RSA Insurance Ireland fined €3.5m for accounting scandal

Insurer ‘deliberately’ manipulated reserve estimates to set aside less money than needed for claims

The regulator said individuals in RSA Insurance Ireland were able to “deliberately manipulate claim reserve estimates” by setting aside less money than needed for large insurance loss claims. Photograph: Simon Dawson/Bloomberg

The regulator said individuals in RSA Insurance Ireland were able to “deliberately manipulate claim reserve estimates” by setting aside less money than needed for large insurance loss claims. Photograph: Simon Dawson/Bloomberg

 

The Central Bank of Ireland has fined RSA Insurance Ireland €3.5 million for regulatory breaches relating to the accounting scandal at the general insurer five years ago.

The Dublin-based insurer’s UK parent, RSA Insurance Group, injected €423 million of cash between 2013 and 2015 into its Irish subsidiary, which was previously the largest general insurer in the country. This was to fill a hole left in the Irish unit’s balance sheet by the debacle and to shore up its finances.

While the settlement concludes the Central Bank’s enforcement case against the insurer, it is believed that the regulator continues to look at the actions of certain individuals. “We can’t comment on ongoing or potential actions,” a Central Bank spokesman said.

The regulator said that individuals in RSA Insurance Ireland were able to “deliberately manipulate claim reserve estimates” by setting aside less money than needed for large insurance loss claims between October 2009 and 2013. This served to artificially inflate the company’s profits.

‘Serious shortcomings’

The regulatory breaches were a result of “serious shortcomings” in the Irish unit’s internal controls and corporate governance framework, it said in a statement on Thursday.

Extensive issues identified within RSA Insurance Ireland’s claims and finance functions led to an understatement of €78.2 million in the firm’s technical reserves in September 2013.

“The starkest example of the under-reserving practice uncovered by this investigation was a personal injuries claim with a recommended claim reserve estimate of €4.75 million where the amount actually recorded on the firm’s database was €20,000,” said Seána Cunningham, the Central Bank’s director of enforcement.

RSA settled a dispute in 2016 with Philip Smith, the former chief executive of the Irish unit, who had been awarded €1.25 million a year earlier by the Employment Appeals Tribunal (EAT) relating to his acrimonious departure in the wake of the accounting controversy.

Mr Smith resigned weeks after his suspension in late 2013, alongside his chief financial officer, Rory O’Connor, and claims director, Peter Burke. The latter two were subsequently fired.

Investigation

Shares in RSA Group slumped 15 per cent within days of the group revealing the hole in the Irish business’s balance sheet and that it had begun an investigation. The following month, RSA Group chief executive Simon Lee left the company.

“Whilst no policyholders were adversely affected, upon identification of the issues in 2013, and following an internal investigation, we took swift action to strengthen our controls and remove the individuals we deemed responsible from our organisation,” a spokeswoman for RSA Insurance Ireland said on Thursday.

While normally experienced claims handlers within RSA Insurance Ireland would assess individual claims and calculate the recommended reserve estimate to be recorded in order to meet the firm’s liability, an operation of under-reserving during the period under investigation effectively prevented the handlers from recording their recommendations on the insurer’s claims database, the Central Bank said.

Premium income

The investigation also uncovered other issues as part of its investigation, including “numerous unsubstantiated manual adjustments” in the firm’s calculation of its technical reserves, as well as instances where RSA Insurance Ireland accounted for premium income on policies before they had entered into force.

The Irish business, led by chief executive Ken Norgrove, returned to profit last year for the first time since the crisis, with a filing with the Companies Registration Office in October showing it posted a €12.3 million surplus in 2017, compared with a €46 million loss for 2016.

The Central Bank has imposed €69 million in fines, involving 126 individual settlement cases against companies and individuals since 2006, under its so-called administrative sanctions procedure.