By Padraic Halpin
DUBLIN (Reuters) - British insurer RSA (L:RSA) viewed surpluses generated by its business in Ireland as "treasure" that could be used to support underperforming parts of the wider group, the former chief executive of the Irish division said on Monday.
RSA's Irish business was left without a safety net after it was directed to release over 250 million euros (179.5 million pounds) in reserves to support the group's results between 2007 and 2011, Philip Smith told a constructive dismissal hearing in Dublin.
"This Irish reserve margin was almost unique in terms of its scale, such as it became termed 'the Irish Caves'," Smith said, adding that former RSA Chief Executive Simon Lee would call the Irish reserves "treasure" to be used as the group saw fit.
The policy of tapping into the Irish unit's reserves meant it did not have a financial cushion when problems were uncovered in 2013.
"No reserve margin was being built up such that when problems arose, there was absolutely no contingency," said Smith.
Lee did not immediately respond when Reuters tried to contact him. He quit RSA in December 2013 after it emerged the group had been overstating its profits in Ireland, requiring it to inject 200 million pounds into the subsidiary and tap shareholders for cash.
Smith alleges he was forced out of the company in November 2013 and was "cast to the wolves" by RSA after an increase in claims, including motor insurance, in Ireland meant its reserving policy came in for scrutiny by the Irish central bank.
A spokeswoman for RSA said the company would defend the case robustly but had nothing to add about what was said on Monday.
'PUSHED UNDER BUS'
Smith told the hearing that RSA Ireland's reserve margin at the end of 2012 provided a cushion of about 5 percent above expected claims payouts but that according to the central bank the average margin for the Irish sector was more like 11 percent.
He resigned from RSA in late November 2013 after being suspended a few weeks earlier while the company investigated accounting procedures at its Irish business.
Smith said on Monday that even on October 21, 2013, he had been overwhelmed with the support given by fellow executives, including Lee, on a visit to group headquarters in London.
Shortly after that, he said the mood changed.
"They were now in the eye of the storm with the central bank and some or all of us were going to be pushed under the bus."
Smith, who worked at RSA for eight years, told the hearing his performance reviews had all been superior or outstanding, and that he had been earmarked to be group director for global broking only weeks before his resignation
The group posted a pre-tax profit of 275 million pounds for 2014, but said its Irish unit would break even only in 2016.
Goldman Sachs cut its rating to "sell" from "neutral" on RSA on Monday, citing among other issues the fact that the insurer no longer expects to get into the black in Ireland this year.