Insurance levy to pay for €620m Quinn loss
Car and home policies hike will go to claw back huge shortfall
Consumers will be hit with a levy on their car and house insurance to make up for a shortfall of €620m from the collapse of Quinn Insurance, the Irish Independent has learnt.
Anglo Irish Bank and US insurance giant Liberty Mutual have agreed to buy the beleaguered insurance company, but are not willing to take on all the losses on its books.
The Government will now have to make up this shortfall and will do so by imposing a levy -- expected to be between 1pc and 2pc -- on every single non-life insurance customer in the country.
That is sure to spark anger among consumers who are already reeling under a swathe of taxes and levies.
The money from the levy will go into what is known as the Insurance Compensation Fund. The fund is to make sure customers of all insurance companies get paid, even if their own particular insurer gets into financial difficulty.
This fund was used twice in the 1980s when AIB's insurance arm, ICI, got into trouble and two years earlier, in 1983, when insurer PMPA collapsed -- a move that infuriated insurance customers.
The Irish Independent has learnt the true cost of the collapse of Quinn insurance now stands at €620m. Administrators to Quinn Insurance are finalising an application asking the Government to pay for this shortfall.
Sources last night said customers could be paying for the Quinn collapse for several years because the shortfall is so large.
The application from the administrators, Grant Thornton, will be made shortly to Finance Minister Michael Noonan. He is likely grant it despite an expected public outcry.
The High Court and Central Bank will also be informed and asked for approval.
The administrators declined to comment on the figures last night.
Under legislation set up in the 1980s to deal with failing companies, the Finance Minister of the day is allowed impose a levy so the Insurance Compensation Fund has enough resources to deal with whatever insurance claims it is facing.
The minister can impose the levy on the whole insurance industry. The industry then passes it on to the customers. But the minister can only deduct 2pc of the companies' profits each year. This means it could take a few years to fully deal with the problems left behind by Quinn Insurance.
The Irish Independent has also learnt that Quinn Insurance will shortly publish its 2010 results, showing yet another year of losses.
While the administrators have stabilised the business, it is expected to report losses of €120m. Its balance sheet is in an even worse condition.
The Quinn Insurance company itself will be run now by Liberty, with Anglo taking its place in the background. It is not clear what products and prices Liberty will be offering, but due to its large scale, the US company is expected to be competitive.
Quinn Insurance's problems began in 2010 after Financial Regulator Matthew Elderfield became concerned about the financial health of the firm.
Mr Elderfield said the firm breached crucial financial ratios and its subsidiaries had entered a series of guarantees for debts held at the Quinn Group, a cements and plastics business.
Since then the regulator has been investigating these issues. However, there has so far been no update on this probe.
This time last year, former Finance Minister Brian Lenihan insisted a second levy would not affect all health insurance customers if Quinn suffered the same fate at ICI.
"There is no call on the need for a levy at this stage," he said at the time. "When the administrator has conducted a review of the company he will be in a better position to know how to proceed."