Solicitors' fund 'can cope with €16m loss'
SMDF chairman says that industry's self-insurance scheme has a bright future
Published 05/11/2010 | 05:00
THE chairman of the Solicitors' Mutual Defence Fund (SMDF) has insisted the industry's self-insurance scheme has a "positive" future despite a €16m loss last year and ceding almost half its market share.
The 2009 loss largely stemmed from investment hits, with the SMDF shedding €8.1m on its infamous investment in Saturn bonds and losing another €6.2m on its Irish equity portfolio.
The fund's latest set of accounts also show the SMDF upped its provision for future claims by 70pc in the year to November 2009, reflecting the increasing threat of litigation against solicitors.
In their report, SMDF's auditors BOD pointed to "uncertainties" around "the availability of sufficient funding", "future claims experience" and SMDF's "ability to secure sufficient reinsurance cover".
Citing the "potential financial significance" of those three factors, BOD said they were "unable to form an opinion" on whether the accounts "give a true and fair view" of the company's affairs.
SMDF chairman Laurence Shields, better-known as chairman and founder of commercial legal firm LK Shields, yesterday said the situation reflected challenging market conditions.
"The claims experience in 2008 and 2009 deteriorated, that's a known fact," he said, pointing to media coverage of various solicitors who've been sued.
At the end of its 2009 year, the SMDF had an outstanding claims provision of almost €172m against a provision of just under €101m a year earlier.
Mr Shields said that while 2010 "seemed better", the actuaries responsible for setting the level of claims provisions "might take a different view".
Asked about the investment losses, Mr Shields said 2009's hit should not be repeated in future years since the SMDF has effectively sold down the more volatile elements of its portfolio.
The €6.2m loss was taken after selling out of Irish equities in the 2009 year, while the company is in the process of suing stockbroker Bloxhams over the Saturn bond investment.
Mr Shields said that while there would "always be issues with reinsurance in the current market", the SMDF has secured a lead reinsurer in the UK arm of Chartis (formerly known as AIG).
Despite the difficult financial situation, Mr Shields insisted the SMDF's funding situation was not in jeopardy. A €5m loan facility secured from Bank of Ireland has not yet been drawn down because it has not yet been needed, he said.
The SMDF also hasn't asked the Law Society for any additional help since the legal representative body agreed to guarantee €8.4m of the fund's debts back in June.
The legal boss also stressed that the SMDF was "fine" with its current market share of 25 to 26pc, down from about 50pc in 2008. "We're carrying out a strategic review, but it looks like the outcome is going to be positive," he said.
That strategic review is expected to be completed early next year.