Finance Minister Michael Noonan told the administrators of Quinn Insurance (QIL) he was frustrated at the “large underestimation” which has seen the liabilities for the insurance compensation fund rise to a possible €1.65bn.
He also said he was concerned at how the Government had been “misled by incomplete information”.
The revelation came in correspondence between the minister and the administrators of QIL that was put before the President of the High Court Mr Justice Nicholas Kearns yesterday.
The correspondence formed part of his request to be informed as why the potential call on the fund, set up to protect policy holders should their insurer collapse, had risen from €738m since a hearing in October.
The increase has been attributed to factors including an increased and more pessimistic provision for claims, the euro weakening against sterling, and the decreased value of QIL’s assets.
It is also claimed that prior to the administrators taking over the Seán Quinn-founded business in Apr 2010, there had been a culture in Quinn Insurance, particularly in the UK, of the underestimation and the under-provision of reserves needed for claims.
The judge also heard from Domhnall Cullinan, head of insurance supervision with the Central Bank, that he hoped the €1.65bn figure was a worst-case scenario.
The judge yesterday also referred to correspondence between the minister and the administrators which stated that Mr Noonan had expressed frustration that the figures continued to rise.
In correspondence with the administrators, the minister said he was at a loss as to how such a large underestimation in the potential call on the compensation fund could not have been foreseen to a greater extent.
The minister wrote to the administrators last June and said the new figure was a matter of concern, particularly when considered in the context of the very difficult financial environment the country was grappling with.
In a letter in July, the minister said he could not understand how the administrators “as highly remunerated professional administrators with the support of highly remunerated actuaries and auditors could not have had greater insight into the total increased cost at an earlier stage and he said he was concerned by the manner in which the Government had been misled by incomplete information and estimation”.
One of the joint administrators, Michael McAteer, told the court they too “shared the frustration” of the minister in regards to the call on the fund. He said the minister had promised to continue to fund the compensation pot.
He said that initially, the administrators were given figures showing the company was balance sheet solvent and had adequate reserves. However, figures compiled by a UK-based actuarial and business consultancy in relation to QIL’s UK business showed a deficit of €400m and that QIL’s reserves were not strong enough.
In addition, he said that due to the lack of funds the company was unable to implement a hedging instrument to protect it against adverse sterling fluctuations.
In response to his counsel Bernard Dunleavy BL, Mr McAteer said he believed that of all the options available, the deal to sell QIL’s Irish business, except healthcare, to Liberty Mut-ual was the best option.
The sale amounted to a saving to the compensation fund of €500m, he said.
Last week, lawyers for QIL’s joint administrators told the judge that €1.65bn may be required from the fund to meet claims and costs arising from administration. Describing this revelation as “truly shocking”, the judge said this meant the government levy on motor and home insurance policy holders to cover the costs arising from QIL’s administration would last longer than the 12 years envisaged.
The payment from the fund is part of the deal under which QIL was transferred to Liberty and Irish Bank Resolution Corporation. The payments are necessary for protection of policy holders transferring to Liberty, remaining policy holders, and employees.
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