(Updates with comments from executives and regulators, starting in fourth paragraph, and closing share price.)
Jan. 9 (Bloomberg) -- RSA Insurance Group Plc fired two executives in Ireland after a PricewaterhouseCoopers LLP probe found that inappropriate collaboration by managers at the division resulted in inaccurate financial reporting.
RSA Ireland Chief Financial Officer Rory O’Connor and Claims Director Peter Burke were dismissed yesterday, the London-based insurer said in a statement today.
The firings followed an investigation into the timing of reserve provisions for insurance claims and whether the unit reported the amount of premiums paid to the company too early. RSA Ireland Chief Executive Officer Philip Smith resigned in November, saying he was made a “fall guy,” while group CEO Simon Lee quit last month.
“PwC’s work supports the board’s view that inappropriate collaboration amongst a small number of senior executives in Ireland undermined control effectiveness over claims,” RSA Executive Chairman Martin Scicluna said on a conference call. “This is totally unacceptable, and we are tightening the independent oversight of local business to ensure that this doesn’t happen again.”
O’Connor and Burke didn’t respond to e-mails sent through their LinkedIn pages, while a spokesman for Smith declined to comment on the statement. Aileen Fleming of Daniel Spring Solicitors in Dublin, which represents O’Connor, wasn’t available for comment.
The shares fell 2.7 percent to 98 pence in London as the company said it had not received a takeover offer from a competitor, damping speculation that had sent the shares to a one-month high yesterday. Scicluna declined to comment on whether RSA had received offers for parts of the company, saying he would not discuss “individual conversations.”
RSA said an internal audit and testing from its newly appointed external auditor, KPMG, found the financial and claims irregularities were isolated to Ireland. The insurer also reiterated its estimate that the total costs stemming from the matter will be 200 million pounds ($272 million).
“The findings may be some relief for RSA’s management and tighter controls in Ireland will solve some short-term issues,” said Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin. “However, it still begs the question about RSA Ireland’s strong growth in recent years.”
CFO Richard Houghton cited the “rapid growth” of RSA in Ireland, including its purchase of 123.ie in 2010, as a contributing factor to how its reserve strengthening in the nation became so large relative to the size of the business. The British company has become Ireland’s biggest non-life insurer.
Irish central bank spokeswoman Nicola Faulkner said its probe into the RSA unit will continue for months, and the regulator is unlikely to comment further until then.
PwC found evidence suggesting the executives intentionally circumvented RSA’s controls, including its large-claim reserving policy. As a result, the financial records didn’t fully reflect the position of the business, and reports made to more senior management were “inaccurate and potentially misleading.”
“The chairman’s statement suggests that the Irish unit was recording income too early,” said Niamh Brennan, a professor at University College Dublin who specializes in corporate governance and forensic accounting. “Where were the external and internal auditors?”
Deloitte Touche Tohmatsu audited RSA Ireland’s accounts in 2012. RSA said it’s taking “appropriate external advice on the issue” and declined to comment further. Pat Walsh, a spokesman for Deloitte in Dublin, declined to comment.
RSA said the company notified the police when the executives were suspended in November. Brian Whelan, a spokesman for the Irish police, said he couldn’t comment on an individual case. RSA General Counsel Derek Walsh said that the company was satisfied with the action taken against the executives and isn’t examining further legal measures.
About 1.3 billion pounds were wiped off the company’s market value in 2013 after RSA issued three profit warnings in the fourth quarter, which resulted in the resignation of Lee. The insurer has said it expects a “mid-single digit” return on equity for 2013.
The company said weather-related losses from an ice storm in Toronto and severe flooding in the U.K. and Ireland in December are seen hurting 2013 results and “will be taken into consideration” in the board’s dividend decision in February.
Scicluna, who is in regular discussions with rating agencies, said a review of the company’s capital position was progressing, with “all options” being considered. An update on capital is expected when the company reports full-year results next month.
--Editors: Keith Campbell, Steve Bailey