A senior manager of Independent Insurance instructed staff to delay paying out claims, thereby artificially inflating the company's cash position, it was claimed yesterday.
Investigators into the collapse of the financial services firm could well make the allegations a key element of their inquiry. According to one industry insider, an Independent Insurance executive would put off pay-outs on claims, with the effect that the company's financial position would at that point appear healthier than was actually the case. "He would come into the office and say: 'Today is a claims holiday.' Sometimes they would last for several days."
The source, who works for another insurance company, claims that these "holidays" often coincided with scheduled visits from banks and credit agencies. He also believes that the company ignored advice provided by loss adjusters concerning the appropriate level of reserves set against future claims.
The Commission de Controle des Assurances (CCA), the French counterpart of the UK Financial Services Authority, wrote to Independent Insurance in December amid fears about the adequacy of its reserves. A person who has seen the letter from the CCA said: "In the first four months of this year, Independent's French operation lost 99 million francs [£10.7m], which is a large sum. That makes it look like the company was taking remedial action." It appears that the under-reserving occurred at Independent Insurance's UK operation as well as in France.
A further strand of the investigation, which is to be undertaken separately by the Serious Fraud Office, the FSA and Independent Insurance's liquidators, Pricewaterhouse-Coopers, is over how certain reinsurance contracts appear to have been written earlier this year. Non-executive directors have indicated they were not made aware of the contracts, which are thought to have been taken out on top of other reinsurance that provided the company with £287m of cover in return for a £110m premium.
"There was no formal board meeting and we were not told about this," said one. Independent Insurance has said it is trying to unwind what it calls "these alleged contracts".
It is also possible that some of Independent Insurance's reinsurance companies may seek to annul their obligations should they establish that the firm did not provide accurate information about the state of its finances.
A spokesman for GE Capital, which has a number of outstanding reinsurance contracts with Independent Insurance, said: "The possible investigation by the SFO is pretty fundamental to the future of the contracts."
So far only Michael Bright, Independent Insurance's colourful former chief executive, has taken flak for the company's problems. He stepped down as chief executive in April and last week left the company, where he was non-executive deputy chairman.
Investigators privately believe that it would have been impossible for one person alone to have been responsible for the reinsurance contracts, or for delaying the claims payments, or other practices that may have led to the firm's decline. One company insider said: "He would not have had the time to handle everything on his own. It is unlikely that no one else knew about the reinsurance."
The emergence of accounting problems at the company has raised eyebrows in the industry since Mr Bright was president of the Chartered Insurance Institute and held up as a proponent of insurance best practice. Mr Bright resigned his presidency of the CII last week. Yesterday, he was at his home in home. His wife, Katie, said: "Michael has no comment to make."
The role of other executive directors will be investigated, as will that of KPMG, its auditor, and Watson Wyatt, its external actuary. Dan Schwarzmann, a partner at PwC and one of the accountants leading the "forensic investigation", said it was too early to apportion blame. "Our focus at the moment is to secure the assets and we've been trying to sell the books of business to other underwriters," he said.