Insurance industry is on right track for recovery
Published 17/04/2010 | 05:00
ALLIANZ Ireland boss Brendan Murphy walks into the meeting room clutching a single sheet of paper.
Still warm from the printer, it carries an RTE report on the Quinn Group's surprise decision to drop its opposition to the administration of Quinn Insurance.
The Cavan group is expected to make an appearance in the High Court at 2pm on Thursday, the very time Murphy presents himself for our interview. The timing is either perfect or awful.
Perfect, because insurance has never been more topical, and Murphy's insights into the Irish insurance market and the Quinn situation have never been timelier.
Awful, because Murphy clearly feels sympathy for the 2,800 staff at Quinn Insurance and doesn't want to be seen as jumping on the grave of his competitor.
After some convincing, he agrees to stay the course and go ahead with the interview.
There can be only one starting point -- the Cavan insurer that's submitting itself to the administration process at this exact moment.
Murphy doesn't want to be drawn on the rights and wrongs of the Quinn case, but he's more forthcoming on the various sagas that have played out over the last fortnight.
If Sean Quinn had succeeded in convincing the Government to call the regulator off, the situation would have "gone down like a lead balloon" with international insurance companies operating here.
And worse than that, it would have "damaged the international reputation of Ireland from a bond perspective", pushing out the amount Ireland has to pay for its hefty borrowings as global markets recoiled from the Emerald Isle.
The prospect of an industry-wide levy in the event of a Quinn wind-down is some-thing else that clearly irks Murphy.
"We'd find that fairly unpalatable," he says.
"It's the long-term players who'll be left here, taking all the grief even though they didn't cause it in the first place."
He's similarly unenamoured with the attempt by Anglo Irish Bank to take over Quinn Insurance as a solution to the nationalised bank's €2.8bn exposure to the great Quinn Group.
"It was very hard to conceive what the benefits for the policyholders were, the benefits appear to be more for Anglo than anybody else," he says frankly, stressing again the importance of Ireland emerging from this with its international reputation intact.
Much of that international reputation hinges on the effectiveness and robustness of financial regulation.
Quinn has argued, through the media, that the regulator's demand for insurers to hold reserves in excess of the EU minimum is excessive.
Murphy disagrees, indeed his company holds a multiple of the regulator's requirements so it can retain its 'A' credit rating from Standard & Poor's.
"We deal with commercial customers and they require a strong credit rating," he says.
"They want to make sure we'll be here to pay them."
On a more general level, the Allianz boss insists insurance regulation here isn't "too harsh".
"After this (Quinn), we're probably going to have greater intrusion from a regulatory point of view, but we'd welcome that," he says.
"Increased scrutiny is good if it gives us a level playing field," he adds.
Even without Quinn, the Irish industry was ultimately heading for more robust regulation and heightened reserve demands with the impending dawn of new EU rules known as Solvency II, Murphy stresses, something Allianz "fully welcomes".
While Murphy talks expansively on the future of the Irish insurance industry, he's more reluctant to talk about the immediate future of Quinn.
A full-on liquidation, he says, is "hard to see" and would be "bad" for the market, since policyholders could ultimately be burned.
The only remaining outcome, then, is sale. Murphy is non-committal on the prospect of Allianz as a buyer -- "you'd look at anything for sale in the market and see how attractive it is, but it very much depends on how the book is presented".
Meanwhile, the prospect of a brand new international insurer coming into the Irish market is dismissed as "unlikely" in the short-term, given the "unattractive" state of the market.
"The premium in the market has dropped quite substantially over the past five years," Murphy says.
"For a number of years it was price driven, now its exposure driven -- with what's happening on the economic front, the risks being insured are smaller."
The result was a contraction of about 8pc across the Irish non-life insurance market last year, the opposite of the growth trend companies like to see when they're eyeing up new markets.
However the sale process shakes out, Murphy says it needs to happen "the faster the better" so it doesn't "overhang the market and create uncertainty" that could defer much-needed action on prices.
That action has seen most insurers steadily putting up their prices since 2008.
Murphy says Allianz's book was "rerated" in 2009, leading to "modest" price increases.
Despite that, the insurer made "losses" last year, as niche products like helicopter and yacht insurance were hit particularly hard by the recession.
Murphy sees better prospects in 2010 -- he believes the market has bottomed out and he thinks insurance activity will ultimately follow economic activity, implying an imminent stabilisation and gradual recovery.
And, he stresses that Allianz's membership of a strong multi-national group gives it the technical expertise and financial firepower to withstand any surprises that might come along the way.
Allianz's Booterstown headquarters is an apt place to talk about potential surprises. When the insurer agreed to move into the Elm Park development, Murphy and his 1,000 or so colleagues were expecting a bustling new hub for the city.
Instead, they are the massive site's sole commercial tenants, occupying a soon-to-be Nama-owned ghost-land that offers stunning views of the Dublin coastline.
"It's good from a lifestyle point of view," Murphy says, still determined to be kind.