Administrators Appointed to Quinn Insurance

RTE and the Irish Times are reporting that administrators have been appointed to Quinn Insurance. RTE report

Mr Justice John Cooke made the order following an application by lawyers on behalf of the Financial Regulator.

The application was made under the 1983 Insurance act.

The court heard the Regulator took this action following serious concerns about the way the group was managing its affairs.

The Times reports

The court heard that the company had moved from a position where it had an excess of assets over liabilities of more than €200 million to a position where it had €200 million of liabilities over assets.

As if today wasn’t busy enough already.

57 replies on “Administrators Appointed to Quinn Insurance”

Quinn is surely one of the most systemic bodies in the state. The dealings in Anglo shares by the Quinn family that we are aware of lead one to worry about whether Quinn may own significant bank bonds and what type of bonds those may be. Couple that with the fact that Quinn is dependent on Anglo for finance as highlighted in the IT. This must raise serious questions as to whether and to what degree Quinn’s position has influenced Government decisions about banking and Anglo in particular.

One can understand that the Government might have considered Quinn’s position to be commercially sensitive leaving them in a difficult situation. However, if part of the rationale of NAMA was to save Quinn then the Oireachtas was not given the full facts. One would hope that this is not the case. In any event, I think we are entitled to know how many subordinated bank bonds, if any, were held by the Quinn Group over the course of the last two years.

Given the uncertainty surrounding asset values, from Irish property to more exotic CDOs which may or may not have been held by Quinn, it is hard to know how confident that €200m is the extent of the hole Quinn finds itself in. Should one suspect that the Quinn Group would have been able to put that amount in if it was the extent of their troubles?

Lastly, there seems to be a suggestion that Insurance group property was charged. Could this mean that the assets of an insurer were used to prop up the private business of other companies whose profits did not go towards covering insurance risk? Intuitively, this seems to be against the basic principles of inurance being a risk spreading mechanism with a margin for the Insurer.

I should make clear that it is not apparent to me what companies got the benefit of the loans made on foot of the charges over the insurance group assets. It may well be that the insurance group kept all money raised from charging its assets.

Can somebody clarify whether there is a regulatory restriction on Insurance companies giving charges over assets in support of holding companies which may be over (and therefore outside) the insurance group?

Anglo’s exposure to Quinn is not inconsiderable at approx. €2.7bn. Only €1bn of this is backed by collateral – the quality of which is suspect. It remains to be seen if this will increase the required government injection into Anglo – whatever form it takes.

@ zhou_enlai

The property of an insurance company is not the property of its policyholders.

Equitable Life !!!

So it is systemic after all. Today we will end up with only half of one bank in the country not in state control and one of the biggest insurers at the point of collapse.

IMF anyone?

@KW

Yes – I flagged it earlier on the Souper Tuesday Thread. First reaction is that we Do have a Financial Regulator – which I noted as positive yesterday – didn’t expect this AIG-type IED to go off today ‘though …….

@Greg

I’m beyond concern/shock on what this Minister does know ………. I’m much more concerned about what he probably still does not know ….

@Zhou_EnLai

Only conclusion in the interim is that if Elderfield, via Honohan, via Lenihan – via the State – acts – that we have A. N. Other little black hole. Un aperatif, peut-etre?

“The regulator, counsel said, had concerns about the companies ability to meet its liabilities to policy holders.”

@ David O’Donnell,

This cannot end well.

The Minister was trying to get ahead of the posse.

“The administrators will run only the general insurance business which offers home, health, motor and public liability insurance.”

These companies are to inter-connected for the Life Company to be unaffected.

@Greg

It is, almost certainly, an intrinsic part of the choreography of the day …. I’ve just ‘quenched all the turf fires’ – to be sure to be sure!

@ David O’Donnell

Plant some extra supds. You’ll need them.

Independence was an interesting experiment.

Bye bye Ireland.

“THE company used by Sean Quinn’s family to buy their Anglo Irish Bank stake was forced to hold an extraordinary general meeting last February, such was the scale of losses arising from the investment.

It has also emerged that the entire €200m dividend paid to Sean Quinn’s five children in 2008 has gone into this company, called Quinn Finance, to mainly absorb Anglo-related losses.”

http://www.independent.ie/business/irish/quinn-offshoot-forced-to-hold-egm-on-anglo-stake-2022563.html

If the Minister knew the full picture about Quinn and Anglo, it is very bad and if he didn’t it is even worse.

Surely, he should publish this afternoon, a comprehensive profile of the bondholders in Anglo before any further actions are taken on Nama etc.

Why is anyone surprized? The standards in Ireland are set at the top of the pyramid. TPTB included CJH and the Apostolic Nuncio and the child molesters.

Has there been any moral lesson delivered to those at the top? Yet? Who is to do that? Not the judiciary. Not the Gardai. Not the armed forces. Ireland has been eaten away from the inside. We call that “white anted”. They are termites, not ants. They eat the inside of the support of the roof. A house without a roof is a ruin. BOH will probably confirm?

Without the moral lesson, what is to stop the entire process from continuing? NOTHING!

To be bankrupt is one thing. To be morally and spiritually destroyed is quite another!

Pass as many laws as you want. They will not be enforced. Ireland has no hope that it will perform better than Japan. At least Japan had the courage to engage in war when the US starved them of oil.

@Al

Hotel is booked. Much appreciated. We’ll throw a real party – Last Tango in NAMA – plenty of the good stuff – rakes of the good stuff – invite a good few backbenchers – a sufficiency of back benchers – and lets get them good and sozzeled, really sosselzzed …….. and offer them a room circa 9 tonite to sleep it off …. and the vote in the Dail at 10pm_ish. And the House of Cards falls down, falls down, down down ……. Clever boy Al! Great solution.

@Stuart
“Another insurance levy on the way – remember PMPA and ICI.”

That’s on top of the banking baleout which I had estimated (see blog) will directly cost taxpayers €35 billion (worst case), €24 billion (most likely case) or €12 billion (best case). i.e. one, two or three years’ income tax receipts. These figures will need to be revised after this evening.

http://www.irishtimes.com/newspaper/breaking/2010/0330/breaking32.html:
It’s understood the subsidiaries of Quinn Insurance gave guarantees to the value of €448 million in favour of bondholders of the Quinn Group who have provided large sums of money to the wider Quinn Group business. This in turn reduced the insurance company’s solvency cushion.

Is this permissible? If an insurance company can alienate its property rights to support the unrelated business of a holding company then what confidence can insureds have that their policies will be honoured?

Its like Tony Blair’s spin-doctor lady said on 9/11 – this is the day to get all the bad news out.

The “worst” will get the headlines – if the Government is lucky, “bad” and “worse” will get buried.

@ zhou_enlai

“Is this permissible?”

I think the short answer is, no it is not.

Did some directors act outside their powers?

“Some directors of Quinn Insurance were unaware of the guarantees, lawyers for the regulator said”

The bondholders must have known.

Did the bonholders make sure that the guarantees had board approval from the insurance company?

Just a guess, but I imagine if the Board of the insurance company did not approve a potential liability of €448m then the guarantees have no validity.

But we seem to be about to backstop this guarantee anyway.

Quinn Group companies gave guarantees on certain assets to banks/bondholders.

Later, insurance arm tried to take these certain assets, covered under said guarantee, and so considered ‘encumbered assets’ (ie banks/bonds have first call), onto its books to meet capital requirements.

You can’t take encumbered assets onto a regulated companies capital structure without telling the regulator that they are so encumbered. They didn’t.

Regulator found out only recently.

Sh1t, meet fan.

Any provision of a clawback of the 200 million that was given to the Quinn children? Surely there may be some fraudulent conveyance there?

Two strikes—-

In October 2008, the Financial Regulator announced that it had agreed a settlement with Quinn Insurances and Seán Quinn, chairman, who paid penalties of €3.4 million in respect of breaches of regulatory requirements.

The Financial Regulator said it had reasonable cause to suspect that breaches of regulatory requirements occurred in relation to QIL.

These breaches related to contraventions by QIL of obligations under the Insurance Acts and Regulations, including failure to notify the Financial Regulator prior to providing loans to related companies.

The Financial Regulator required QIL to pay a monetary penalty of €3,250,000. The Financial Regulator also required Seán Quinn to pay a monetary penalty of €200,000. Quinn agreed to resign as chairman and as a director.

@ Greg

eh, basically yes, though not sure if the term “pledged” has a specific legal meaning which may or may not be relevant here. Either way, the banks/bondholders appear to rank higher in their claims on them than would the general creditors of Quinn Insurance, hence they could not count (at least in full) to the capital buffers.

@Eoin
“Regulator found out only recently.”
Found out or looked?

It seems the new regulator has adopted a policy of looking under rocks… for the moment anyway!

@ Eoin

“Legally assigned” under an agrrement of guarantee?

If that is the case then the reporting is inaccurate.

The insurance company did not guarantee anything.

The insurance company attempted to take dodgy assets onto its balance sheet.

@ Eoin

If the insurance company did not give the guarantee did they take the assets onto the Insurance Co balance sheet?

Did they buy the assets from a member of the Quinn Group?

If not why is the regulator involved.

What did the Insurance Co pay for the assets? (Rhetorical)

Why did the Group need the money? (Rhetorical)

Where’s the money now? (Rhetorical)

I think the basis of this will boil down to (when we have info) the Combined Operating Revenue of the group being at levels the Regulator was not happy with, or in a manner that didn’t provide transparency and or security for the purpose it was intended.

Their COR was likely hit from payouts on claims (floods, increased car theft/house theft) and on the investment side (market losses), the other issue is that perhaps their modelling was at fault, they don’t use actuary underwriters, opting instead for balancing via a computer system that does the risk weighting for them. Who knows, in any case if you are a Quinn policy holder keep paying your premiums for the meantime.

@ Eoin,

It looks like the Insurance Co (through its subsidiaries) gave guarantees.

“The Financial Regulator took the court action when it became aware that certain subsidiaries of Quinn Insurance had given guarantees which have the effect of reducing the insurer’s assets by around €448m.

The Financial Regulator said it was not in a position to verify the true extent of the effect of the guarantees on the insurer’s assets.”

http://www.rte.ie/business/2010/0330/quinn.html

So circling back. Why would a bondholder or bank accept guarantees from a subsidiary of Quinn Insurance without making sure that the company was not acting outside its powers?

A guarantee of €448 million is of such materially that it could be suggested that the bondholder or bank failed in its due diligence and has no standing.

RTE:

“The board of the Quinn Group, which owns Quinn Insurance Ltd, has sent a letter to all Government ministers warning that the regulator’s move would put 5,500 jobs in Ireland at risk unless it were ‘immediately reversed’.

The letter describes the regulator’s action as ‘highly aggressive and unnecessary’, adding that it would make the repayment of its outstanding debt extremely difficult.”

This sounds very ominous. The letter to the Ministers sounds like a dreadful act of desperation. How on earth can the Cabinet credibly roll back on this? It will be very sad to see these jobs go. However, the suggestion that the Quinn group can hold a gun to the Governments head to make the Regulator let the Quinn Group operate Quinn Insurance as it pleases is intolerable.

@Maurice O’Leary
If the regulator did find out only last Tuesday then congratulations to him. Any large company, including private ones, has to be run with utmost compliance now and in the future. For a financial company to be seriously non-compliant means they must get the most draconian penalthy possible, now and in the future.

So, Quinn insurance guaranteed €1.2bn of debt in other parts of the Quinn group.

The regulator believes that this creates an increase of €448m in Quinn Insurance’s liabilities.

Does this mean that one or more of the Quinn group companies is in big trouble and will be unable to pay €448m of debt about to fall due?

I think praise is deserved for Financial Regulator Mathew Elderfield’s quick response to the Quinn situation.

He is setting the tone for a new era of financial regulation in Ireland. It will be interesting to see who, if any, QIL directors get disqualified and/or fined for their lack of corporate governance. I don’t think it is good enough to say “I didn’t know”, well the reality is that they should have known. They are a complacent Board, in my opinion. Still what would I know!!

This is a great article which includes the series of events.
http://www.belfasttelegraph.co.uk/business/business-news/quinn-insurance-crisis-the-phone-call-that-shocked-watchdog-14748829.html

According to this article a telephone call from Jim Quigley, chairman of QIL, to Patrick Brady, the head of insurance supervision in the Financial Regulator on March 24.

@ Sean

i think everyone is getting this the wrong way around. The assets were pledged against Quinn Group loans BEFORE they were pledged into QIL’s regulatory capital. Basically this is just a simple but massive regulatory underfunding of QIL’s business, or rather a massively falsely reported regulatory capital position. Its a decrease in the QIL’s assets rather than an increase in their liabilities.

I have to sympathise with Quinn to a certain extent. They have been dealing with unfair competition from VHI since they started. Backed up by the State, VHI is free from the capital requirements of Quinn group.

Not that that excuses them from minding their own house. And their resistance to risk equalisation was pretty self-serving IMO.

The Irish government is making a monumental mistake in interfering with the business interests of the Quinn Group.
Quinn are one of the biggest success stories to have emerged from Ireland in the last 20 years.
The Quinn family have always made every effort to support the interests of the Irish economy. It is shameful of the regulators to come out in such a heavy handed way without consulting the Quinn Group in a proper fashion.
Have the Irish Government forgotten what Sean Quinn has done for his country?
How about all the taxes he has paid and all the jobs he has created?
Would it not be more intelligent to have worked with the Quinn Group to try resolve any difficulties especially considering the strength of the wider Quinn Group?
The government in a desperate attempt to flex its political muscles has once again made a short term decision to the detriment of the long term interests of the Irish economy.
In an unprecedented economic depression, which we are in the midst of, our major businesses are obviously going to have some problems over the short term. However it is supposed to be the job of the government to support these businesses which then helps the overall economy to get back on its feet.
Sean Quinn is a national hero and we should be holding him up as a role model to encourage other businessmen to follow in his footsteps. It is hardly encouraging for our aspiring entrepreneurs to see the Irish regulator acting like some heavy handed hit squad.
I would suggest that the Irish government swallows its pride and reverses its decision and lends its full support to Quinn Insurance before it is too late.

@ Patrick

eh, you seem to be suggesting that Quinn can do pretty much what he wants vis-a-vis the law, just because he has been a big employer and success story of the last 20 years?

Brian Lenihan puts it far better than i could in his interview in the Indo today…

“The fact that someone creates jobs doesn’t absolve them from running their business in a responsible way,” Mr Lenihan says.

Unfortunately Quinn Group, obviously of a same world view as you, in recent years believed that they could do whatever they wanted, and some of their decisions have contributed massively to losses at Anglo Irish Bank and the taxpayers need to rescue it at great cost to the State.

Sometime today RTE will upload an interview (Morning Ireland) I did with it on this story today (2 April 2010).

We may be getting ahead of ourselves here. This is an administration of a company as a going concern and not the administration of an insurer in run-off (which is the situation regarding two other Irish insurers which have been in administration since December last year and there is still no apparent case to wind them up on grounds of solvency). This is not a liquidation either. The application was made ex-parte under section 2 of the Insurance Act (No 2) Act 1983. This provides for such matters where the following is met:

“The court may, on such petition, in relation to an insurer, if it considers:

(a) that-

(i) the manner in which the business of the insurer is being or has been conducted has failed to make adequate provision for its debts, including contingent and prospective liabilities, or

(ii) the business of the insurer is being or has been so conducted as to jeopardise or prejudice the rights and interests of persons arising under policies issued by the insurer, or

(iii) the insurer has become unable to comply with the requirements of [the supervisory Regulations] in a material respect,

and [NOTE THIS WORD IT IS IMPORTANT IN THE ADMINISTRATION PROCESS]

(b) that the making of such an order for administration and the appointment of an administrator would assist in the maintenance, in the public interest, of the proper and orderly regulation and conduct of [insurance business or reinsurance business], make an order for the administration of the insurer and appoint a person nominated by the [Bank] (who shall be known as and is in this Act referred to as “an administrator”) to perform, in relation to the insurer, the functions conferred on an administrator by this Act.”

If Quinn Insurance wants to blame someone over the appointment, it can focus its thoughts on the Oireachtas which passed this law (and interestingly beefed it up just last year too when a flaw was spotted in the architecture), the High Court and not simply the regulator. The latter will have its mettle and its case tested in 11 days. But how Quinn Insurance’s legal and strategic advisers: (a) did not identify the serious nature of the matters that Quinn Insurance itself informed the regulator of; and (b) did not know about the provisions of 1983 Act is beyond me. Surely someone should have sought from the regulator an undertaking that it would not go to the court ex-parte. At least that would have clearly put the issue of the table, even if the regulator rejected the undertaking. Quinn Insurance could have then paid the lawyers to hover around the High Court looking for movements over the coming weeks.

There are probably no surprises here to some readers. There were ‘distressing rumours’ floating around about Quinn Insurance on Friday last week (unsubstantiated at that time I would note).

Perhaps the regulator is more concerned about the management of Quinn Insurance than it is about the long term prospects of Quinn Insurance? A deal will surely be struck or natural work out will arise here at some point of time. However the more interesting part will be the regulatory investigation into Quinn Insurance about who knew what and when they knew what – especially given that a lack of transparency was at the heart of the €3.25m fine against Quinn Insurance in 2008 together with a separate fine of €200K against Mr Sean Quinn following which he to stepped down as Chairman. Is history repeating itself here in terms of transparency or did the regulator overlook information previously supplied? We will know more in 11 days I hope.

I would have thought that Mr Quigley, the Chairman of Quinn Insurance should (if in fact anyone from Quinn Insurance at all) have spoken on behalf of the Board he leads. May be he was away or maybe it is a sign of the governance arrangements at Quinn Insurance?

I heard Mr Quinn complain that Ministers did not return his call. May be this is a sign that the parochial style of Irish politics might change? Like everyone else I heard Minister Lenihan’s response.

At the end of the day I empathasie with staff of the company as this is a desperate way to spend Easter – worried about your job, but may be it is not the foot soldiers who should be worried about job security as opposed to those higher up in the food chain?

@ Patrick Curran

‘Sean Quinn is a national hero and we should be holding him up as a role model to encourage other businessmen to follow in his footsteps’
‘… it is supposed to be the job of the government to support these businesses which then helps the overall economy to get back on its feet’..

Your sentiments are doubtless shared by many people, especially those in border areas, which suffered terrible economic neglect, largely as a result of partition. People got opportunity at home for the first time ever, and the positive contribution made by Quinn and co will go into the history books.

The record will also show that the expansion of the Quinn enterprise was not solidly grounded, and that debt was the Achilles heel. A worthy venture, which overreached itself, and was encouraged to do so. Like it or not, the fates of Quinn and Anglo have long been entwined.

Perhaps there was some confusion of business and social objectives in the mind of the founder, Money is borrowed for all sorts of good and bad reasons, and everyone has emotional attachments. In any case, much of Irish businesses is in the water now, and the state itself is beginning to leak.

As matters deteriorate, it will be a question of what can be retrieved collectively from the Quinn experience. And where we can go next.

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