The Department of Finance may be forced to provide a guarantee that UK policy-holders will not be left high and dry if Quinn Insurance fails.
British regulators want the Irish authorities to provide extra protection for UK customers before Quinn Insurance resumes operations in the UK market.
Discussions on this issue were progressing yesterday, although the Department of Finance, which oversees the fund, declined to comment.
The UK's Financial Services Authority (FSA) has made it clear it needs commitments that British customers would not rank behind Irish customers if Quinn Insurance got into trouble.
Meanwhile, Quinn Insurance's administrators will not be allowed to continue to trade the company as a going concern unless they can bring its solvency ratios into line in a "reasonable timeframe", the Financial Regulator confirmed.
The news comes amid growing disquiet in the insurance industry about the Quinn situation. The insurance company has been failing to meet the regulator's solvency tests since 2008, a situation slammed by other insurers.
Quinn is now in administration, but other insurers are growing disgruntled that the embattled insurer is still taking on new business while not complying with solvency rules.
A snapshot of the market carried out by the Irish Independent shows that Quinn is still cheaper than its peers across a number of lines -- pricing that competitors say is enabled by Quinn's persistent breaches of solvency regulations.
It is understood that the insurer's administrators have yet to make any changes to Quinn's pricing mechanisms.
A spokesman for the administrators said it was "too early" to say when Quinn Insurance would achieve the regulatory solvency targets since there were too many moving parts.
The Financial Regulator, however, confirmed that the administrators are legally mandated to "place the firm on a sound and viable financial footing", a mandate which includes getting the insurer's solvency up to the regulator's standards.
Meanwhile, the regulator is expected to announce a decision on re-opening parts of Quinn's UK and Northern Ireland businesses before the end of the week.
Workers have argued that the company is missing out on €1m to €1.5m in new business every day the trading ban remains in place, while 1,500 staff are left idle.