent with prudent risk management”.

The regulator said it would consider action including “explicit regulatory restrictions on the amount and structure of [funded reinsurance], or measures to address any underestimation of risk, or regulatory arbitrage, inherent in these transactions”, according to the FT report.

These complex transactions are being increasingly used by UK insurers active in the booming market for corporate pensions deals.

Companies offload their pension liabilities, paid for with the assets backing them, to insurers, who then pass on a chunk of those obligations to overseas reinsurers, said the report.

Regulators in Britain, Europe and the US are increasingly concerned that the retirement savings of ordinary people are being put at greater risk through their life insurers’ deals with reinsurance firms in territories that have more flexible investment rules, according to the FT.

It said: “Effective immediately, the regulator is demanding that firms set limits on the degree of reinsurance they do with individual reinsurers, but also on the aggregate business they do across a group of similar reinsurers that could get into problems in a credit market downturn.”