Mr Michael Bright, founder and chief executive of Independent Insurance, has paid the price for losing the confidence of the City. His resignation as chief executive to become deputy chairman last week crowns a sorry year for the insurer, which has seen its shares drop from 4011/2p sterling to 113p.

In less than 15 years, Mr Bright built Independent into an insurer that had a peak market capitalisation of £963 million (€1.5 billion) in January. Independent has a small operation in Dublin, but is not a major player in the Irish market.

Mr Bright founded the business in 1986. He started in insurance as a teenager with Royal Insurance, rising through the salesforce and into underwriting management.

He was headhunted by Sir Ian Noble to set up an insurance arm for his investment banking boutique. Independent was born after it bought the UK arm of US-based insurer Allstate.

Mr Bright is seen to have paid the price for the loss of market confidence in Independent's policies for the level of reserves it needed to pay out claims.

The company insists that there was no shareholder pressure for Mr Bright to go but some analysts felt that the sheen had rubbed off Independent, a former stock market darling.

What really shocked the market was Independent's second big increase in reinsurance, which wiped £8 million from 2000 operating profits. This was to cover its liability business in the London wholesale market and was in addition to a further deterioration of its business in France.

The market believed it had seen the last of Independent taking further reinsurance protection after the insurer strengthened reserves in 1999. Mr Bright had written in Independent's 1999 report: "I believe we have now drawn a line under this painful experience."

Independent's reinsurance cover for 1999 and 2000 rose on actuarial advice by £134 million to £254 million. It said the reserve strengthening for 2000 had been taken on actuarial advice because of an acceleration of the "no-win no-fee" compensation culture that it said had encouraged more claims. "It was seen as the thin end of the wedge," said one analyst. "People felt let down."

Independent was also hit by changes to personal injury claims brought about by a number of cases that lifted the value of awards to the claimants.

Since it was floated in 1993 with a capitalisation of just under £100 million and took the sleepy world of commercial insurance by storm, questions have been asked about Independent's reserving policies.

Independent was well regarded for its tight control on underwriting and a close relationship with a small number of regional brokers. It also experienced 32 per cent compound premium growth from 1988 to 1997.

In recent years, however, sceptics alleged that Independent was not adequately reserved to meet insurance claims. Independent had always pointed to the independent actuarial certification it receives annually from Watson Wyatt, external consulting actuary. For many analysts this was a "comfort blanket".

Mr Gart Ramsey, Independent chairman, said: "When we went public in 1993 and our advisers said it would be a good idea for an actuaries report, we took a view `let's do it every year' because that gives a great deal of comfort to us and everyone else.

"I don't think you could have foreseen the rise [in compensation claims], just as you couldn't have foreseen the asbestosis when insurers wrote policies back in the 1930s."

Certainly by the late 1990s, Independent had a relatively low reserves-to-premium income ratio compared with other insurers.

On the basis of net outstanding claims/net premiums written, Independent had a reserve ratio of about 80.4 per cent in 1998 compared with 136.8 per cent at Royal & Sun Alliance and 126.4 per cent at CGU.

But as some analysts pointed out, Independent's reserve ratio was lower because, as it was formed relatively recently, it did not have outstanding claims as long as other insurers and had no exposure to ongoing liabilities, such as asbestos claims dating from the 1960s, which have hit other insurers.

Mr Andrew Crean, analyst at Schroder Salomon Smith Barney, pointed out recently: "It is wrong to suggest that Independent has always been under-reserved and that only now is owning up to the issue. The reserves set up for the UK liability account were assessed in good faith and were adequate in the context of the claims environment at the time." There is also a feeling that reserving issues can hit insurers once they stop growing rapidly.

The question is what happens to Independent now it is trading at close to net-asset value and seen as a takeover target? Some analysts believe it is only a matter of time before Independent's name becomes a misnomer and is swallowed up.