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Monday, 18 June, 2001, 11:46 GMT 12:46 UK
Independent goes into liquidation
Independent Insurance, the insurer hit by soaring claims for personal injury compensation, has gone into liquidation.
Worth £1bn last year, but now worth close to zero, Independent's demise is the biggest collapse among general insurers - as opposed to life insurers - for many years.
Michael Bright, who founded the company in 1986, left the company last week without a pay-off.
A spokesman for the liquidator says job losses are "inevitable" but it was too early to say how many would go. The company employs 2,000 people at offices in Greater Manchester, Kent and London.
The liquidator is planning to set up a hotline for concerned policyholders.
The Serious Fraud Office has confirmed it is studying documentation on Independent Insurance to see if there is sufficient evidence to launch an investigation.
Private individuals 'safe'
Independent's 500,000 private customers will be covered by the Policyholders' Protection Act 1975, which is designed keep potential losses to a minimum.
Under the terms of the Act, compulsory claims such as third party motor insurance will be met in full.
Claims made by private individuals under non-compulsory insurance, such as claims for own damage under comprehensive motor policies, buildings and home contents, will be paid to 90% of their value.
The Policyholders Protection Board has asked PriceWaterhousecoopers to refer all relevant cases to it. Policyholders need not contact the Policyholders Protection Board directly.
However, as an added precaution, The Assocation of British Insurers is advising Independent policyholders - and in particular those not covered by the Act - to take out new policies with other insurers, as their current policies are effectively worthless.
The Government's insurance watchdog The Financial Services Authority has launched an investigation into Independent's collapse and is advising policyholders to talk to their brokers.
The outlook is less promising for Independent's 40,000 corporate policyholders, which include the London Fire Brigade and Oval cricket ground.
Companies are not protected by the 1975 Act - which could leave them out of pocket if they need to make a claim.
An FSA spokesman said: "It would be sensible for the corporate clients to have a chat with their brokers.
"They are basically becoming creditors of the company and they will have to join the queue of creditors, which could be a long one."
A spokesman for PriceWaterhousecoopers said if - as expected - Independent Insurance goes into full liquidation (it is currently in 'provisional liquidation'), a scheme would be put in place to ensure part-payment of claims by corporate policyholders.
But he said it was too early to say how much companies would receive - or how soon the scheme would be set up.
Mark Batten, one of two provisional liquidators appointed on Monday, said: "We will be conducting a forensic investigation into the financial position of the company as a matter of urgency, including the reasons for the company's failure.
"Over the next few months we will also be seeking to develop a scheme of arrangement to enable claims to be agreed and payments to commence for settling those claims."
He said policyholders should continue to submit claims information in the normal manner.
Independent's collapse comes after an attempt to raise £180m in fresh cash by issuing new shares failed because of revelations that the company faces unquantifiable losses.
The insurer has received claims from its customers that have not been entered into its accounting system.
Consequently nobody, not even the company's own directors, knows how large its liabilities are.
The losses were first revealed by the Friday edition of the Financial Times newspaper which cited a letter to the insurer's board from Mark Trayhorn, partner in external actuary Watson Wyatt.
"It is not possible for me, on any actuarial basis to form any reasonable or realistic projections of the London market general liability account," Mr Trayhorn was quoted as writing on the basis that many claims had not been entered into the accounts.
The report came a day after Independent Insurance, which has been hit by a huge growth in personal injury claims, closed to new business.
Struggling to raise cash
It has been struggling to raise cash since issuing a profits warning in February.
City advisers HSBC and Collins Stewart drew up plans for a rights issue, in which new stock is offered at a discount price to existing shareholders, in an effort to bridge Independent's cash shortfall.
But the plans were shelved after the institutions were told about Mr Trayhorn's letter.
The letter was not revealed to HSBC and Collins Stewart until at least a week after it was received by the Independent Insurance board.
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