Ex-RSA executive considers legal action

A former RSA Ireland executive is considering legal action on foot of the PwC report into events at the Irish operations that forced the company to increase reserves by £200m (€242m) before Christmas.

The extensive report found that accounting irregularities in the Dublin office were a result of “inappropriate collaboration”.

Chief financial officer Rory O’Connor and claims director Peter Burke were told on Wednesday their contracts had been terminated. The former chief executive of RSA’s Irish operations, Philip Smith, resigned in November. Disciplinary proceedings had been taken against Mr Smith prior to his resignation.

The three executives had been suspended in early November amid revelations that the RSA Group had been forced to increase reserves by £72m because of irregularities in the claims and finance functions. The company announced in December that it was forced to raise reserves by a total of £200m in the Irish operations to cover potential losses.

The PwC report identified three separate problems at the company. The first related to the policy used by the Dublin office to book large loss claims. The RSA Group policy is that, if a large loss claim is made, it has to be booked in the accounting period in which the claim was made. However, the Irish Examiner understands RSA Ireland had been booking large loss claims on a discretionary basis and often outside the accounting period in which they occurred. This led to £37m of losses in the Irish company and was a result of “inappropriate collaboration”, according to the PwC report.

The Irish Examiner has learned that this led to tensions in the Dublin office, with some executives expressing concerns over the practice. Moreover, it is understood that this is the subject of imminent legal action by one former executive who had misgivings about the practice.

RSA Ireland declined to comment on any details that were not in the PwC report.

The second problem identified by the report relates to inappropriate accounting for net earned premiums and pipeline earnings, which led to losses of £35m. Part of this amount relates to a policy operated by RSA Ireland whereby, if an insurance policy taken out through a broker is subsequently cancelled, it is subject to a €50 fee. However, this was erroneously applied to all policies taken out with 123.ie that were subsequently cancelled, even though these policies were not subject to any cancellation fee.

Many of the company’s problems stemmed from its rapid growth in the Irish market following the acquisition of online insurer 123.ie. The company went from a 10% market share in 2011 to 16% by 2013.

The much larger sum of £128m in increased reserves relates to a significant and unexpected increase in bodily injury claims over the past few years. RSA Ireland saw a huge increase in its motor business following the acquisition of 123.ie. However, the company’s loss provisioning failed to increase on a pro rata basis. It was then hit with a huge surge in claims.

The crisis wiped £1.3bn off RSA Group’s 2013 market capitalisation and prompted talk that it may be a takeover target. RSA group chief executive Simon Lee resigned in December following shareholder pressure.