Tuesday: Equity Red Star feels the heat again

So Lloyd’s insurer Equity Red Star is back in the spotlight this morning. It has been reported that the motor insurer’s accounting firm KPMG is being investigated by the UK’s accountancy regulator, The Accountancy and Actuarial Discipline Board (AADB), over auditing failures relating to the three years prior to the start of 2010.

The AADB says there is a particular focus on “technical provisions” – a term used in the Insurance Accounts Directive to cover provisions for items such as unearned premiums, unexpired risks, outstanding claims and equalisation.

There is also a second strand to the investigation. The AADB has also begun an investigation into the conduct of members of the Institute and Faculty of Actuaries, relating to actuarial advice. The advice was provided to Equity Syndicate Management Limited – a managing agent and member of Lloyd’s Syndicate 218, which trades as Equity Red Star.

KPMG said it was confident its audit work for Equity has met the required standards. But for Equity, it is more woe. It has been no stranger to negative headlines since 2010 when it made a £240m loss after failing to set aside enough capital for personal injury claims – resulting in the launch of an FSA-led section 166 investigation. The insurer was subsequently slated by Lloyd’s and ordered to pay £95,000 in costs following an investigation which ended in January.

The Insurance Australia Group (IAG) subsidiary also overhauled its UK management team, resulting in the exit of former UK chief executive and current Hastings Direct executive chairman Neil Utley, who reportedly faced a disciplinary hearing at Lloyd’s in late January surrounding his time in charge of Equity.

Equity has yet to comment on this latest development and despite improved results in its latest reported numbers – the UK business recently posted a combined ratio of 102.8% for the first half of its 2012 financial year, compared with 142.3% in the first half of 2011 – there seems no end in sight for the incessant reminders about the reserving blunders that continue to haunt the company.

Tornado alley’s bad start

The US tornado season is underway – and this is likely to set the tone for reinsurance rates at renewals later in the year. But the event will also strike fear into the hearts of reinsurers – which scraped together enough excess capital to deal with a record year of catastrophe losses in 2011.

A second year of record cat losses could have a far worse impact on the balance sheets of reinsurers and the primary market – as the latest results for Amlin and Omega have shown.