The UK accountancy regulator has opened twin probes into KPMG's auditing of Lloyd's of London car and motorcycles insurer Equity Red Star and actuaries who advised it.
In 2010 Equity Red Star, a UK subsidiary of Insurance Australia Group which insures one in four motorcycles on Britain's roads, crashed to a A$358 million (240 million pound) loss after failing to set aside enough cash to cover claims.
IAG has since replaced the unit's top management and overhauled its reserving procedures but in January Equity Red Star was reprimanded by Lloyd's and charged 95,000 pounds in investigation costs for previously not having big enough buffers to cover a surge in personal injury claims.
On Monday the Accountancy and Actuarial Discipline Board said it is now investigating KPMG's auditing of Equity Red Star for the three years that ended December 2009 with particular reference to technical provisions.
The AADB is also investigating the conduct of actuaries who advised Equity Syndicate Management Ltd, the management agent and a corporate member of the Lloyd's of London insurance market which trades as Equity Red Star.
KPMG said it will cooperate fully with the AADB probe.
We are confident our audit work in relation to the Equity Red Star syndicate met the relevant professional standards, a KPMG spokesman said.
Equity Red Star said it had no comment to make.
(Reporting by Huw Jones and Myles Neligan; Editing by Greg Mahlich)