Quinn Insurance has accused the Financial Regulator of miscalculating the extent of its exposure from a guarantee on €1.2bn of debt

FOR A man known for courting a low profile, Seán Quinn has shown this week that his appetite for a public fight remains more than healthy. The appointment of provisional administrators to Quinn Insurance appears to have unleashed an anger within the Fermanagh entrepreneur that is building by the day.

He told RTÉ news last night that the move amounted to one of corporate Ireland's biggest mistakes. Liam McCaffrey, Quinn Group's chief executive, is equally clear on the Quinn view of the Financial Regulator's move: it was "just a terrible decision", he told The Irish Timesyesterday.

For now, it is an outcome that the company must accept, as all involved wait to return to the High Court on April 12th. On that occasion, Quinn Insurance will be given the chance to argue its side of the case.

McCaffrey audibly seethes on the subject, going so far as to wonder if Quinn has been “a victim” of the “heightened tension in the regulator’s office” because of Nama.

The regulator, Matthew Elderfield, showing few signs of such stress when he delivered his assessment of Quinn Insurance, would presumably beg to differ. In his view, the action was “decisive” and “in the interests” of the company’s policyholders. He would probably also point out that a decision to exclude Quinn’s life insurance company, Quinn Life, from the administrator appointment displays a level of discretion on the part of his office.

What both sides know is that the reasons for Tuesday’s court appearance developed very quickly, even though Quinn and the regulator have been engaging with each other on solvency issues for more than 12 months.

The regulator needs an insurance company’s assets to amount to 150 per cent or more of its liabilities and this has not been the case for Quinn for some time.

These discussions boiled down earlier this year to a “financial recovery plan” Quinn Insurance had put together to restore it to a financial position that would be acceptable to the regulator.

Early last month, the regulator’s office shot this down, arguing it was unrealistic. A new plan was prepared and again it was rejected, this time on March 23rd. Administration was still not on the table at that stage.

All changed on Wednesday March 24th, when the regulator received new information from Quinn in relation to guarantees Quinn Insurance had made on €1.2 billion in loans advanced to Quinn Group as a whole. The matter had arisen in the context of refinancing negotiations Quinn Group was holding with creditors.

In the regulator’s eyes, these guarantees had the effect of reducing Quinn Insurance’s solvency to worrying levels. If they were called in, the regulator argued, liabilities would exceed assets by more than €200 million. This brought the company below statutory solvency requirements of 100 per cent, never mind the regulator’s own standards and thus jolted the office into action. The regulator asked for the guarantees to be released and for Quinn Group to advance about €35 million to the insurance company. If this happened, no action would be taken for 30 days while further efforts were made to improve Quinn Insurance’s financial footing.

Contact between all the parties multiplied over last weekend, with Quinn Group even bringing over a group of its London bankers to reassure the regulator.

“In our view, that should have provided enough comfort to the regulator,” said McCaffrey. It wasn’t enough, however, and on Tuesday it took the ultimate step of asking the High Court to appoint administrators. Quinn responded with a combination of disbelief, rage and defiance, immediately rattling off an angry letter to Government Ministers, illustrating his view of Quinn Group’s importance to the economy. Undeterred, the regulator began an investigation into the Quinn Insurance business to search, as one source put it, for further “black holes”.

For his part, Quinn must watch from the sidelines, as the insurance company he built up against all the odds is wrested from his grip. The April 12th hearing is expected to see Quinn strongly opposing the appointment, although McCaffrey said yesterday that legal options are still being investigated. Technically, official opposition to the move must come from the board of Quinn Insurance, a board on which neither he nor Quinn sit.

The company’s argument for reversal appears to focus on a belief that the solvency issues can be solved, if only a bit more time could be allowed. A month “or maybe a bit longer than that” would be enough, said McCaffrey.

He reckons the regulator has made a “miscalculation” by considering the full value of the guaranteed debt. For one thing, he said, there is no prospect of it being called in. Secondly, the creditors have, in effect, a menu of guarantees to choose from within the Quinn Group as a whole. If repayment arose, it simply wouldn’t make sense to single out the guarantees provided by the insurance subsidiaries, he argues.

McCaffrey believes that if the regulator had indicated that it would allow the company some breathing space, the lenders would have been prepared to withdraw the guarantees. He does not credit the regulator with considering all of these factors, suggesting that the matter was not managed with a “cool” head.

The guarantees relate to a refinancing completed in 2005 which involved about 20 US bondholders and a combination of about eight UK and Irish banks.

McCaffrey said there is no panic within this group as a result of this week’s action but acknowledges that there is “constant, daily contact” between the company and its creditors.

“They’re calm about the process,” he said, acknowledging that refinancing negotiations, which are approaching a deadline, must now proceed on the “working assumption” that Quinn Insurance is out of the picture.

More crucial for the State as a whole is the debt the Quinn family has with Anglo Irish, some of which relates to a disastrous foray into shares in the bank, which Quinn has admitted cost him more than €1 billion and which is subject to investigations.

McCaffrey said Quinn Group will not find it difficult to handle the €1.2 billion refinancing but admits that the Anglo debt is a thornier issue. This amounts to between €2.7 and €2.8 billion and is secured on the Quinn family’s shareholding in Quinn Group rather than being guaranteed by the group itself. McCaffrey said a “very robust” Quinn Insurance would have been needed to repay that “either through cashflow or disposal”. This was “made much more difficult through the action of Tuesday,” he added, describing the effects on the group as “being hit by a storm”.

McCaffrey describes Quinn Insurance as “a very vibrant company” that is trading “very profitably” and is exporting financial services to the UK – “something the Government would be keen to encourage”.

Accusing the regulator of a “lack of joined-up thinking”, he also disputes the view that the company’s UK insurance business is not profitable. Under the terms of the administrator’s appointment, this arm must stop taking in new custom.

“The business was never in difficulty,” said McCaffrey of Quinn Insurance as a whole, acknowledging that property and equity writedowns had left “capital somewhat depleted”.

Those inside the industry privately report themselves to be flabbergasted by the original provision of loan guarantees. “I don’t know whether it just gets down to entrepreneurial and financial companies not mixing,” said one industry observer.

Meanwhile, out in the real world, up to one million consumers are left in doubt, wondering how stable their insurance cover might be in the context of administration or, as is becoming increasingly likely, Quinn Insurance being taken over by an international player.

As for Quinn himself, he has taken and deflected criticism before and would probably argue that his business has always survived and grown in spite of it.