Prudential Regulations refers to the statutory regulations implemented by the government to ensure that the business and financials of the organization—in this case the Insurance company—is conducted properly and according to law.

In the case of short term insurance in South Africa, which includes car insurance, the Financial Services Board is the appointed body that will scrutinize and supervise the affairs of the insurance companies to ensure that the interest of the public, including the policy holders, are protected at all times. Prudential Regulations are there to ensure the solvency of the insurance companies, to ensure that rates remain reasonable and insurance is available to the public at large.

The Short Term Insurance Act, The Financial Intermediary Services Act (FAIS) as well as the Financial Intelligence Centre Act (FICA) all contain prudential regulations which are applicable to the Insurance Industry.

Prudential Ratios are financial ratios that insurance companies themselves, as well as the regulatory bodies, monitor on a regular basis to ensure that they maintain their financial stability. Some of the ratios are: capital adequacy, loss ratio, expense ratio, reinsurance ratio and liquidity ratio. There are also reserves that have to be maintained such as sufficient reserves to cover potential claims.