Group controls ‘appropriately designed and structured’ review finds

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RSA has sacked its Irish chief financial officer and claims director after an independent review by PwC into the finance and reserving irregularities, which triggered a £200m profit warning, concluded that senior individuals had deliberately avoided group controls.

CFO Rory O’Connor and claims director Peter Burke were dismissed for their roles in relation to large loss and claims accounting irregularities. Chief executive Philip Smith resigned from the insurer in November claiming he had become the scapegoat for allegations.

PwC reviewed electronic documents from 60 individuals and concluded there had been “inappropriate collaboration involving a small number of senior executives in Ireland.

“Specifically, this evidence suggests that certain individuals acted in such a way as to intentionally circumvent parts of the existing control framework,” RSA said in a statement this morning.

Financial woes

RSA confirmed the financial and claims irregularities would wipe £72m from its full year profits, and reserve strengthening by a further £128m.

RSA gave a further breakdown of the losses from Ireland. It lost £37m from “inappropriate collaboration on large loss and claims accounting” and £35m from “inappropriate accounting for net earned premiums and pipeline earnings”.

The losses from reserving strengthening comprise £62m from business written in 2013 and £66m from previous years. Most of the reserve strengthening was down to adverse bodily injury claims trends.

Appropriate controls

PwC concluded that RSA’s group control framework was appropriately designed and structured. It also made recommendations to enhance the operational effectiveness of group-wide assurance processes and Irish financial controls which RSA has adopted.

Additional testing by RSA’s new auditor, KPMG and RSA’s internal audit confirmed the financial and claims irregularities were isolated to Ireland. KPMG examined the finances of RSA’s 29 territories and was satisfied balance sheet items and income recognition had not been inappropriately accounted for as they had in Ireland.

Executive chairman Martin Scicluna said: “Our investigations have confirmed that the claims irregularities in Ireland were, in large part, the result of deliberate collaboration between a small number of executives there. These actions do not reflect the culture, ethos and values of our business that have served us well.

“The board has always believed that the group’s control framework is comprehensive and appropriate. The work undertaken by PwC, KPMG and our own internal audit team has been valuable in providing comfort to the board and, we hope, to our shareholders and regulators.”

Speaking to investors, Scicluna gave further details of how RSA is tightening its control framework.

He said RSA would ensure checks and balances were working propertly and that it could demonstrate their rigour, independence and consistency. It is also tightening up local procedures to ensure group policies are appropriately adhered to, and tightening up processes to the risk of management override and collaboration. It is also re-communicating its whistle-blowing policy to all employees.

Chief executive Simon Lee resigned from RSA in December after it revealed the extent of its reserving deficit. RSA said the search for his replacement was progressing.