Woolf (2007) in an article in Accountancy Magazine described the collapse of The Independent Insurance Company Ltd. The insurer operated for a good number of years and through the period the company developed to be one of the Top 10 insurance companies in the UK in the 90’s. The company had an estimated 400,000 to 500,000 policyholders. Independent also had assets and liabilities to the tune of about £1.7bn and £1.4bn respectively. Yet despite these remarkable numbers and the sheer size of the company, it failed & collapsed largely as a result of the inadequate and extremely low claims reserves it held. The collapse of the independent was also described by Boyle (2001), in an article in Insurance Journal. The demise happened despite the fact that the company was always posting tremendous profits and strong results.
A second case that supports strong regulatory frameworks that ascertain the fitness of …show more content…
The decision of the company taken by high level senior executives and indeed their board of directors was to accrue an enormous credit default swap (CDS) portfolio of $526 billion. AIG was also exposed to subprime mortgage loans. These loans became bad leading to a chain of events that culminated in the eventual collapse of AIG. What made things even worse off for AIG was that other companies involved in selling CDS were also buying CDS protection at the same time. AIG only sold CDS and could not enjoy the benefit of netting out of these bad and risky policies. The company had to be bailed out by the US