The joint administrators of Quinn Insurance Ltd are suing the firm’s former auditors PriceWaterhouseCoopers for around €1bn over alleged negligent auditing of the company’s accounts over several years.
Any damages recovered in the case will be used to partly or fully repay the state-backed Insurance Compensation Fund the cost, which could reach €1.65bn, of meeting claims of Quinn Insurance Ltd (QIL) policy holders, the administrators said.
Some €1.1bn has been paid out of the fund to date and, because the fund had insufficient monies to meet the QIL claims, the Government has imposed a 2% levy on all non-life insurance policies here to meet the claims.
QIL had worsened the effects of reserve deficiencies on its finances by making “gifts” of €385m to the Quinn Group and other companies connected with the Quinn family.
Among a series of claims, the administrators allege PriceWaterhouseCoopers (PwC) failed, between 2005 and 2008, to notify either the QIL board or the financial regulatory authorities of QIL’s failure to have the level of reserves required for non-life insurance companies.
They claim there were €1.8bn reserves in 2010 and further provision of €800m had to be made.
It is also claimed PwC failed to note in QIL’s audited accounts that QIL had authorised a number of its subsidiaries to give guarantees over debts of other companies in the Quinn Group, which guarantees extended to €1.29bn by 2007. PwC also failed to bring those guarantees to the attention of either the QIL board or the financial regulators.
It is alleged QIL’s management carried out a “quasi-actuarial assessment” of the reserves required before getting an actuarial firm to vouch those or recommend adjustments. The relevant actuarial firm had said it had not investigated the accuracy of the data supplied with the effect the checking exercise seemed to have been “almost entirely a desktop mathematical exercise,” it is claimed.
After the administrators asked PwC to finalise the audit of the QIL financial statements for the year ended Dec 2009, it was only then PwC disagreed, “it seems for the first time,” with the QIL actuarial analysis, it is claimed. PwC proposed providing €68m for claims, indicating a total loss for the 2009 financial year of €115m, instead of the pre-audit €47m loss set out in draft financial statements, the administrators claim.
The draft financial accounts suggested QIL, while loss-making in 2008 and 2009, had been historically profitable with a €338m surplus of assets over liabilities before the posting of the 2009 loss, they also claim.
The claims against PwC will be vigorously defended, Paul Sreenan, counsel for the firm, told Mr Justice Peter Kelly yesterday when consenting to an application by Paul Gallagher, counsel for the administrators, to have the case fast-tracked in the Commercial Court.
In an affidavit, Michael McAteer, who with Paul McCann was appointed joint administrator of QIL in Mar 2010 by the High Court on the application of the financial regulator, said the scale of the under-reserving in QIL, while difficult to quantify, was “so significant” the administrators had to set aside €800m to cater for deficiencies.
They had also to date had to obtain €1.1bn from the Insurance Compensation Fund to meet claims.
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