Trouble at insurer has a terrible sense of deja vu
The Financial Regulator's decision to seize control of Quinn Insurance, the country's second-largest motor and health insurer, has sent shockwaves through the market, but what does the decision mean for you?
- Why did the Financial Regulator move against Quinn Insurance?
The regulator effectively seized control of Quinn Insurance yesterday, saying in its application to the High Court that it was "seriously concerned" about its financial position and management.
- That sounds pretty serious
It is. According to the Financial Regulator, Quinn Insurance has extended guarantees of €448m to other companies in the Quinn Group. It is further alleged that not all members of the Quinn Insurance board were aware of these guarantees.
The discovery of the guarantees has transformed Quinn Insurance's balance sheet. It was thought to have a surplus of assets over liabilities of more than €200m but it now transpires that there is, in fact, a deficit of over €200m.
- Haven't we been here before?
As Yogi Berra once observed: "This is like deja vu all over again." In October 2008, the Financial Regulator fined Quinn Insurance €3.4m when it discovered that it had lent other Quinn Group companies €288m without the knowledge of the Regulator. Sean Quinn, the founder and owner of Quinn Insurance, was fined an additional €200,000 and stepped down from the board of Quinn Insurance.
- Sean Quinn has reacted angrily to the Financial Regulator's move and written to government ministers demanding that it be reversed. What are the chances of this happening?
Somewhere between slim and none -- and slim didn't get up this morning.
Quite clearly there has been a complete breakdown in trust between the Financial Regulator and Quinn Insurance dating back to the 2008 incident. Yesterday's NAMA announcements demonstrated the cost of Ireland's previously lax regulatory regime. Woe betide the minister who attempted to overrule new Financial Regulator Matthew Elderfield.
- What does the appointment of administrators to Quinn Insurance mean for the insurance market as a whole?
Insurance premiums had been creeping up even before yesterday's developments.
With the administrators now likely to be running Quinn Insurance for profit rather than market share for the foreseeable future, customers of all insurance companies are facing the prospect of higher premiums.
- If there is a deficit at Quinn Insurance, how will it be funded?
We've been here before. In 1983 the State was forced to seize control of the floundering PMPA motor insurance company and in 1985 AIB dumped insurer ICI into the then Government's lap. Huge deficits in both cases were funded by a special levy on all insurance policies.
- What implications, if any, will yesterday's developments have for the rest of the Quinn Group?
The Quinn Group is that rare phenomenon in Irish business, a genuine indigenous success story. Over the past 37 years, founder Sean Quinn has built up what was originally a small sand and gravel business into a multi-billion euro conglomerate with interests in cement, glass, heating radiators, property, hotels and insurance. The group employs 5,500 people across several companies in Ireland.
But the Quinn Group is heavily indebted, owing Anglo Irish Bank at least €2bn and it must refinance €780m of borrowings this year. Sean Quinn's losses on his unsuccessful Anglo punt, meanwhile, are estimated at up to €2.5bn.
Persuading his lenders that he can weather the current storm must be Sean Quinn's priority for the foreseeable future.