Irregularities that led to £70m profit warning became clear late last week
RSA has stressed the ongoing investigation into claims and accounting irregularities in its Irish business will not affect UK operations, brokers or customers.
Speaking to investors today, group chief executive Simon Lee said: “I am very confident that these issues are isolated to the Irish business and do not believe that these are indicative of any group-wide process issues.
“I’m slightly constrained as to why I can give that level of confidence.”
Yesterday RSA appointed PwC to undertake an independent review into the financial and regulatory reporting processes and controls in its Irish business as well as group oversight and controls.
It agreed the terms of the review with the Central Bank of Ireland and said it would remain in continuous contact with the regulator during the review.
PwC will report its findings to the board by the end of the year.
Internal review began last month
Lee said RSA had been looking into the matter as part of an internal audit review since mid-October.
Explaining why RSA did not tell the market about the review when it released its IMS on Tuesday, he said “we didn’t expect these issues to be material and had only identified at that point some relatively minor issues.”
During the second half of the week it became clear that the financial implications were much more serious, he added.
RSA suspended three senior managers, including chief executive Philip Smith on Friday afternoon, and informed the market at 6.25pm.
The managers have been suspended on full pay and there are no allegations against specific individuals.
The investigation will examine the booking of large losses and the timing of the recognition of earned premiums.
“The questions largely relate to the past two years, although there is some evidence going back into earlier years,” group chief financial officer Richard Houghton said.
“We have conducted a full and thorough review of every line of the balance sheet and we believe that we have identified all of the material adjustments required. Taken together these issues will lead to an estimated £70m charge to the 2013 Irish operating result,” he added.
“Our internal processes are in line with best practice, but clearly something’s gone wrong in Ireland and we’re investigating that as we speak.
The PwC review will help us as to why our group controls didn’t work but fundamentally we believe this is a strongly controlled and well managed group.”
UK and west Europe chief executive Adrian Brown, whom Smith reported to, has temporarily relocated to Dublin while the investigation continues, where he will act as Ireland chief executive.
The Central Bank of Ireland said in a statement: “RSA Insurance Ireland has reported a regulatory issue to the Central Bank. A multi-stranded investigation has been commenced, under terms of reference reviewed in advance by the Central Bank. The Central Bank remains in close and regular dialogue with the company.”
Group in good health
Lee added: “2013 is proving to be a very difficult year for the group with these issues compounding the extreme weather we have seen. But we shouldn’t lose sight of the many strengths of the group including our excellent franchises around the globe, which contribute to our diversified business model. We hope to have the opportunity to demonstrate part of this at our Scandinavian investor day tomorrow.
“Despite the issues we have discussed this morning, the overwhelming majority of the group is in good health. We continue to execute our strategy and expect 2014 to be a much better year.”