Entry into UK another gamble that didn't pay off
WHEN it comes to the performance of Quinn Insurance, it seems to be very much a case of 'success has many fathers, but failure is an orphan'.
The horrendous results released yesterday are being disowned by just about anyone with even the merest connection to the business. This is hardly surprising.
Losing €160m in 2010 is poor but excusable. But losing €706m in 2009 is catastrophic and inexcusable.
Unsurprisingly, the Quinn family has blamed the administrators. For their part, the administrators were keen to point out yesterday that they only arrived at the company in 2010, after the colossal €706m loss had been incurred.
To be fair to both sides, insurance businesses gyrate wildly from year to year. Profits tend to be big and losses can often be even bigger if weather events intervene.
Nevertheless, the 2009 loss indicates that somebody got their numbers badly wrong in Quinn that year -- particularly in its UK business, which has caused much of the problems.
The Grant Thornton administrator Michael McAteer said he didn't want to get into a "slagging match" with the Quinns over the results. Nevertheless, he was quite unambiguous about what had gone wrong in the recent past.
"The reserving needed to be stronger,'' he said, adding that "these losses were there'' before he arrived in March of 2010.
Four actuarial firms went through the 2009 books and agreed with the figures, he said. The existing actuaries for Quinn Insurance were among the four.
While everyone agrees that no company deliberately sets out to lose mountains of money, it appears that Quinn's move into the UK was yet another gamble that just didn't pay off.
Quinn had been in the UK for several years, but the numbers indicate a huge ramping up of its business there from 2007 onwards.
While hardly as big a gamble as the decision to invest in Anglo Irish Bank via contracts for difference, it seems that the last management team badly miscalculated its chances of success in the giant British insurance market. Quinn, despite its aggressive attempt to conquer this market, never had any true scale and it ended up with market share of just 1.6pc, according to Grant Thornton.
The company effectively tried to keep its prices low and crossed its fingers that claims (and other costs) would not turn its drive for profit on its head.
But the UK market in 2008 and 2009 was a quagmire and official research shows that for every £1 of premium that insurers took in during this period, they paid out £1.20 in costs and claims.
However, it didn't have a strong-enough balance sheet to take on this challenge.The company's UK non-motor business lost €195m in 2009, while the UK motor segment lost €143m, according to figures disclosed by Grant Thornton. The first of these figures was partially influenced by huge losses on insuring solicitors in England and Wales.
What these figures appear to show is that Quinn entered a difficult market at the wrong time and with a weakened balance sheet. Of course there was a small but slim chance that the old management team might have dug Quinn out of these problems. But as Grant Thornton's two administrators agreed yesterday, we will never know that.
Either way, the UK business is now not wanted by anyone (certainly not Anglo or US giant Liberty Mutual) and instead other insurance companies (and their customers) will have to pay the price in order to finally draw a line under that big commercial gamble.