PwC to probe Independent

Independent Insurance has called in accountant PricewaterhouseCoopers to examine the alleged reinsurance contracts that sparked its financial crisis and caused it to close to new business.

The company's board disclosed this month that it had uncovered a number of contracts, which are believed to cancel out the benefits of another reinsurance contract taken out to bolster Independent's reserves.

Sources close to Indepen dent say there are questions over the authority of those who signed these contracts. Under Independent's procedures, the board reviews all major contracts, but it is believed that non-executive directors were not told of the existence of the contracts before they signed off the 2000 accounts in March.

PwC is to probe the contracts as part of a review of events leading up to Independent's collapse.

The Financial Services Authority, the City regulator, is believed to have launched its own investigation.

The discovery of these contracts, together with questions over the level of Independent's provisions for claims on its policies, is believed to be behind the failure of its efforts to raise new capital.

The company said on Thursday that it 'had not yet proved possible to provide information sufficient to ascertain the appropriate level of technical provisions', and said it would temporarily stop taking new business.

The original contract involved the payment of a premium of £110 to the reinsurer - believed to be a subsidiary of GE Capital - for £278 million of benefits. That produced a profit for Independent, which was used to strengthen its internal reserves.

Since the annual meeting in April, however, Independent has uncovered further contracts which, if they stand, would produce a loss.

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