Tuesday 13 November 2018

S&P slates Central Bank over insurance failures

Central Bank Governor Philip Lane. Photo: Tom Burke
Central Bank Governor Philip Lane. Photo: Tom Burke
Charlie Weston

Charlie Weston

AN international credit ratings agency has questioned the effectiveness of the Central Bank in regulating insurers.

Standards & Poor's said the handling of various insurance company failures by the regulator raised questions about its ability to regulate the sector.

It follows the collapse of Setanta Insurance, the multi-million euro bailout of the State's largest general insurer, RSA, by its parent, and the earlier failure of Quinn Insurance.

In a report on property and motor insurance in this country, the ratings agency said: "We believe that the track record of the regulator raises questions over its effectiveness.

"Examples in recent history that support our view include the failure of Quinn Insurance... the irregularities reported at RSA Ireland, and the recent collapse of Setanta Insurance."

The damning assessment comes after FBD saw its share price collapse last year and was forced to raise funds to bolster its reserves, and Liberty Insurance and RSA both laid off hundreds of staff in a bid to reduce costs.

Official Central Statistics Office figures show that motor insurance premiums rose 26pc in the past year, and are up 33pc since 2011. Home insurance premiums have risen by 6pc in the last year, with an estimated 50,000 property owners being denied cover as they are at risk of flooding.

The industry is loss making after getting involved in under-pricing its motor policies, and failing to put aside sufficient reserves to meet a rising level of claims.

The sector has been hit with more frequent claims and higher court awards.

S&P outlines the failure of Quinn, which prompted the High Court to appoint an administrator in 2010, and it linked the troubles at the insurer with the investment by Sean Quinn in contracts for difference taken out on the collapsed Anglo Irish Bank. "While we consider risk management and governance weaknesses to be the main cause of the bank's collapse, we also think that stronger regulation could have helped address the issues sooner," S&P said.

S&P said that without the almost €400m pumped into RSA Ireland in 2013 by its UK parent it would have breached its solvency requirements due to "financial and claims irregularities".

Also outlined are the failure of Setanta Insurance, which only operated in this country but was regulated in Malta. S&P also referred to the historical losses at PMPA and the Insurance Corporation of Ireland.

But the Central Bank won praise for carrying out a probe of the impact of personal injuries claims on insurers last year.

In a statement last night, the Central Bank - headed by recently appointed Governor Philip Lane - said: 'The Central Bank has acted to address improvements in insurance supervision since the last decade.

"As an organisation we have introduced, and continue to introduce, changes to improve the efficiency and effectiveness of the regulatory regime, in particular in relation to the recent cases highlighted in the report .

"In the case of RSA Insurance it is important to note that this has not led to a single euro of detriment for policyholders and the Central Bank is not the regulator for Setanta which is prudentially regulated in Malta."

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