An IAG subsidiary has been censured by Lloyd’s over issues relating to past reserving and record keeping within its UK business, Equity Syndicate Management.

Equity operates a motor syndicate at Lloyd’s which has suffered substantial losses in recent years, causing IAG to bolster its prior-year reserves to the tune of $275 million in 2010 and take the broom to its UK management team.

The Lloyd’s investigation, which resulted in two charges of detrimental conduct, relates to the 2008/09 financial year, when the company was under the stewardship of then-CEO Neil Utley.

The Lloyd’s Enforcement Board found the company failed to “comply with Lloyd’s requirements for the maintenance of systems and controls procedures and/or for the maintenance of a high standard of documentation in relation to its reserving processes”.

According to the notice of censure, Lloyd’s also found that Equity failed to “ensure that its board was provided with, and the board’s failure to insist upon, sufficiently comprehensive management information and data regarding the adverse development of claims payments”.

Lloyd’s ordered Equity to pay £95,000 ($139,588) in costs relating to the investigation.

The board says the company narrowly avoided a fine of at least £1 million ($1.47 million), due to the fact that it admitted the charges, co-operated with the investigation and did not contest the case.

Other mitigating factors in the decision not to impose a fine included that Equity had previously commissioned its own independent report into its reserving position, that it has since improved its procedures surrounding its reserving and record keeping – including replacing much of its senior management team and appointing a new external consulting actuary – and the financial detriment already suffered by IAG as a result of the reserving issues.

Lloyd’s says its investigators worked closely with UK regulator the Financial Services Authority, which launched its own investigation into Equity in late 2010.

In a statement, Equity said its new management team under former IAG NZ CEO Ian Foy, who was appointed in September 2010, “has worked co-operatively with Lloyd’s during this process and has acknowledged that its results were disappointing in an extremely challenging market environment”.

“While market conditions in the UK remain challenging, our new leadership team is working positively on the program and we remain confident that the business will show a much improved financial position in the financial year ending 30 June 2012.”