Central Bank hits RSA with €3.5m fine following accounting scandal
ONE of the largest insurers in the State has been hit with a huge fine.
The sanction follows a massive accounting scandal that emerged in RSA Insurance Ireland five years ago.
RSA Insurance was thrown into chaos after a massive hole was discovered in its balance sheet.
This was mainly the result of the business having been found at the time to have set aside too little money in reserve to cover large claims.
The Central Bank has now fined the insurer €3.5m for the regulatory breaches.
RSA was the subject of an accounting scandal in this country in 2013, when it was found to have not set aside enough reserves to cover large claims.
The Central Bank said RSA Insurance Ireland had failed to establish and maintain technical reserves in respect of all underwriting liabilities assumed by it.
It had failed to have administrative and accounting procedures and internal control mechanisms which are sound and adequate.
And it failed to have robust governance arrangements in place.
The insurer admitted the breaches.
The Central Bank said individuals within RSA Insurance Ireland had “deliberately manipulated claim reserve estimates through the under-reserving of multiple large loss claims from 2009 until October 2013”.
This was done by recording claim reserve estimates on the firm’s claims database which were much lower than the claims handlers’ recommended reserve estimate.
The insurer was also accused of delaying the recording of recommended claim reserve estimated increases.
The Central Bank’s investigation also identified weaknesses in RSA’s accounting procedures and internal financial control mechanisms.
The extensive issues identified led to an understatement of €78.2m in the firm’s technical reserves as at 30 September 2013.
Central Bank director of enforcement Seána Cunningham said insurance policyholders and the wider financial system are placed at significant risk when insurance entities fail to set aside sufficient reserves.
“Maintaining sufficient reserves to meet underwriting liabilities is the cornerstone of conducting business in all insurance entities.”
The starkest example of the under-reserving practice uncovered was a personal injuries claim with a recommended claim reserve estimate of €4.75m. The amount actually recorded on the firm’s claims database was €20,000, she aid.
RSA said in a statement said no policyholders were adversely affected when the issues were identified in 2013.
It said it took swift action to strengthen its controls following an internal investigation.
“RSA Ireland notes that the Central Bank is satisfied that the company has taken the necessary steps to rectify the deficiencies that gave rise to these issues, and also concluded that there was no evidence of adverse impact to policyholders.”
It said RSA Ireland is now performing well under an entirely new management team.