In June 2001 the board of the UK company Independent Insurance was told by advisers price Waterhouse Coopers (PWC) that the company was insolvent,its liabilities exceeding its reserves and assets by a quarter of a billion pounds. A provisional liquidator was appointed. Yet only six months earlier Independent Insurance appeared to be worth over €1 billion.
The company had been floated on the stock market in 1993 and many analysts favored the shares. The last published accounts in 2000 showed an operating profit of €40 million, although cash outflow was somewhat higher, and the auditors, KPMG, reported that the accounts showed a true and fair view of the state of the company's affairs. Actuaries, hired to review the company's exposure to risk, claimed that the reserves made reasonable allowance for possible claims. Annual returns were duly filed with Companies House and the Financial Services Authorities. Six months later, the company had collapsed.
What went wrong? Where were the checks and balances supposed to be provided by the board with independent directors, the auditors the actuarial, the analysts, and the regulators?
For 14 year, Michael Bright had been managing director of Independent Insurance, A man of undoubted entrepreneurial flair, he had many fans in the City of London for his unique way of doing business and the company's 'superior underwriting strength' , but he was a forceful and charismatic character and, as his reputation grew, he became less and less willing to brook challenges to his authority.
One by one, his fellow executive directors left. Roberr Mc Cracken, head of British regional business left in 1997; Keith Rutted, responsible for liability underwriting in 1998. A third member of the triumvirate that had previously kept Bright in check, Alan Clarke, retired in 1999. The other significant executive director, Philip Condon, the deputy MD , was a close friend of Bright, Garth Ramsay was non-executive chairman of the board and Sir lain Noble was another non-executive director, KPMG charged €667,000 for its audit, but consultancy and other services produced nearly another million pounds.