The troubled More Than insurer RSA signalled another burst of pain ahead on the dividend yesterday as it prepares to strengthen its finances following "completely unacceptable" losses in Ireland.
A review of its Irish business by the accountancy firms PwC and KPMG found that "inappropriate collaboration" between the subsidiary's top executives undermined accounting controls, but said the problems were confined to Ireland.
The problems were uncovered in November, forcing RSA to pump £200m into the business. RSA's Irish chief financial officer, Rory O'Connor and claims director, Peter Burke, were sacked yesterday. The Irish chief executive, Philip Smith, had already quit, claiming he was the "fall guy" in the affair.
RSA has informed the Gardai and enforcement authorities in Ireland.
Now the company – still without a group chief executive after Simon Lee resigned last month – has to address its balance sheet, with some analysts forecasting it could have to raise as much as £1bn.
A sell-off of parts of the international empire run by Mr Lee before he took the top job now looks likely, with analysts earmarking the Canadian and Scandinavian arms for sale.
Martin Scicluna, the chairman of RSA, will unveil capital-strengthening plans next month.
Shareholder payouts seem certain for further cuts after the company said the "further extreme weather" and flooding over Christmas "will be taken into consideration" in the board's dividend decision.
Ben Cohen, an analyst at Canaccord Genuity, said halving the dividend would save RSA around £110m a year.
The shares dipped 2.75p to 97.95p.
The Irish problems emerged over "inappropriate" accounting on claims and premium earnings – in effect booking the wrong amounts for claims or at the wrong time, and booking premium income too early. The problems forced RSA to issue two profit warnings in a week.
Mr Scicluna said the problems were "completely unacceptable and I have made it my personal priority to make sure it never happens again".
The accounting irregularities also raise awkward questions for the former group auditor Deloitte – which resigned in May last year – and potential embarrassment for Mr Scicluna, a former partner and chairman of Deloitte's UK business. RSA's finance director, Richard Houghton, said the firm would take "appropriate external advice to see what our course of action might be" over Deloitte. There is currently no formal investigation of the auditor or RSA.
The chairman has excluded himself from all board discussions related to Deloitte.