DTI watches Guardian Royal Exchange

THE Department of Trade and Industry is understood to have put the affairs of Guardian Royal Exchange, the composite insurer, under 'constant review' following a series of revelations in the past year.

These include a pounds 100,000 fine by the Life Assurance and Unit Trust Regulatory Organisation, a legal dispute with the auditors Coopers & Lybrand and a string of writs from disgruntled sales agents and clients.

An insurance company analyst with a leading firm of City stockbrokers commented: 'The management appears to lack control over its tied agents. Secondly, there have been bad investment decisions, so the performance of the with-profit funds has been poor. Put those two together and you have an unhappy set of customers.'

As no formal investigation has been launched, the DTI refused to confirm or deny the level of its activity.

Keith Lugton, GRE's director of corporate communications, said: 'As we are an insurance company the DTI has a responsibility for many aspects of our business. Had such things been said of another insurance company, I would have been horrified if the DTI were not looking at them.'

Mr Lugton believed that about half a dozen people were making an enormous amount of noise. These were former agents who, Mr Lugton alleged, owed GRE money and were trying to escape their obligations.

In March the Independent broke the story of how a former star GRE salesman, Vinodchandra Manubhai Patel, went bankrupt, owing pounds 22m. A number of his GRE clients cancelled their policies. Mr Patel had guaranteed pounds 14m of loans from GRE.

At the same time GRE has ceased to write new with-profit policies, and has had to apply to the DTI for a Section 68 order to allow it to strengthen the asset base of its life assurance operations by recognising future profits as an asset.

Mr Lugton denied that this had been necessary in order to meet DTI solvency requirements.

However, the pressure of official interest in GRE's activities is intensifying. Last month it was revealed that Lautro was investigating the sale of GRE policies to about 5,000 customers following continuing accusations of hard-sell tactics.