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The Actuary The magazine of the Institute & Faculty of Actuaries

KPMG fined over role in Independent collapse

The Accountants’ Joint Disciplinary Scheme (JDS) has fined KPMG for its role in the collapse of Independent Insurance. Independent went into receivership in 2001 after accounting fraud was discovered. Independent’s then CEO and two directors were subsequently jailed for their role in the fraud.

The JDS fined KPMG just under £500 000 and ordered it to pay costs of £1.15m. The lead partner for the Independent audit was individually fined £5000.

The fine was imposed for KPMG’s failure to challenge or investigate a stop-loss reinsurance deal that seemed to turn a £105m probable loss into a £22m profit for Independent. Both KPMG and Watson Wyatt — Independent’s external actuaries — recognised the lack of commercial rationale for the reinsuring counterparty under the deal. However, KPMG accepted Independent’s management’s claim that the reinsurers’ interests were “long-term” without seeking independent corroboration.

The JDS said: “An auditor in good standing should not have placed such complete reliance on management representations.”