THE HIGH COURT has heard that the administration of Quinn Insurance Ltd may exceed the €1.6 billion figure suggested last week.

Head of insurance supervision at the Central Bank Domhnall Cullinan told the court that the call on the Insurance Compensation Fund due to loses by Quinn Insurance Ltd in the UK might be even greater than the €1.6 billion in a “worst case scenario”, reports RTÉ News.

Last week, Justice Nicholas Kearns expressed shock at the news that the possible cost of administration could be as high as €1.6 billion – hundreds of millions of euro more than the original estimate of €738 million approved in 2011.

Although Kearns was informed just last week that the €1.6 billion figure was the “worst case scenario”, Cullinan today said the final figure could exceed even that.

In a statement released today, the Joint Administrators of Quinn Insurance Ltd said that the projected deficit in the accounts had risen from €775 million to an estimated €1.65 billion, which was due to a number of issues:

• Additional losses for years up to 2010: The administrators blamed poor claims handling and reserving practices, as well as a “culture of suppressing estimates”, for leading to a significant under-estimation of file reserves and a consequent need to adjust actuarial reserves for 2010 and prior years substantially (€208 million)
• Adverse Deviation Provision:  The need for an Adverse Deviation Provision (ADP) due to the underlying uncertainty around file reserving generally and to reflect the fact that the company has no capital or investment income to cope with any further unexpected changes in the claims environment, as would be the case for other insurers (€300 million)
• The use of a conservative euro/sterling exchange rate to reflect the fact that the company is unable to put a currency hedging strategy in place because it is not in a position to provide the necessary financial guarantees required for this (€215 million)
• Reduction in asset values and other miscellaneous adjustments: This figure covers the write down of some assets;  a provision to allow  for a further potential write down in asset values and various miscellaneous adjustments (€152 million)

The administrators aid their key focus was to speed up the settlement of remaining claims, and that a Calims Advisory Committee has been established to assist in this regard. Head of the State Claims Agency Ciaran Breen will Chair the Committee in conjunction with the Department of Finance.

The joint administrators said they were “deeply frustrated” by the scale of the costs to the Irish policyholders by the collapse of Quinn Insurance, which it says was caused by “years of mismanagement and insufficient internal controls”.  They said they had commissioned a number of external reviews of claims and that this, together with the improved control environment implemented by Liberty Mutual, gave administrators “considerable reassurance that appropriate controls and governance are now in place around the claims function”.

The statement added:

Due to the considerable failings in governance and controls within Quinn Insurance Ltd, prior to it being placed under administration, the Joint Administrators have also commenced the process of exploring alternative avenues of recovery for QIL in order to reduce the exposure of the Insurance Compensation Fund.

Insurance levy

Concerns have been raised that this could lead to the 2 per cent insurance levy – which was imposed on policy holders since January of this year -being extended for a considerable number of years.

Today Fianna Fáil Finance Spokesperson Michael McGrath called on the Government to clarify its plans for the levy – which he suggested could remain in place for “25 years or more”.

Deputy McGrath wrote to the Joint Oireachtas Finance committee requesting that the Central Bank and the administrators of Quinn Insurance be called before the Oireachtas Finance committee to answer questions on the “dramatic escalation” in the cost of covering losses at former business.

“Last September, the Minister for Finance Michael Noonan advised Dáil Éireann that the estimated call on the Insurance Compensation Fund arising from the losses at Quinn Insurance would amount of €738 million – up from the original estimate of €600 million,” said Deputy McGrath. “To fund this, the Government introduced the Insurance (Amendment) Act 2011 to impose a 2 per cent levy on all insurance policies except for health and life insurance for an indefinite period… When the levy was introduced, the Minister said it would be likely to be in place for 11 or 12 years.”

“We are now advised that the cost of covering the losses at the former Quinn Insurance could possibly exceed €1.65 billion, resulting in the levy, at the present collection rate, remaining in place for 25 years or more. The Minister now needs to clarify how he intends to deal with the escalating losses from Quinn Insurance,” he added.

Read: Quinn Insurance administration may cost €1.6bn>