Davies hits back at French in row over collapse of insurer

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An angry Sir Howard Davies, chairman of the Financial Services Authority, yesterday fired a broadside at France's insurance regulator in a dispute over the FSA's conduct in relation to Independent Insurance, the failed insurer.

The attack came after Jacques Delmas-Marsalet, the president of the Commission de Contrôle des Assurances (CCA) told Les Echos, the French financial newspaper, that the FSA ignored its warnings about Independent Insurance's French subsidiary, dating back to last autumn. It is considered contrary to regulatory etiquette for one supervisory body to criticise another.

Meanwhile, Barry Gardiner, Labour MP for Brent North, also called for a separate inquiry to investigate the FSA's role in regulating Independent. Class Law, which is co-ordinating a class action against the company, its advisers and possibly the FSA, said it could file a writ in September.

Les Echos quoted Mr Delmas-Marsalet saying the most troubling aspect of the collapse of Independent's French subsidiary was "a failure of co-operation with the FSA".

"We asked the FSA questions about the group from the autumn, we warned them verbally about the difficulties of the subsidiary at the end of the year, and we sent them our supervisory report in January. But the FSA was slow to tell us the real situation of the parent company," he said.

Sir Howard said the allegations were "just wrong". The CCA's communications had added nothing to the FSA's understanding of Independent's problems, some ­ but not all ­ of which were apparent to the FSA earlier this year.

The FSA said it knew of under-reserving at Independent Insurance's UK operations in January, and had instructed the company to raise fresh funds before pursuing further expansion. It appeared as though the company needed only to raise more capital. But a planned rights issue failed when Watson Wyatt, the firm's actuaries, refused to sign off the company's books. Subsequently, evidence of possible fraud, and failing to record claims, began to emerge.

"Part of our concern related to apparent under-provisioning and we were in very active dialogue with the company on this well before the French contacted us. This did not, however, point to possible fraud at Independent Insurance," the FSA said.

Sir Howard said the CCA had reported under-reserving and possible underestimation of claims at the French sister company, but, significantly, had not suggested that claims were not being entered into books.

The FSA discussed the CCA's concerns with Independent Insurance. It did not respond to CCA questions until March, because the company could not provide instantaneous answers to the FSA's queries. "This company was pricing business very finely. Everyone knew it was a sharp-pencilled operator," Sir Howard said.

The CCA declined to comment, but a source close to Mr Delmas-Marsalet said he was annoyed by the way his comments had been interpreted, and that he had felt misprepresented. He expected to speak to Sir Howard yesterday afternoon.

The outbreak of hostilites between the regulators comes amid mounting uncertainty over the size of commercial claims that will not be paid after Independent's collapse. Sir Howard said the complexity of the firm's reinsurance contracts meant it was impossible to even hazard a figure. Some companies may have been pushed into bankruptcy after losing court cases where Independent Insurance would have paid damages against them. It was unlikely shareholders would ever receive any cash, the FSA said.