The Financial Services Authority (FSA) was warned as far back as December 2000 that Independent Insurance's French company was reserving claims for virtually nothing and not entering other claims at all, an Insurance Times investigation has revealed.
The French insurance regulator, the Commission de Contrôle des Assurances (CCA), began investigating Independent Insurance SA last September and sent a detailed report of its shocking findings to the FSA in December.
Meanwhile, Independent's UK headquarters had been sending large amounts of money to plug holes in the French company's finances and continued to do so until just before its profits warning in February.
In February, Independent warned its profits would fall £20m below market expectations, blaming poor results in France and increased provision for future UK claims.
At the time, director John Blakemore said the French problems accounted for £12m of the shortfall.
“The French operation has been turned around from personal lines to commercial, but not quickly enough to cover the expenses,” Blakemore had said.
He said unprofitable lines of business had been cut and the entire French management team removed.
However, a CCA spokesman revealed that the French books were being falsified, with some claims not being entered and others being entered at “miniscule” sums, on the orders of senior figures in the UK office.
“The CCA informed the FSA in December of what was occurring in France, in case this should also be happening in the UK,” he said. “We sent a detailed report to the FSA that proved the CCA's findings.”
The spokesman said the CCA also asked the FSA for verification that the UK operation was sufficiently solvent. This was done because it was concerned by the French company's losses in 2000, which he said were 300m FF (£27.74m).
The CCA received no response until March 2001, when the FSA sent financial reports from Merrill Lynch and Salomon Smith Barney, which the CCA considered optimistic.
At the end of last year, Independent's UK offices sent 100m FF (£9.24m) to prop up the French company, then a further 140m FF (£12.94m) in late January, but both amounts were frozen by the CCA because they were concerned by the state of the company.
Independent Insurance SA was wholly owned by Independent Insurance Holdings as a sister to Independent Insurance Company Ltd in the UK. It wrote about 400m FF (£36.99m) worth of business.
The FSA said, under statutory regulations, it could not comment on specific cases.
“We have a lot of contact with our regulatory counterparts overseas, especially when dealing with particular issues on particular companies,” an FSA spokeswoman said.
The Serious Fraud Office, which is also investigating the collapse of Independent, would not comment for fear of jeopardising potential evidence.