A MAJOR accounting scandal at the Irish arm of UK insurance firm RSA in 2013 has prompted a group of investors to sue the British company in what's likely to be a bruising - and expensive - legal battle.
RSA was forced to pump a total of €400m into its Irish unit after the insurance group admitted in 2013 to finding what it said was a €274m black hole in the division's accounts.
RSA Ireland had under-reserved and "deliberately" manipulated its large loss claim reserve estimates, making those reserves "significantly lower" than they should have been. It also delayed the recording of the claim reserve estimate increases, according to the Central Bank of Ireland.
Basically, the insurance company wasn't setting aside enough money to cover potential big claims, contravening Central Bank rules. The practice also helped the Irish unit to inflate its profits.
Scores of institutional investors - 65 in total - have now taken legal action against RSA in the UK's High Court, according to UK legal news site Law360. They include Allianz Global Investors and M&G Investment Management.
"The disclosures by the defendant during the relevant period were incompatible with earlier statements in the defendants' published information," the claimants have alleged.
The case was lodged in March but details were only made public this week.
"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," an RSA spokesman told the Irish Independent. "We believe it is entirely without merit and will defend our position robustly."
When details emerged of the problems at the Irish arm in 2013, shares in RSA plunged to a nine-year low. It was forced to start shoring up the division and the group later reported a huge loss. In 2018, the Central Bank of Ireland fined RSA Ireland €3.5m for failing to have administrative and accounting procedures and internal control mechanisms that were "sound and adequate"; for a failure to have robust governance arrangements; and for a failure to establish and maintain technical reserves in respect to all underwriting liabilities assumed by the firm.
RSA Ireland admitted the breaches.
The Central Bank said the Irish division's corporate governance framework, particularly in its internal reporting structures, "allowed the under-reserving of large loss claims to go undiscovered and unchecked for several years".
RSA Ireland's former CEO, Philip Smith, was suspended in 2013.
In 2015, he was awarded a record €1.2m by the Employment Appeals Tribunal after claiming that he was made a "fall guy" by the insurance group.
RSA said it was "astonished" by the award for constructive dismissal.
A legal dispute in relation to the award was settled in 2016.