Insurance for compensation firm

 

THE SCHEME responsible for compensating clients of failed investment firms has taken out insurance to protect itself against the possibility of open-ended liabilities.

The latest accounts for the Investor Compensation Company Ltd show it had healthy cash reserves of almost €30 million at July 31st, 2009, and a standby credit facility of €50 million.

However, chief operations officer Anne Troy said the compensation company had put in place insurance arrangements this year.

This was because if a “catastrophic number of claims” were made the scheme would still be responsible for compensating all eligible investors even if the claims exceeded its reserves.

Under the scheme, an eligible investor can claim up to 90 per cent of their loss, capped at €20,000.

The insurance provided an “added layer of comfort” that the compensation company would be able to compensate anyone affected by a failed investment firm, Ms Troy said.

The compensation scheme is funded by contributions from firms which are authorised to conduct investment or insurance services. Last year, its income from annual contributions exceeded €5 million for the first time.

Ms Troy said there had been a noticeable increase this year in the number of firms having difficulties making their contribution to the scheme, although this was not a “huge problem”.

Since it was established in 1998, the Investor Compensation Company Limited has dealt with claims arising from three failed firms: Andrew Casey Life & Pensions, Money Market International stockbrokers and W&R Morrogh stockbrokers.

All claims relating to the Andrew Casey and Money Market International cases are now processed, while 99 per cent of the 2,632 claims for compensation from WR Morrogh clients have been dealt with.

The scheme is waiting on the administrator of WR Morrogh to certify the remaining claims. It is hoped the Morrogh case will be wrapped up by early 2011.

No new failures of investment firms giving rise to fresh claims for compensation occurred during the year to July 31st, 2009, or in the intervening period.