The former bosses of Independent Insurance have been found guilty of lying about reserve shortfalls that led to the collapse of the one-time star of the insurance industry.
Michael Bright, who was the insurer's chief executive, was convicted of two charges of conspiracy to defraud by a jury at Southwark Crown Court yesterday. His former deputy managing director, Philip Condon, was found guilty on one count of fraud but was cleared on another, while the ex-finance director, Dennis Lomas, was found guilty of two fraud offences.
The verdict brought to an end a four-month trial that came six years after the firm – once lauded for its apparent success – went bust. The collapse caused the loss of more than 1,000 jobs and hit more than half a million policyholders. It also rocked the stock market, where Independent's value had risen to £1bn seven years after it floated.
The men hid claims estimates from external actuaries, Watson Wyatt, for years until they finally came to light. From 1998, Bright and his team had been withholding information from auditors, fellow board members and investors. By the end of 2000, there was a £50m black hole of claims that had not been accounted for. The claims were recorded on whiteboards around the office, but never made it to the company's accounts.
Expert actuaries instructed by the prosecution and the defence estimated that the shortfall in reserves to cover claims at the end of 2000 was between £110m and £250m. Lomas and Bright also lied about a string of re-insurance contracts that they agreed between 1998 and 2001, disclosing good ones and hiding bad ones.
The collapse of Independent was one of the most damaging commercial disasters in recent British history. The Financial Services Authority responded with a tightening of regulations for the insurance industry. So far, £366m has been paid out from the FSA's compensation scheme to some of Independent's 500,000 private and 40,000 corporate policyholders. Taxpayers have had to foot the bill for the trial and the four-year Serious Fraud Office investigation that preceded it.
Bright, 63, joined the insurance industry aged 17 and rose through the ranks in a series of jobs. In 1986, he was approached to join the acquisition of the British business of Allstate Insurance and borrowed £50,000 against the value of his home. After renaming the company, he took it to flotation in 1993 and expanded its market share to become Britain's ninth-biggest insurer.
When the company imploded, just three months after posting a £22m profit, he lost £55m of shares and was forced to sell two of his four homes and declare himself bankrupt. He is now unemployed, but keeps luxurious homes in Kent and Spain.
During the marathon court case – described by Judge Geoffrey Rivlin as "one of the most demanding fraud trials" – Bright consistently denied the charges against him. He broke down crying as he told the court how he had worked to get Independent out of a "dark pit". On another occasion, the court had to be adjourned after Bright nearly collapsed from palpitations caused by his diabetes and obesity.
The former "insurance man of the year" claimed he was kept in the dark by senior managers and that he had believed Independent was "the finest insurance company in Europe". He claimed that his overbearing management style scared staff so that they withheld bad news from him. But counsel for Condon, 58, and Lomas, 56, accused Bright of knowing more than he would admit.
All three men were remanded in custody and are expected to be sentenced today.