Insurance Times has uncovered a series of covert and incestuous reinsurance deals by Independent Insurance that took £100m off the company's stated reinsurance cover.
Independent's reinsurance contracts have been hugely controversial and liquidators Pricewaterhousecoopers (PWC) described them as the failed company's biggest assets. They have refused to discuss the contracts, for fear of jeopardising their relationship with the reinsurers.
Formerly, all that was known was that Independent took out £278m cover for its London Market general and regional liability accounts, at a cost of £110m in late December.
In early June, Independent directors said they had discovered an unknown number of previously undisclosed reinsurance contracts, allegedly signed by former chief executive Michael Bright without their knowledge.
Documents acquired by Insurance Times show that Independent bought substantial cover for its property account the day before auditors KPMG signed off its 2000 accounts.
The cover was bought from Dublin-based reinsurer Ireco.
But only days later, Independent's wholly-owned subsidiary Novi Re, also based in Dublin, reinsured part of Ireco's book, which brought at least £15m of Independent's risk back onto Independent's accounts. In effect, Independent was reinsuring itself.
The main reinsurance contract seen by Insurance Times is signed by Ireco chairman Walter Copping and Ireco director Volker Handrich.
The contract provided Independent with protection from 2001 until 2004 and included a minimum ceded premium of £200m in 2001, rising to £500m in 2004.
However, Michael Bright signed off the subsequent arrangement between Ireco and Novi Re that took some of the exposure back into the Independent group.
At the beginning of April, Bright also amended two of Independent's stop-loss agreements with Ireco, which protected Independent from the run-off of 1987 to 2000 accounts and were highlighted in Independent's 2000 accounts.
Following the amendments, the cover was reduced from £278m cover for £110m premium to £174m for £71.8m.
Meanwhile, Copping is also chairman of Novi Re and a board member of ERC Management Services, a company that managed Novi Re before PWC took administrative charge at the end of last month.
Additionally, Ireco director Arno Morenz was also a director of La Palatine, the French insurance company bought by Independent in 1997. Neither Ireco nor Novi Re returned phone calls from Insurance Times.
Meanwhile, Independent's policyholders in Ireland could find themselves out of pocket by £60m or more following Independent's crash, according to latest estimates.
The Irish Brokers' Association (IBA) has retained the current Irish Bar Council president, Rory Brady, to advise on the position for Irish policyholders, but has found that policyholders who bought their insurance from the Independent branch office in Dublin are unlikely to be covered by the Policyholders' Protection Board.
In addition, the IBA has said non-Independent policyholders could find themselves with unpaid claims if the failed insurer had provided indemnities before its collapse.
The IBA will be issuing a briefing paper to Irish brokers at the end of this week.
PLEASE NOTE: Our printed version of this story states that Yvonne Deeney is a director of both Ireco and Novi Re. This is incorrect. Deeney is a director of both ERC and Novi Re.