Irish face paying out to cover failed IFSC insurers €65bn
the amount of assets held by IFSC-based insurers
IRISH policyholders could be forced to stump up billions to cover losses if an IFSC-based insurer collapsed, under new rules being drawn up by the European Commission.
The commission wants to create funds to cover losses that would arise if an insurance company went bankrupt. It is proposing a pre-funded insurance bailout fund that would make each country liable for losses if an insurance company regulated in the country collapsed under a so called "home country" scheme.
Irish insurers fear it could leave them, and their customers, on the hook for losses by insurance companies based in the IFSC that do most of their business abroad.
IFSC-based insurers wrote business worth €26.2bn in 2008 and boasted assets of €65bn.
Insurers focused on Ireland are becoming concerned about the country's exposure to potential losses from the sector.
"Irish Life will be looking to ensure that neither Irish Life nor its customers will be burdened by any compensation due from an extreme event from an overseas business," a spokesman said this weekend.
Informed sources said international insurers with substantial operations here were also "concerned" about the "home country" principle in the proposed rules.
"If compensation is on a 'home country' basis, then Irish policyholders could end up paying out for a disproportionate level of losses," said one insurance source.
"We'd have a concern about that -- we'd rather a 'host country' basis where Ireland would only be responsible for losses suffered by policyholders in Ireland."
Irish Insurance Federation (IIF) boss Mike Kemp, who represents both international and local insurers, last night stressed that no final decision had been made on how the scheme would be applied.
The European Commission favours the home country principle because it ties the liabilities to the country where insurers are regulated.
Mr Kemp said he didn't think a "disproportionate burden" would fall on Irish policyholders. He said IFSC insurers will also be paying into the Irish compensation fund.
Under the commission's proposals, insurers will pay 0.12pc of their gross written premiums in to the fund for 10 years, until a buffer of 1.2pc is built up.
If a large IFSC insurer went bust before it had made substantial contributions to the fund, Irish policyholders would still end up footing that bill since the collapsed insurer would no longer be paying in.
Insurers say the Central Bank should be mindful of this when issuing licences to international insurers who are regulated from Ireland. In a statement, the Central Bank said it examined the "financial stability" of all international insurers who apply to set up hubs here.
The bank also pointed out that insurers typically have assets in excess of their liabilities, have their financial position interrogated by actuaries and take out insurance against large losses. "It is important to note that insurers do not fail in the same way as banks," the bank stressed.
The commission's white paper on the insurance guarantee scheme, however, stresses that the insurance sector "has proved far from immune" from the financial crisis.
"Some important European insurers have reported particularly severe losses and have been forced to (make) important injections of new capital," the paper adds.