RSA to ‘robustly’ fight case linked to 2013 Irish accounting scandal
Some 65 major institutional shareholders have launched legal actions
The RSA building in Dundrum, Dublin. The claimants allege the company made misleading statements on its financial position before the accounting irregularities were reported. The issue blew a large hole in the Irish unit’s balance sheet and dented the group’s capital position. Photograph: John Reid/Fennell Photography
UK insurance giant RSA Group has vowed to “robustly” defend itself as dozens of investors have sued it over the impact of an accounting scandal in its Irish unit in 2013 on the group’s finances.
Some 65 major institutional shareholders, including Allianz Global Investors and M&G Investment Management, have launched legal action against RSA in the UK’s High Court in recent months, legal news service Law360 first reported.
The claimants allege that RSA had made misleading statements on its financial position before the accounting irregularities were reported. The issue blew a large hole in the Irish unit’s balance sheet and dented the group’s capital position.
“This claim relates to historical events that have been fully investigated by independent third parties and regulators in multiple jurisdictions, as well as by RSA Group,” a spokesman for RSA said in a statement. “We believe it is entirely without merit and will defend our position robustly.”
RSA Group injected €423 million of cash between 2013 and 2015 into RSA Insurance Ireland to shore up its finances of the Irish unit, after the latter was found to put aside less money than needed to cover large insurance claims. This made the business appear more profitable than it was.
The UK parent group had to sell shares in 2014 to underpin its own financial position in the wake of the debacle.
The Irish unit was fined €3.5 million by the Central Bank in late 2018 for regulatory breaches that gave rise to the scandal. These resulted from “serious shortcomings” in the business’s internal controls and corporate governance framework, it said.
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,” the regulator said at the time.
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 relating to his acrimonious departure in the wake of the accounting controversy.