Noonan frustrated at rise in Quinn costs

THE MINISTER for Finance has expressed his frustration at the possible €1.65 billion call on the Insurance Compensation Fund as a result of losses at Quinn Insurance Ltd (QIL), documents put before the High Court have revealed.

The documents were part of a series of correspondence between Michael Noonan and the administrators of QIL put before the president of the High Court, Mr Justice Nicholas Kearns, yesterday.

The correspondence formed part of his request to be fully informed as to why the potential call on the fund, set up to protect policy holders in the event that their insurer collapses, had risen from €738 million, when the application came before him last October, to a possible €1.65 billion.

The increase has been attributed to factors including an increased and more pessimistic provision for claims, the euro weakening against sterling, and the decreased value of QIL’s assets, including property assets.

It is also claimed that prior to the administrators taking over the business in April 2010, there had been a culture in Quinn Insurance, particularly in the UK, of underestimating and the under-provision of reserves needed for claims.

Last week the judge said the increase meant the Government levy imposed on motor and home insurance policy holders to cover the costs arising from QIL’s administration would last much longer than the 12 years first envisaged.

The judge heard yesterday from Domhnall Cullinan, an official with the Central Bank, that he hoped the figure of €1.65 billion is the worst-case scenario.

Mr Cullinan, head of insurance supervision at the Central Bank, told the court that while the administrators followed a robust process to arrive at the figure, it was hoped €1.65 billion “is as bad as it gets”.

Mr Justice Kearns also referred to correspondence between the Minister for Finance and the joint administrators that stated that the Minister had expressed frustration that the figures continued to rise at very short intervals.

In the correspondence, the Minister said he was at a loss as to how such a large underestimation in the potential call on the fund could not have been foreseen to a greater extent.

Mr Noonan wrote to the administrators last June and said the new figure was a matter of substantial concern, particularly in the context of the very difficult financial environment the country was now grappling with.

He said it was “remarkable” that the figure continued to climb by substantial amounts in relatively short periods of time.

In a letter in July, Mr Noonan said he could not understand how “highly remunerated professional administrators with the support of highly remunerated actuaries and auditors” could not have had greater insight into the total increased cost at an earlier stage, and he said he was concerned by the manner in which the Government had been “misled by incomplete information and estimation”.

One of the joint administrators to QIL, Michael McAteer, told the court they too “shared the frustration” of the Minister in regards to the call on the fund. He added that despite his concerns, the Minister had promised to continue to support the fund to enable QIL draw down the funds it requires.

He told the court that the increase in the call on the fund was down to a number of factors, mainly relating to QIL’s UK business.

Initially the joint administrators were provided with figures that showed the company was balance-sheet solvent and had adequate reserves.

However, figures compiled by a UK-based actuarial and business consultancy in relation to QIL’s UK business showed a deficit of €400 million and that QIL’s reserves where not strong enough.

In addition, he said that due to the lack of funds, the company was unable to implement a hedging instrument to protect it against adverse sterling fluctuations.

Provisions to deal with these factors, he added, had resulted in the increase in the call on the fund.

In response to his counsel, Bernard Dunleavy, Mr McAteer told the court he believed that of all the options available, the deal to sell QIL’s Irish business, except healthcare, to US firm Liberty Mutual was the best option.

The sale amounted to a saving to the fund of about €500 million, he said. Last week lawyers for QIL’s joint administrators informed the judge that €1.65 billion may be required from the fund to meet claims and costs arising from the administration of the company.

Describing this revelation as “truly shocking”, the judge said this meant the government levy imposed on motor and home insurance policy holders to cover the costs arising from QIL’s administration would last much longer than the 12 years originally envisaged.