PwC's investigation into financial irregularities at the Irish operations of the RSA Insurance Group has concluded that the insurer's internal control framework was 'appropriate' but was underminded by 'inappropriate collaboration' among a few senior executives.
RSA called in PwC in November 2013 after £72m of financial and claims irregularities emerged in its Irish business. The firm's review focused on the financial and regulatory reporting processes and controls within the Irish business and group oversight and controls of the Irish business.
In a statement released this morning, the company said PwC's report described RSA's group control framework as 'appropriate in terms of structure and design' for an international insurance group of RSA's size and complexity and compared favourably across the market.
However, PwC's review found that the independent controls within the Irish finance function did not operate effectively, allowing inappropriate accounting for net earned premium and pipeline earnings.
RSA said PwC's work 'supports the Board's view that inappropriate collaboration relating to claims irregularities amongst a small number of senior executives in Ireland undermined control effectiveness.'
The insurer said PwC's review of electronic documents from around 60 individuals identified documentary evidence suggesting that certain individuals intentionally sought to circumvent parts of the existing control framework relating to the large claim reserving policy.
As a result, financial records did not fully reflect the financial position of the business and reports made to group and regional management were inaccurate and potentially misleading. RSA said this undermined the effectiveness of controls which placed significant reliance on senior management integrity.
PwC's review concluded that there were no obvious indicators relating to the issues identified in the Irish business that were ignored, at either regional or group level. RSA said additional assurance testing from its newly appointed external auditor KPMG and RSA group internal audit had also confirmed that the financial and claims irregularities were isolated to Ireland.
The PwC report makes a number of recommendations which RSA says it is already implementing, including conducting a review into the verification of policy adherence, enhancing the clarity of control standards and effectiveness of local implementation, and improving the balance of trust, integrity and accountability with challenge and independent verification.
Martin Scicluna, RSA executive chairman said: 'Our investigations have confirmed that the claims irregularities in Ireland were, in large part, the result of deliberate collaboration between a small number of executives there. These actions do not reflect the culture, ethos and values of our business that have served us well. We acknowledge that there are lessons to be learnt and we are tightening elements of our control and financial framework in response to these events.'
Following an internal disciplinary process, the RSA Ireland CFO, Rory O'Connor and the RSA Ireland claims director, Peter Burke, have been dismissed for their roles in relation to large loss and claims accounting irregularities.
A separate review of RSA's reserves at its Irish business has confirmed £128m of losses, much of it related to adverse bodily injury claims trends.
