Pearl's listing delayed by accounts rules

Insurers' London float plan in doubt as financial reporting switch continues. Simon Evans reports

The likelihood of Pearl, the Hugh Osmond and Nicholas Berggruen backed insurer, floating on the London Stock Exchange this year has been called into question as the firm struggles to comply with reporting standards in time.

The group, which is expected to appoint Northern Rock chair, Ron Sandler, as chairman when it announces results on 24 September, said in July it was "developing internal financial systems in accordance with International Financial Reporting Standards" (IFRS) ahead of the firm being bought by Cayman Island-based group, Liberty.

But a source close to Pearl said that the development of systems to comply with IFRS was taking longer than initially envisaged, casting doubt that Pearl will get a float away this year. The source said: "It's proved much tougher than first thought and could delay the float."

Meanwhile, it's emerged that the Financial Services Authority, has lifted a so-called Oivop order on Pearl, which forced the insurer's management to seek approval to move economic resources. The Independent on Sunday has also learnt that a second investigation into Pearl's affairs by the FSA has been concluded.

The regulator drafted in the law firm Allen & Overy to conduct a so-called S166 skilled persons report to assess possible corporate governance and decision-making failures at the group. Sources close to Pearl claim that the group was given a "clean bill of health".

Last year the FSA commissioned accountants KPMG to report on Pearl's financial soundness, which recommended overhauling the group's debt structure to avoid "a shortfall in the level of cash available to meet its repayment and interest obligations."

In the July proxy statement sent to Liberty's investors it was revealed that the Pearl breached its breached its Insurance Groups Directive solvency test last year. However, the FSA sanctioned an assets reorganisation enabling the insurer to meet its capital requirements.

Also revealed in that statement was the news that Pearl's staff pension fund carried a shortfall of £607m as of 30 June 2009 – a shortfall that should have been made up under an existing agreement with trustees. However, trustees agreed to revise the agreement and instead make annual payments to the fund, thought to be in the region of £25m, to help reduce the deficit.

A policyholder, who contacted the IOS, said: "I think a lot of people will struggle to understand the trustees thinking on this. Is the agreement in the best interests of the policyholders?"

He also raised questions about Pearl investments in Drago, a Spanish property firm, in which the insurer has a 25 per cent stake, and Algeco Scotsman, which is majority owned by TDR Capital, a backer of Pearl. "I'm not suggesting that there is anything illegal going on, but pension funds are traditionally invested in conservative assets. Perhaps these will give us strong returns, I don't know. I hope so."

It's thought that following the FSA sanctioned investigations into Pearl and Liberty's recapitalisation of the group, the regulator played a key part in getting Mr Sandler into the chairman's seat at Pearl.