Central Bank of Ireland-Enforcement Action: RSA Insurance Ireland DAC fined EUR3.5m.

ENPNewswire-December 21, 2018--Central Bank of Ireland-Enforcement Action: RSA Insurance Ireland DAC fined EUR3.5m

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Release date- 20122018 - The Central Bank of Ireland imposes a fine of EUR3,500,000 on RSA Insurance Ireland DAC for regulatory breaches relating to large loss claims and accounting irregularities.

On the 18 December 2018, the Central Bank of Ireland (the 'Central Bank') reprimanded and fined RSA Insurance Ireland DAC ('RSAII' or the 'Firm') EUR3,500,000 in respect of serious breaches relating to the following:

Failure to establish and maintain Technical Reserves in respect of all underwriting liabilities assumed by it

Failure to have administrative and accounting procedures and internal control mechanisms which are sound and adequate

Failure to have robust governance arrangements

RSAII has admitted these breaches.

The breaches arose from serious shortcomings in RSAII's internal controls and corporate governance frameworks enabling certain individuals within RSAII to deliberately manipulate claim reserve estimates through the under-reserving of multiple large loss claims from 2009 until October 2013. This was done by recording claim reserve estimates on RSAII's claims database which were significantly lower than the claims handlers' recommended reserve estimate, and/or significantly delaying the recording of recommended claim reserve estimate increases.

The Central Bank's investigation also identified weaknesses in RSAII's accounting procedures and internal financial control mechanisms.

The extensive issues identified within RSAII's Claims and Finance functions led to an understatement of EUR78.2 million in the Firm's Technical Reserves as at 30 September 2013.

Furthermore, the investigation found that failures in RSAII's Corporate Governance framework, particularly in its internal reporting structures, allowed the under-reserving of large loss claims to go undiscovered and unchecked for several years.

The Central Bank's Director of Enforcement and Anti-Money Laundering, Seana Cunningham, said:

'Insurance policyholders and the wider financial system are placed at significant risk when insurance entities fail to set aside sufficient reserves. Maintaining sufficient reserves to meet underwriting liabilities is the cornerstone of conducting business in all insurance entities.

Effective governance and robust internal controls are essential in mitigating the harm caused by inappropriate behaviours. Strong governance practices, systems and structures provide regulated entities with a framework through which they can embed appropriate behaviours throughout an organisation.

RSAII's failure to implement appropriately robust controls in respect of the reserving of large loss claims made it possible for certain individuals within RSAII to engage in a practice of deliberately manipulating claim reserve estimates over a number of years. This systematic under-reserving of large loss claims resulted in a material understatement of RSAII's liabilities and ultimately contributed to RSAII requiring a significant capital injection. The starkest example of the under-reserving practice uncovered by this investigation was a personal injuries claim with a recommended claim reserve estimate of EUR4,750,000 where the amount actually recorded on the Firm's claims database was EUR20,000.

The Central Bank will not tolerate conduct which poses a risk to the integrity and stability of the financial services market in Ireland. The Central Bank requires regulated entities to foster a culture of regulatory compliance through the promotion of principled and ethical behaviour at all levels in their organisation.

This enforcement action reflects the gravity of RSAII's failures and, demonstrates that where regulated entities fail to comply with their obligations, the Central Bank will use all available statutory powers to pursue enforcement action and hold regulated entities to account. The enforcement action against the Firm has now concluded.'


RSAII is an insurance undertaking authorised in Ireland to transact non-life insurance business. RSAII was authorised on 1 January 2009, incorporating the existing Europa General Insurance Company Ltd and the Irish branch of Royal and Sun Alliance Insurance plc, the UK subsidiary of the RSA Insurance Group plc.

As part of a scheduled supervisory engagement with RSAII, the Central Bank identified delays in increasing recommended claim reserve estimates on a sample of large loss claims. The Central Bank informed RSAII of this finding on 1 October 2013 and, subsequently, in the course of RSAII's Claims Reserving Processes and Controls Audit, RSAII identified an undocumented process involving the systematic underserving of large loss claims which had been in operation since 2009 and continued until its discovery in mid October 2013 (the 'Relevant Period'). In response to this finding, the Central Bank commenced an investigation into suspected under-reserving practices at RSAII in 2014.

Prescribed contraventions

The Central Bank's investigation identified the...

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