Sunday 11 December 2016

Watchdog blasts Quinn over risky business plan

Published 23/06/2010 | 05:00

A SENIOR official at the Financial Regulator has described Quinn Insurance's business model as "deeply troubled", effectively confirming that the watchdog's concerns about the insurer were not simply limited to intergroup loans and guarantees.

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The regulator moved against Quinn Insurance in late March, when it discovered the insurer had guaranteed €1.2bn of Quinn Group company debt without informing the watchdog of such activity.

Those guarantees drastically reduced Quinn's net assets and contributed to a €450m solvency shortfall, leading many observers to believe that the regulator's move was solely triggered by the guarantees.

Jonathan McMahon, the number two at the rejigged Financial Regulator's office, this week confirmed that the watchdog's concerns were far wider.

At a journalists' briefing, Mr McMahon said the "worst cases" being dealt with by the regulator involved "underlying issues [that] emerged from deeply problematic business models".

"Quinn Insurance had a deeply troubled business model. Anglo Irish Bank, again, had a deeply troubled business model," he stressed. "To sustain high returns they had to take high risks."

Fundamentals

The commentary on the Quinn business model comes as the insurer's administrators prepare to begin a formal process to offload the company.

An information memorandum outlining the company's fundamentals has been drawn up and is expected to be sent out over the coming weeks. The administrators yesterday declined to say whether the documents had already been sent.

More than 40 parties are understood to have requested the document -- including private equity houses, international and Irish insurance groups, and corporate financers.

Meanwhile, Anglo Irish Bank, which is owed €2.8bn by Sean Quinn, his family and the Quinn Group, continues to work on its alternative solution for Quinn in the hopes of beating the administrators to the punch.

Anglo wants to pump in enough cash for Quinn to carry on trading in return for a stake in the firm's profits and a guarantee that Anglo would be paid first if the Quinns realise cash from any future sale.

Mr McMahon's comments were made as he outlined measures to prevent financial institutions from pursuing dysfunctional business models.

The regulator is setting up a "red flag" system to draw attention to flaws in banks' and insurers' models, and will also offer firms expert advice through external risk advisers.

Irish Independent

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