Sale of insurer was put in jeopardy

THE sale of Quinn Insurance Ltd to the Liberty Mutual/Anglo Irish Bank joint venture was put in jeopardy as a result of under-reporting of reserves by QIL employees, the High Court heard yesterday.

The sale was completed in late October/early November. As a result, all of QIL businesses in the Republic, except healthcare, transferred to US insurer Liberty Mutual.

Yesterday, Bernard Dunleavy, for Michael McAteer and Paul McCann, the joint administrators of QIL, who were appointed by the Financial Regulator in April 2010, informed Mr Justice Nicholas Kearns his clients discovered last October that QIL’s reserves had been under-reported.

This could have led to the collapse of the sale to the joint venture as it represented a material change to the deal, and affected QIL’s cash flows. Counsel said any collapse would have been “disastrous” for all concerned.

After discovering the under-reporting the joint administrations, who took disciplinary actions against the employees of QIL involved, had to renegotiate some terms of the sale.

The effect of renegotiation was that a larger tranche of public money being paid out of the state’s insurance compensation fund to cover QIL’s losses was required to cover QIL’s cash flows.

As part of the sale, about €740 million of public money is to be paid out of the fund to the insurer, including an immediate payment of €320m to facilitate the sale.

Mr Dunleavy said a payment of €210m drawn down from the fund to QIL in January 2012 and €40m in March 2012 was required. Requests for drawdowns from the fund during the rest of 2012 and afterwards will have to be made to the High Court.

He said that while these tranches were bigger than initially expected, the overall effect of the renegotiation meant that in the long term less money may be required from the fund. Had the sale collapsed more than €800m would have been required from the fund, the court heard.

The application for the larger tranche payments was granted by Mr Justice Kearns yesterday.