Bidders are anxious on outstanding Quinn claims
Published 21/10/2010 | 05:00
Several of the bidders for Quinn Insurance are not prepared to buy the entire company, particularly its outstanding claims, while others are now seeking State protection if these claims exceed forecasts.
It is understood that Anglo Irish Bank has bid for the entire company, but the reluctance of others to buy the whole business intact raises questions over who will absorb the long-term cost of the claims at the company, which amounted to €1bn at the end of 2008.
Five firms, including Anglo, have been shortlisted in the bidding process, but some bidders only want to buy the existing customer base, but not what is known as the backbook, the liabilities that arise from decisions of the previous management. There is no question about the liabilities not being met in some way.
A range of measures could come into play if the claims are not part of any new structure.
Firstly, cash reserves are present at Quinn Insurance to absorb a portion of the liabilities, and other assets, including goodwill from a sale, can also be offset against the liabilities.
However, there is a danger that if these measures were not enough, the Insurance Compensation Fund, which contains €30m, could be called upon.
The Irish Independent understands that any bidders not prepared to take on the existing liabilities will be expected to pay a higher premium for the remainder of the business.
The firm is being sold by Australian bank Macquarie, after being hired by Grant Thornton. It is possible that it will be broken up and the portion sold, minus the outstanding claims, put into a new vehicle.
The administrators -- Grant Thornton -- who are running the company, send over monthly management accounts to the Financial Regulator, and these contain an update on how the claims are performing. It is understood several actuarial reports on the subject are also with the administrators.
One insurance source familiar with the bidding said there was no major commercial company that would take on the uncertainty of the Quinn outstanding claims.
"It wouldn't get shareholder approval, taking on that kind of uncertainty, at least unless some guarantees are put in place."
Another said: "95pc of buyers would simply say, why take that risk?''
Sources in Dublin have spoken to the Irish Independent about the risks in the Quinn Insurance balance sheet, with a large part of the assets made up of investments in other Quinn companies, many of them concentrated in the hotel, pub and waste industries.
These assets took write-downs in value in 2008 and may need to be written down further in the light of the deep recession in Ireland.
The Department of Finance said this week there was €30m in the Insurance Compensation Fund, which is funded through a levy on the entire industry.
It is controlled by the president of the High Court, who appoints an accountant to supervise it. If the €30m was inadequate, the industry or the taxpayer would be called upon to bolster that fund, although any additional cost could be spread out over a number of years.
Anglo for its part is planning to combine with an insurance partner, although often voiced concerns by the Financial Regulator about its bid remain.