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Central Bank fines Alico Life €3.2m for regulatory breaches

A DUBLIN-based company that got caught up in the securities lending debacle which almost destroyed AIG has been fined €3.2m by the Central Bank for a series of regulatory breaches.

The fine -- the third highest ever recorded in Ireland -- was levied on Alico Life, a Dublin-based subsidiary of AIG that was taken over by Met Life in November 2010.

The Central Bank's head of enforcement Peter Oakes said the "most serious" issues at Alico related to the insurer's dealings with mortgage-backed securities, a risky form of investment that relies on the income stream from home loans.

Alico put €138m that was beneficially held for clients into those mortgage-backed securities "without having regard to certain aspects of the firm's investment policy", the Central Bank said.

The mortgage investments triggered losses of €42m and would have put Alico in breach of its solvency requirements had the firm not been ultimately bailed out by the Federal Reserve after AIG lost $20bn (€15bn) on securities lending.

Investigation

Mr Oakes said the bank's investigation also highlighted serious "internal control concerns" -- chiefly that Alico's investment committee had been unaware that €500m of its life insurance fund assets had been loaned out.

The loan arrangements went on from April 2007 until July 2009 and accounted for about 25pc of the total assets under management. Alico is based in Dublin but the vast majority of its assets are foreign-owned.

Alico was also reprimanded for failing to properly enter certain receipts from its life insurance business and failing to properly record certain assets, as well as missing Central Bank deadlines for filing returns.

The €3.2m fine is only €150,000 below the €3.35m penalty slapped on Combined Insurance earlier this year after it was found to have committed a record 28 regulatory breaches. The only other higher fine was the €3.25m against Quinn Insurance for lending money to cover losses the Quinn family suffered on their disastrous investment in Anglo Irish Bank.

Irish Independent