The UK’s Financial Reporting Council (FRC) has fined KPMG and related parties more than £6 million ($11.1 million) for mishandling the accounts of an underwriting business IAG formerly owned.

The FRC announced the penalties last week, ending an investigation into the books of Equity Syndicate Management (ESM), the trading name of Equity Red Star, a Lloyd’s motor underwriting syndicate.

It examined financial years from 2007 to 2009 and the provision of actuarial advice to ESM in relation to its reserving for the Lloyd’s syndicate over the same period.

IAG bought Equity Red Star in December 2006, paying £570 million for its parent company Equity Insurance Group.

It sold it in 2013 to private equity company Aquiline Capital Partners for £87 million – a huge loss – having failed to turn the business around despite major capital injections.

KPMG and Associate Partner Mark Taylor were fined £6 million and £100,000 ($185,812) respectively for not properly handling Equity Red Star’s financial statements in 2008 and 2009.

“The tribunal found that in both years insufficient enquiries were made regarding the claims file review process, and warning signs of deterioration in the syndicate’s claims reserves were not acted upon, and consequently there was insufficient evidence to provide an unqualified audit opinion,” the FRC says.

KPMG has agreed to undertake an internal review and report to the FRC on “certain aspects” of its audit last year around insurance undertakings, while Mr Taylor will have a second partner review his audits until the end of next year.

Douglas Morgan, a former ESM director, was penalised for improperly handling claims reviews within the business, in which under his direction “claims reserves held by the syndicate [were] reduced to meet a pre-determined target”, the FRC says.

He has been excluded for two years from the Chartered Institute of Management Accountants.