Case over legacy ERS reserving debacle continues as Deloitte partner fined

ERS reserving debacle

Deloitte associate partner James Rakow has been fined £75,200 and ordered to pay £400,000 in costs by the Financial Reporting Council (FRC) for misconduct in relation to historical reserving problems at Lloyd’s insurer ERS.

The FRC issued a formal complaint against Rakow, three other individuals and accounting firm KPMG last year in relation to reserving at the Lloyd’s syndicate of ERS between 2007 and 2009, when it was known as Equity Red Star.

The case against KPMG, current KPMG partner Mark Taylor, former KPMG partner Anthony Hulse and former Equity Syndicate Management finance director Douglas Morgan is still ongoing, the FRC said.

The case has no bearing on ERS in its current form, which is now under different ownership and management.

The complaint against Rakow related to the actuarial services he provided to Equity Syndicate Management and Syndicate 218 in 2008 and 2009, and more specifically the statements of actuarial opinion (SAOs) for those years of account.

Announcing the disciplinary action against Rakow today, the FRC said: “Mr Rakow’s conduct fell significantly short of the standards reasonably to be expected of a Member [of the Institute and Faculty of Actuaries] in that, as a result of various failings, he was not in a position to sign, and therefore ought not to have signed, the 2008 and 2009 SAOs.”

It added that Rakow had admitted the allegations in the complaint, and that there was no finding of any misconduct for the 2007 year.

Rakow’s fine would have been £100,000, but it was reduced because of mitigating factors, including the fact that the misconduct took place six years ago and has not been repeated, and the fact that Rakow has “an unblemished disciplinary record”.

A Deloitte spokesperson said: “The settlement concludes the FRC’s formal complaint against our partner. Due to confidentiality, we cannot comment further.”

Rakow’s fine follows a five-year investigation by the FRC and is the latest development in the long-running saga of the historical ERS reserving debacle.

Lloyd’s censured Equity Red Star and ordered it to pay £95,000 in January 2012 because of a series of reserving blunders. Lloyd’s also censured former Equity Syndicate Management chief executive Neil Utley as well as Morgan and former Syndicate 218 active underwriter John Josia in 2013 over the under-reserving.