Royal & SunAlliance, the beleaguered insurance giant, received another blow to its reputation yesterday when the Financial Services Authority slapped a £1.35m fine on the company for mis-selling personal pensions in the 1980s and 1990s.
The fine is the largest handed down by the FSA in its wide-ranging investigation into pensions mis-selling by insurers. RSA's fine is more than double the previous record, a £650,000 penalty against Prudential last October.
Most major insurers in the UK have been tainted by the scandal, which saw insurers persuade hundreds of thousands of employees to transfer from company pension schemes into private pensions after they were introduced in the 1980s.
The move was criticised because in a significant number of cases employees would have been better off staying in their company schemes, which often include employer contributions and had more protection for members than private pensions.
RSA has already been chastised for mis-selling pensions and fined £225,000 in 1998. Yesterday the City watchdog said it visited RSA again in 2000 and found it had not acted thoroughly enough to deal with the problem and had not identified the full number of customers who may had been mis-sold a personal pension.
Carol Sergeant, the managing director of regulatory processes at the FSA, said: "This is a significant penalty to reflect the serious nature of RSA's past failings. RSA failed in its identification of customers who might have been due redress, it failed to complete review work on time and its management failed to monitor the process effectively."
The FSA believes 13,500 customers who were potentially entitled to compensation were left out of the RSA's clean-up programme after the first fine. Compensating all of the 13,500 could cost RSA £32m on top of the millions it has already had to pay out to victims of pension mis-selling.
Duncan Boyle, head of RSA's UK division, said the group "very much regretted" the situation. He pointed out that since the FSA raised the alarm for a second time, the company had incorporated the extra 13,500 customers into the review and aimed to consider all cases for potential compensation by November.
The FSA said it had received the co-operation of RSA since its second visit in 2000. But the insurer retains a black mark with the FSA for taking so long to clear up its pensions mis-selling problems.
The FSA pointed out that after its first drive to sort out pension mis-selling in 1997, RSA still has 1,908 cases to consider despite the fact that the FSA set a deadline of dealing with them by June 1998. These account for more than half of the total number of potential mis-selling cases identified during that period that have still not been resolved.
In common with most insurers, RSA will not disclose how much it expects to pay in compensation to customers to put them into the same situation as if they had not left their company pension scheme.
RSA said that of its 500,000 personal pension customers, it expects to have to find pay-outs for 35,000 customers. Much of this has already been paid and it has made reserves "on a prudent basis" to meet the rest.
The FSA predicts that overall, the insurance industry will have to find £13.5bn in compensation and administrative costs after the débâcle of selling private pensions to customers when it was not in their best interest.
News of the latest fine did not dampen RSA's shares, which jumped 7p to 132.25p on ongoing speculation that the company will soon attract a takeover bid.