Refusing to honour Quinn's foreign claims 'would save State €540m'
THE authorities could reduce the public cost of the Quinn Insurance debacle by as much as €540m if they opted to put the unsold parts of the business into liquidation instead of honouring all claims, it emerged last night.
But the Department of Finance stressed that any attempt not to pay all of Quinn's claims would face "significant challenges" and could greatly damage Ireland's international reputation.
The news comes weeks after Quinn Insurance's administrators told the courts they could need as much as €600m to cover claims not being taken on by the insurer's new owners Anglo Irish Bank and Liberty Mutual.
The €600m will come from the Insurance Compensation Fund (ICF), which will raise the cash by putting a levy of about 3pc on general insurance products.
The Irish Independent has learned, however, that the call on the ICF could have been as little as €60m if the authorities used legislation enabling them to liquidate the unsold parts of Quinn Insurance's business.
The decision would not have had any impact on Quinn's Irish policyholders, since the €800m in claims left with the administrators are all related to business done outside the Republic of Ireland.
The Department of Finance confirmed that the 1964 Insurance Act allowed for Quinn Insurance's outstanding claims to be resolved either through liquidation or through an extended administration.
The option being pursued is the extended administration, which provides for all outstanding claims to be paid by using the Insurance Compensation Fund and the €200m of assets being left with Quinn's administrators.
Under the liquidation option, the ICF would bear no liability for commercial insurance claims and would only have to contribute 65pc to the cost of personal lines claims.
Quinn's administrators have confirmed that about 50pc of the €800m claims they'll be left with are commercial claims. This implies that about €400m of claims would not have to be honoured under a liquidation, and therefore would not have to be funded by the ICF.
Under a liquidation scenario, the ICF would also only have to pay out 65pc of the €400m worth of personal lines claims left with the administrators, reducing the burden on the fund by another €140m.
A spokesman for the Department of Finance stressed that the Government would have faced "significant challenges" if it had attempted to liquidate parts of Quinn Insurance.
Since all the liquidation claims fall outside of Ireland, the move could have been challenged at EU-level for unfairly discriminating against non-Irish policyholders.
Any attempt not to pay claims could also have led to challenges that the claimants were unfairly disadvantaged by the terms of the sale of the rest of the Quinn Insurance business to Anglo and Liberty.
The Department of Finance is also believed to be mindful of the potential reputational damage to Ireland if Quinn's foreign claims were not honoured.
In a statement, Quinn's administrators, Paul McCann and Michael McAteer, said it was "the wish of the Central Bank" that "all policyholders" of Quinn Insurance be protected in any wind-down.
"Liquidation of any part of the QIL [Quinn Insurance Limited] business has not been considered by the administrators," they added.
The Central Bank is still reviewing the administrators' proposals to deal with QIL's remaining claims, and declined to comment on the situation. Sources stressed, however, that there would be huge challenges in refusing to honour some €540m of non-Irish claims.
The decision not to liquidate any of QIL comes as a blow to the Irish Brokers' Association, which warned commercial customers early on in QIL's administration not to buy policies from the Cavan insurer since commercial claims wouldn't be honoured by the ICF.
The IBA declined to comment on its statement, but said it was "incumbent" on brokers to inform clients if they had any concerns about the solvency of insurers.