Untangling the web of Quinn’s assets that stretch around the globe
Published 03/04/2010 | 05:00
WITH the possible exception of developer Liam Carroll, Sean Quinn and family have assembled one of the most complex business empires ever put together in Irish business.
In the Republic of Ireland alone, Sean Quinn and family members preside over almost 30 individual companies, with activities ranging from cement to chemicals to hotels to pubs to logistics to insurance.
The group's international assets range from locations like Hyderabad in India to Russian cities with unfamiliar names like Naberezhnye Chelny and Nizhniy Novgorod.
At the centre of a spider's web of companies is the Quinn Group itself, a mammoth company with a turnover of €2.2bn, although sales growth in recent years has been slowing down and only rose 7pc in the last financial period.
This was a credible performance, of course, but nothing like the runaway growth of earlier years. Disastrous losses in the insurance company's investments were one of the main causes of problems for Quinn Group in the last financial period it reported.
Whatever happens to Quinn Insurance over the next few weeks and months there is no denying its importance to the Quinn Group overall. For example, the last set of Quinn Insurance results showed turnover (or gross premiums written) of more than €1bn, which is almost 50pc of the entire sales of the Quinn Group.
A collapse of Quinn Insurance would clearly be of "systemic'' importance to the Quinn Group, but also to Ireland, as it employs 2,800 staff, according to its last set of financial results. The sheer size of Quinn Insurance is one of the reasons the Quinn empire is facing such difficulties at present.
For example, the insurance division is highlighted as being a key area of risk in the accounts of the Quinn Group. Because it is a risk threat, the insurance business must ensure that it has resources "available at all times'' to meet its insurance liabilities as they fall due. The insurance company has a financial planning and finance department to make sure those resources are always present.
The level of resources available for claims is also a central concern for the Financial Regulator and the entire insurance sector. The regulator applies a 150pc solvency margin to all non-life insurers, which means that assets should exceed liabilities at any one time by 50pc.
According to the Financial Regulator, Quinn Insurance failed to hit the 150pc target at the end of 2008. According to paperwork filed in March by the insurer, its solvency margin was falling to 107pc by year-end 2009 after being hit by property writedowns and a change in its reserving policy.
Quinn Insurance differs in structure from many of its fellow insurance companies. Firstly it has no credit rating and secondly it has a large number of investments in windfarms, pubs and hotels, not the kind of assets the big international insurance conglomerates tend to opt for. Quinn Insurance, for example, owns Quinn Property Holdings Limited, which in turn owns shares in pubs, a landfill site and a windfarm company. In any one year these subsidiary companies can owe Quinn Insurance up to €100m.
The key area of reserves appears to be the Achilles heel of the Quinn Insurance operation. At the start of 2008 there were reserves of €474m available, but this had dwindled by the start of 2009 to €338m after losses in the year eroded the reserve base.
What is also a potential source of risk for Quinn Insurance, and potentially for the regulator, is the sheer scale of monies provided by Quinn Insurance to other group companies.
For example, in its last set of results Quinn Insurance provided very large loans to Barlo Financial Services Ltd, a fellow group company, with the loan at one point touching €398m.
It is this company, Barlo Financial Services, that landed Quinn Insurance in trouble with the Financial Regulator in 2008. Quinn Insurance advanced loans to Barlo Financial Services Limited, a Quinn Group subsidiary, during that year as the Quinn family stake in Anglo Irish and other investments plunged in value.
The loans-to-Barlo episode was sufficiently embarrassing for Quinn Insurance that it initiated a review of corporate governance across the entire company afterwards. It also beefed up the number of non-executive directors on the board of Quinn Insurance.
Quinn Insurance has been using a subsidiary entity, Quinn Property Holdings Limited, to fund a whole host of related firms, many of whom had outstanding balances with Quinn Property Holdings Ltd the last time Quinn Insurance reported results.
The subsidiaries are engaged in a whole host of activities, from a hotel in Sofia, Bulgaria, to a windfarm company to a pub in Finglas. Clearly there is risk attached to these companies repaying these balances, but there is also a bigger risk when Quinn Insurance decides to advance loans to other Quinn companies. This was how the 2008 Barlo episode got them into trouble.
But the scale of the investments in subsidiary companies is very considerable.
The last set of accounts for Quinn Insurance shows it had €661m of investments in "subsidiary undertakings''.
The other risk to Quinn Insurance is the investment portfolio at the company. This portfolio played havoc with Quinn Insurance's financials in 2008, when the investments racked up losses of €176m, most of the losses coming from shares.
While a catastrophic year from investments is a risk for any insurance company, the biggest concern of all for Quinn Insurance and the Quinn Group are the connections between the two companies.
Quinn Insurance is a key contributor of revenues to Quinn Group. Also from recent history it can be seen that Quinn Insurance has at times provided finance to other Quinn companies.
The ultimate parent of Quinn Insurance is Quinn Group (ROI) Ltd, effectively the Quinn Group main company.
Quinn Group (ROI) Ltd is controlled by the children of Sean Quinn, including his son Sean Junior.
He is one of the luckiest young men in Ireland, controlling 20pc of Quinn Group (ROI) Ltd. Quinn Group's spread of assets and markets is quite astonishing. But scale of operation does not necessarily guarantee success.