The allegations come two weeks after it was revealed how the Department of Trade and Industry failed to prevent a crisis at Municipal Mutual Insurance, Britain's biggest local government insurer. Labour's frontbench City spokesman, Alistair Darling, said that the Government had encouraged the DTI to 'turn a blind eye' to City scandals.
Detectives were called in to investigate PCI, following allegations from a British broker that it falsely claimed to have assets of dollars 75m (pounds 44m) deposited in a Hong Kong bank and that its auditors were Coopers and Lybrand. Inquiries revealed that the Mercantile Trustco Banking Company, where PCI claimed its assets were held, did not exist.
A spokesman for the Hong Kong commissioner for banking said that officials had checked the Companies' Register and visited the bank's office, but found no trace of it. A spokesman for Coopers and Lybrand's Commonwealth of Dominica office, where PCI is registered, said that the company had rejected the auditors after being told its assets would have to be verified. Coopers and Lybrand had never been their auditors, and had never been paid by PCI, he said.
The company insures a large percentage of the 1994 World Cup, more than 300 fishing vessels, several European shipping fleets, and other brokers throughout the continent. Many of its policies are covered by Lloyds syndicates through reinsurance contracts, and industry sources believe Lloyds Names may have to bear the brunt of any losses.
Though PCI is not authorised by the DTI to write insurance in Britain, the company has exploited a legal loophole by using a London 'contact office' under the name PCI Management Ltd. John Day, a director, said that Rob Roy, the president of Provident Capital Indemnity, refused to show him proof of the company's assets.
Frank Sherman, an insurance consultant, said that he still had 50 contracts with PCI covering risks accepted by brokers throughout Europe. These were now effectively void and he was trying to replace the policies. He had paid more than dollars 250,000 (pounds 147,000) in premiums to PCI, which would not have been able to meet claims.
'This is a massive scam. But if an insurance company came to you offering insurance, with dollars 75m assets and Coopers and Lybrand as auditors, you'd think you were on to a good thing,' he said. 'We signed contracts for environmental risks, shipping, reinsurance for Europe. More than anything it costs us our reputation being involved with them.' Gordon Cameron-Dick, an insurance consultant based in Brussels, said that his company had agreed to pay PCI dollars 8m ( pounds 4.7m) in premiums but had switched all its policies to other insurance companies.