“Serious shortcomings” by RSA Insurance Ireland DAC (RSAII) have cost the company €3.5 million.
The Central Bank of Ireland imposed the fine, as well as reprimanded RSAII, following regulatory breaches involving accounting irregularities and large loss claims.
According to the Irish monetary authority, the insurer had admitted the breaches, which related to RSAII’s failure to establish and maintain technical reserves; failure to have sound and adequate administrative and accounting procedures and internal control mechanisms; and failure to have robust governance arrangements.
“The breaches arose from serious shortcomings in RSAII’s internal controls and corporate governance frameworks enabling certain individuals within RSAII to deliberately manipulate claim reserve estimates through the under-reserving of multiple large loss claims from 2009 until October 2013,” stated the Central Bank of Ireland when it announced the enforcement action.
“This was done by recording claim reserve estimates on RSAII’s claims database which were significantly lower than the claims handlers’ recommended reserve estimate, and/or significantly delaying the recording of recommended claim reserve estimate increases.”
The regulator’s probe also pointed to weaknesses in RSAII’s accounting procedures and internal financial control mechanisms.
“The extensive issues identified within RSAII’s claims and finance functions led to an understatement of €78.2 million in the firm’s technical reserves as at September 30, 2013,” it noted.
“Furthermore, the investigation found that failures in RSAII’s corporate governance framework, particularly in its internal reporting structures, allowed the under-reserving of large loss claims to go undiscovered and unchecked for several years.”
Meanwhile director of enforcement and anti-money laundering Seána Cunningham stressed that the Central Bank will not tolerate conduct which poses a threat to the integrity and stability of Ireland’s financial services market.
“Insurance policyholders and the wider financial system are placed at significant risk when insurance entities fail to set aside sufficient reserves,” said Cunningham. “Maintaining sufficient reserves to meet underwriting liabilities is the cornerstone of conducting business in all insurance entities.
“Effective governance and robust internal controls are essential in mitigating the harm caused by inappropriate behaviours. Strong governance practices, systems, and structures provide regulated entities with a framework through which they can embed appropriate behaviours throughout an organisation.”
The official added that the enforcement action reflects the gravity of RSAII’s failures, as well as the Central Bank’s resolve to use all available statutory powers to hold regulated entities to account.
