Q&A: Quinn Insurance developments

What happened in the High Court today? The Financial Regulator made and was granted an application to have joint provisional administrators appointed to Quinn Healthcare and Quinn Direct, which offers motor, home and business policies.

Is this move significant? Very. Quinn Insurance is the second-biggest insurer operating in the Irish market. It has 19 per cent of the motor insurance market, 3 per cent of the property insurance market and 13 per cent of the public liability market. Quinn Healthcare has in the region of 400,000 customers and the companies employ almost 2,800 people in Ireland and the UK.

How has Quinn Insurance responded? It described the court action as "deeply disappointing in the context of the continued profitability of the group which is currently in excess of €20 million per month" and expressed the belief that the issues could have been resolved "to the benefit of all in a relatively short space of time". It stressed that its business outside of Quinn Healthcare and Quinn Direct, including its life assurance arm, were unaffected.

If Quinn Insurance is so profitable, why was the administration order sought? Counsel for the regulator told the High Court the company had "significantly breached" its solvency ratios. It heard that subsidiaries of Quinn Insurance had made guarantees in relation to the group's assets which reduced the amount of cover for policyholders' liabilities and was told that its assets were reduced by €448 million.

The court was also told that the group had gone from having assets over liabilities of some €200 million to an excess of liabilities of more than €200 million.

Should customers be worried? No. The most important thing people who have policies with the affected elements of this company should bear in mind is that they continue to be covered.

Both Quinn Healthcare and Quinn Direct remain open for business and the Financial Regulator has stressed that consumers will be able to renew policies, take out new business and expect pay outs on all "valid claims" in the normal way.

Can consumers who have paid premiums in advance get refunds if they leave the company before the policy term ends? No, when an insurance company enters administration, its customers do not have a legitimate reason to break the terms of their contract. The company continues to honour its side of the bargain by continuing to offer cover so there is no legally valid reason to break the agreement. Consumers who are still concerned by should contact their broker.

What about Quinn's business in Britain and Northern Ireland? In a separate development, the Financial Regulator has directed Quinn Insurance to cease taking on new business in the UK to prevent the company "suffering further financial losses from its currently unprofitable UK business".

What happens next? In the very short term, probably very little. The administration process can be a long one. There are three scenarios which could come to pass: the company could come out of administration as a profitable, independent company and continue to trade as it has done in the past; it could come out of administration and be sold to a rival operator who would assume any of its losses or it could remain in administration ahead of a long winding-up process.

Have we been here before? Yes, but not for decades. In 1983 the motor insurance company PMPA, then the biggest motor insurer in the State, went into administration after it got into serious financial difficulties. That administration process lasted six years, the PMPA workforce fell from 2,300 to around 800 and the company was restored to profitability before ultimately being bought by Axa Insurance.

Two years later, a similar fate befell the Insurance Corporation of Ireland (ICI), which was part of AIB. Its profitable life assurance arm was sold to Prudential, which was later acquired by Irish Permanent Building Society.