Quinn 'culture' led to €208m of extra costs to State

A CULTURE at Quinn Insurance of suppressing estimated losses up to 2010 has contributed to €208 million of additional costs to the State’s Insurance Compensation ion Fund, according to the joint administrators of the insurer once controlled by Seán Quinn.

Explaining why the call on the fund has risen by €875 million to a possible €1.65 billion in a worst-case scenario, from €775 million last year, one of the administrators told the court that the culture at the insurer was to keep tight control on reserves for future claims.

Michael McAteer of Grant Thornton said he didn’t believe that loss estimates were suppressed during the administration because managers had been incentivised around claims but because there was uncertainty around the future ownership of the business.

The administrators said that €208 million of the additional €875 million cost arose from poor claims handling and reserve practices and the insurer’s culture of suppressing estimated claims.

A further €300 million of the increased costs relates to adverse provisions for potential claims on liabilities in Ireland and the UK, while €152 million is to cover actual and possible write-downs of the value of the insurer’s assets.

The administrators say that there could be a €215 million cost arising from further declines in the value of the euro against sterling which would increase the cost of liabilities on UK policies.

Mr McAteer said the company tried unsuccessfully to hedge against future falls in the value of the euro but the Department of Finance and the National Treasury Management Agency (NTMA) were unable to put something in place to prevent further losses.

The administrators had no capital from the business to fund a hedge, he told the court.

Correspondence presented by the administrators to the High Court showed that the Department of Finance told them in June that neither the State nor the NTMA were in a position to provide the necessary guarantees to put in place a currency-hedging strategy.

The administrators have said the €1.65 billion cost is based on a fairly pessimistic scenario for claims and that the likely call on the State’s fund will fall between €1.1 billion and €1.3 billion.

Mr McAteer told the president of the High Court, Mr Justice Nicholas Kearns, that the administrators were “comfortable” that the level of reserves to meet claims were “appropriately set” and that they were “more comfortable” their estimates were correct now.

In an exchange of letters between the administrators and the Minister for Finance and his officials, the administrators disputed that figures for possible losses provided in July were not significantly different from those given in April. The main change was the €215 million for possible fluctuations between sterling and the euro.

The judge noted that nobody predicted the euro strengthening against sterling, but Mr McAteer said this potential cost would not have occurred had they been able to hedge their sterling liabilities.

Bernard Dunleavy, counsel for the administrators, told the court that with the benefit of hindsight there were areas that could have been better addressed but it seems unlikely they would have led to a better outcome for the fund.

Mr McAteer said they had not expected the administration to last so long and they would have hired someone like their new chief executive, Aidan Cassells, an experienced insurance executive, earlier.

The administrators were “very comfortable” with the handling of UK claims by the US insurer Liberty Mutual, which bought the Irish part of Quinn Insurance and has the right to buy residual UK policies from the administrators.

The court was told that the administrators are working with the State Claims Agency to settle claims and reduce the call on the Insurance Compensation Fund.