Old mistakes continue to haunt GRE: Things have not been going well at the life insurance group. Paul Durman reports

IT HAS not been a good month for Guardian Royal Exchange, the life insurance group housed in the splendour of the City's Royal Exchange. It was fined a record pounds 100,000 for failing to control two of its tied sales outlets; two of its former salesmen were arrested as part of separate investigations; and the company was revealed to be under investigation over another matter.

Other life offices have also fallen foul of Lautro, the life insurance regulator, but GRE's failings are better publicised and apparently more numerous. The company insists its image is being dented by symptoms of past rather than present problems.

Like many others in the industry, GRE underestimated the difficulties of selling through tied agents - independent businesses restricted to selling the products of only one life office. Its tied agents include prestigious names such as Nationwide and other large building societies, but also many smaller firms of much more dubious financial standing and integrity. At the hands of such firms, investors have suffered wrongful selling, bad advice and, in the worst cases, fraud and theft.

GRE says it has rid itself of its problem agencies and new management has tighter control of the 500 firms that remain. But it takes the authorities many months to investigate agents who appear to have broken the rules and to take the appropriate action. Hence, last month's fine from Lautro, in connection with Centrust and Coventry Investments Group, both of which were in trouble by early 1991.

Centrust is at the root of many of GRE's difficulties. The small Norfolk firm collapsed amid allegations of unlicensed deposit-taking and unauthorised cashing of investors' policies. GRE initially refused to meet the Centrust investors' action group and has sometimes seemed unsympathetic and parsimonious in dealing with claims for compensation. A huge gulf remains between the several million pounds of losses claimed by investors and the amount of due compensation recognised by GRE.

Keith Lugton, GRE's spokesman, admits his company handled the Centrust affair badly at first. But GRE stands by its refusal to compensate investors who deposited money with the firm. Centrust was not authorised to handle deposits. Consequently, GRE argues that it has no obligation to compensate for losses from such deposits.

Whatever the legal position, investors argue that GRE has a moral obligation to them as they believed they were dealing with GRE agents.

The Centrust affair has left GRE with an enduring problem in Peter Buckell, head of the investors' action group. Mr Buckell is in contact with other GRE malcontents - former salesmen or tied agents in dispute about commission payments, their contracts or their treatment by the company. Eager to publicise GRE's misfortunes, the loose alliance continues to cause trouble.

Trethowans, a Salisbury firm of solicitors acting on behalf of Centrust investors, says it has found GRE more awkward to deal with than Royal Life or Norwich Union, other companies that have slipped up over tied agents.

Neil Stevens of Trethowans said: 'Our major worry is that (GRE's) primary concern is to avoid paying money out. It's not a question of 'What have we done, what do we need to do to put it right?' '

Another allegation, which Lautro is investigating, is that GRE helped to publicise the problems of an independent financial adviser, Andrews Green, in order to escape the compensation liabilities owed to investors of Fraser-Mayer, a former GRE agent with close ties to Andrews Green. GRE denies the charge.

GRE's critics are not short of ammunition. Following the demise of Inter City Associates, a Doncaster agent which sold home income plans, GRE has had to repay pounds 7m to 400 of the firm's 500 clients. The insurer called in the Thames Valley Police fraud squad to investigate alleged over-payments of commission to agents, run from the company's Reading area office. And another formerly successful agent, Vinodchandra Patel, is unable to meet pounds 7m of guarantees he gave to GRE's lending arm in respect of his property business.

Mr Lugton remarked that: 'Many of the difficulties have only come to light because we have been looking at them.'

Another failure repeatedly highlighted by GRE's critics is its disastrous purchase in March 1989 of large stakes in three Italian insurance companies. Within two years, the company had decided to write off the whole of its pounds 68m investment. By any standards, this was an appalling misjudgement. But the circumstances in which it was made make it substantially worse. GRE's auditors, Coopers & Lybrand, had raised serious concerns about the quality of management information and the adequacy of loss reserves available within two motor insurers involved. GRE ignored the warning, to its cost. GRE claims that it believed the problems it encountered (much worse than Coopers & Lybrand had feared), could be put right.

The Italian investment was a joint venture with Istituto Bancario SanPaolo di Torino, a large banking group whose directors include Charles Hambro, GRE's chairman. SanPaolo is the largest shareholder in Hambros, the merchant banking group, which Mr Hambro heads. Despite these links, GRE says Mr Hambro did not initiate the Italian investment and deliberately played a backseat role. The disaster merited only the briefest of embarrassed mentions in the annual report that followed GRE's withdrawal.

GRE insists this is all old news. Peter Dugdale, the former managing director, and two other executive directors most closely involved have all retired; new management has been appointed. None the less, seven of the present GRE directors were on the board at the time of the investment in Italy. Those remaining include Sid Hopkins, chief executive, and Charles Hambro, chairman.

Little of this has much bearing on GRE's medium-term prospects, which are driven to a much greater extent by the recovery in the general insurance cycle. But it does raise questions about the company's management. That Guardian Royal Exchange has been badly managed is beyond doubt. The only question is whether anything has changed.

(Photograph omitted)