UK division too large to side-step group controls

The side-stepping of group controls could not happen in the UK because of the size of RSA’s operations here, UK and Western Europe chief executive Adrian Brown said.

Today RSA published the results of an independent review by PwC, which said executives in RSA’s Irish division had circumvented group controls.

PwC said RSA’s group controls were appropriate for a business of its size and nature, but found that there had been “inappropriate collaboration” between a small number of senior executives in Ireland. The individuals had intentionally circumvented part of the control framework, it found.

Avoiding the controls masked financial and claims irregularities and inadequate reserving that will wipe £200m from RSA’s full-year 2013 profits.

“In a small business it’s easier for a few people to control a few things,” Brown told Insurance Times.

“It would be impossible for some of the things that happened in Ireland to happen in the UK because of the vast numbers of people that are involved in premium processes or claims processes.

“A small number of senior executives in the UK wouldn’t have been able to work their way around the control processes that we’ve got in place because it would have needed to be a large number of executives collaborating inappropriately to make that happen.”

RSA is now considering whether the balance between local accountability and external checks should be changed for smaller markets.

Brown said: “The very positive thing for us today is that PwC are endorsing the control framework we’ve got around the group and have said that globally it’s appropriate for a business of our size.

“As a group that allows us to draw a line under the Irish issues as being isolated. Of course, there are things we can and will improve, but hopefully today draws a line under the questions that were being asked around our control framework.”

Where now for Ireland

Brown said it would take two years to return its business in Ireland to profitability. “You’ll see significant progress in 2014 and then continued progress in 2015,” he said. “That will be very similar to the work I did in Italy and some the of the stuff [UK commercial managing director] Jon Hancock have I have been working on in commercial in the UK too.”

Brown is looking at pricing, claims handling and the expense base of RSA Ireland.

“There are only so many levers you can pull in this business and I’ve got quite a lot of experience in pulling them.”

What’s it worth?

RSA’s share price has fallen 3.5% to 97.3p since markets opened this morning. However, the price rose by 6% on Monday after reports in the Sunday Telegraph indicated PwC’s probe had concluded group controls were adequate, the £200m black hole was isolated to Ireland, and the cost would not rise.

“If the share price had been stable for the last week and then gone down today I would have said ‘I just don’t understand that’, but we were up on Monday and are up 5% on the week. You have to look at the week’s share price,” Brown said.

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