The Serious Fraud Office (SFO) is examining the sudden collapse of Independent Insurance amid allegations that new London Market liability business was vastly under-reserved and claims were not correctly recorded by the company.
The probe follows earlier allegations that the company purchased reinsurance contracts that were unknown to both the board and investors.
There is speculation that some insurance claims were not properly logged in the insurer's computer system and were therefore missed for accounting purposes.
A high number of claims notified carried a nominal £1 sum, whereas they might cost thousands to settle.
The SFO said it was examining a file it had been sent by the Financial Services Authority on Monday, to determine whether it should pursue a fraud investigation involving Independent.
A SFO spokesman said: "If we decide an investigation is merited, we will be seeking to speak to all the relevant parties."
The seeds of Independent's difficulties are believed to have been planted two years ago, when it began to move away from its core business with provincial brokers into areas where it may have lacked expertise, particularly in the case of commercial London Market risks.
Kevin Pallet, a former Independent manager who left 12 months ago to found SVB's commercial retail facility Fusion, said: "There's been a lot of speculation about Independent's dec-line but much of it must stem from the fact that it has not stuck to its mantra from the early days.
"By this, I mean tight claims management, a concentration on quality brokers and applying risk management to underwriting. However, these principles seem to have been forgotten in favour of the top line and a drive for growth."
In one example, Independent moved into insuring commercial fire risks in the food industry where other insurers, notably Norwich Union and Axa, have been reducing their book due to concerns about the safety of composite panels made from chemicals such as polyurethane.
Another former Independent manager, who wanted to remain anonymous, said he also feared Independent had ventured into a series of new and unpredictable business areas and lacked the experience to underwrite these risks with certainty.
He said these new markets included underwriting credit risks where insurance is used to enhance the value of a loan.
Much of this new business is thought to have caused independent actuaries Watson Wyatt to seemingly issue a volte-face and suggest Independent's claims reserves were massively under-recorded, just three months after auditing the 2000 results. It led to the collapse of a £180m rescue share placing to shore up the reserves.
Partner Mark Trayhorn said in a letter leaked to the press: "It is not possible for me, on any actuarial basis, to form any reasonable or realistic projections of the London market account."
Lawyers for Independent's board formally asked the high court to place the insurer into provisional liquidation at the weekend.
The liquidators, Pricewaterhousecoopers (PWC), said: "The directors of Independent concluded there was insufficient certainty that the company's operations could be run off on a solvent basis (i.e. that its assets would exceed its liabilities), in the light of the decision to cease underwriting new business."
The decision stunned Independent's 2,000 staff, many of whom had purchased shares in the company which are now practically worthless. Compulsory redundancies are expected to follow.
PWC said it was possible that a scheme of arrangement for creditors, similar to one set up for defunct asbestos insurance specialist Chester Street, could be developed for Independent to stave off total insolvency.