FSA denies ignoring Independent tip-off

Independent abandoned a £200m rights issue

A financial watchdog has denied ignoring warnings given six months ago that Independent Insurance might be on the brink of collapse.

An investigation by the trade publication Insurance Times, claimed that the Financial Services Authority (FSA) received a report in January, detailing how the insurer was trying to hide big losses incurred by its French operation.

The FSA launched a formal investigation into Independent last month when the insurer had to stop trading following the revelation of "unquantifiable" losses.

But it says the information provided by the French authorities "added nothing to what we already knew about the UK company".

"Suggestions that we failed to act on a tip-off are incorrect," it added.

Dangerously low reserves

The FSA says it was concerned about dangerously low cash reserves at Independent Insurance as long ago as 2000.

In a statement, the FSA said it recognised that Independent's capital base "was inadequate to support the sort of expansion the company planned".

It added: "Our concern on this led the company to put on hold future expansion until had raised new funds.

"Part of our concern related to apparent under provisioning and we were in very active dialogue with the company on this well before the French contacted us.

"This did not however point to possible fraud at Independent Insurance.

"This did not emerge until just before the company's closure."

Biggest collapse

The decision to liquidate came after Independent's directors were forced to abandon a £200m rights issue.

The company employs 2,000 people at offices in Greater Manchester, Kent and London.

Independent's demise is the biggest collapse among general insurers - as opposed to life insurers - for many years.

Sister company

The FSA says the French authorities wrote to it January about a French sister company of Independent.

The French alleged that there had been underestimation of claims and a lack of sufficient reserves.

But, the FSA claims, there was no suggestion of under-recording of claims - the practice which led to Independent's eventual collapse.

However, the FSA said it was already in close contact with Independent about the adequacy of its reserves by this point.

The FSA eventually told the French authorities that Independent had topped up reserves at its French arm.

But it remained in contact with the French authorities in the run-up to the company's closure.

Legal action

The Institute of Chartered Accountants is also carrying out an investigation into the Independent debacle looking at chartered accountants who were involved in the company or advised it, and at the role of the auditors KPMG.

Meanwhile, the creditors of Independent Insurance Group is seeking to recoup millions of pounds through legal action.

Royal & Sun Alliance, which took over Independent's 250,000 council tenants last week, is reported to be in talks with provisional liquidators PricewaterhouseCoopers about the acquisition of other parts of Independent's business, including property insurance.

The Serious Fraud Office has also launched an investigation into Independent's collapse.