Independent Insurance, the specialist commercial insurer, yesterday announced that it had gone into provisional liquidation, leaving thousands of its business clients to face the possibility of financial losses from which they might be unable to recover.
The move was announced amid a host of investigations into what has gone wrong at the company. The Serious Fraud Office is poised to join the Financial Services Authority and Independent's liquidators, PricewaterhouseCoopers, in raking over the financial details of the situation.
The SFO is believed to be about to take the lead in the inquiries. A spokeswoman said: "We have been passed information from the Financial Services Authority today. We are still examining whether it would be appropriate to launch an investigation."
The bodies will try to discover what has been so damaging to Independent's finances that it now faces the possibility of bankruptcy, after its closure to new business last week and the possibility that it does not have enough assets to meet its liabilities.
The company might still find a last-minute partial solution, such as a buyer for some of its assets. But if it fails to do this, many businesses that have taken out insurance with Independent could be left out of pocket. This is because they will not be able to make claims on any policy, such as insurance on property, which is not a compulsory form of cover.
Among the many firms who have insurance policies with Independent are the London Fire Brigade, the Oval cricket ground, Somerfield supermarkets group and Pizza Express.
In addition, shareholders and many creditors are unlikely to see much of what they are owed returned to them. Substantial job losses among Independent's 2,000 employees are also expected.
Independent's thousands of private policyholders could claim on their policies even if the company goes into permanent liquidation, as their pay-outs would be covered by the Policyholder Protection Board.
Yesterday, the authorities would not comment on what alleged frauds may have been committed, but a non-executive director at Independent confirmed that insiders at the company have become aware of accounting irregularities.
He said: "We know that liabilities had been understated, which affects the state of the company's reserves. It became clear that more had to be set aside." It has not yet been established whether this understatement was deliberate, he said.
The uncovering of this problem bolsters the view that Independent managed to grow quickly in an otherwise tough insurance market over the past few years by not having enough capital to cover its risks, which are created for insurers when they take on new business.
It also seems that Independent's non-executive directors were not told about alleged reinsurance contracts that were taken out earlier this year on top of the publicly stated contracts. The purpose of the contracts was to cap the company's liability from escalating no-win, no-fee claims.
The presence of these contracts has caused serious problems for Independent, as they have made it difficult to establish what the company's true level of liability is. The lack of clarity led to the failure of a planned emergency rights issue last week.
The FSA confirmed that it "would be making an assessment of whether there have been any regulatory breaches."Reuse content