Irish Financial Woes Dominate Discussion, Country’s #2 Insurer Taken Over

The European Insurance Forum, held in Dublin Monday and Tuesday, was dominated by the fiscal crisis that has hit Ireland particularly hard. Although the country’s insurance industry remains a bright spot in an otherwise fairly bleak landscape, even it is not immune.

As the conference was winding up on Tuesday afternoon, Ireland’s financial regulator announced that it was taking over control of Quinn Insurance, Ireland’s second largest insurance company, as its accounts showed a massive deficiency.

Ireland’s banks lent massively during the boom times, funding both home and commercial building projects, which are now unable to pay back the loans. The government created the National Asset Management Agency (NAMA) to deal with the problem, but as time goes by more and more “toxic assets” have come to light.

Anglo-Irish Bank is already under government control – following revelations of widespread accounting irregularities. The Bank of Ireland and Allied Irish Bank (AIB), while still functioning independently, are under government supervision, and will need to raise additional capital – €7.4 billion ($9.97 billion) for AIB and €2.7 billion ($3.638 billion) for Bank of Ireland.

Speaking at the conference, Wells Fargo’s Robert Quinn (no relation to the insurer) described the situation as a “collateral crisis.” Because mortgages and other loans aren’t being repaid, the banks have less money to make new loans. In addition the value of the investments – mainly property – that secures those loans has also dropped dramatically, as there are far fewer potential buyers able or willing to acquire distressed property.

In a conversation shortly after Quinn’s presentation, a conference delegate described a shopping complex, which was built for around €34 million ($45.82 million) and was eventually sold for €7 million ($9.434 million) after the bank turned down an offer of €6 million ($8.08 million).

Quinn Insurance’s problems are also related to Anglo-Irish Bank, as the insurer’s founder, Sean Quinn, a construction magnate, eventually obtained a 15 percent stake in the bank through a network of complex financial transactions. Most of the funds came from Quinn Insurance, which suffered a near total loss on the investment when the bank was taken over.

Matthew Elderfield, the newly appointed Head of Financial Regulation, Central Bank and Financial Services Authority Ireland has both the experience, and the courage to deal with the problem. He previously headed the Bermuda Monetary Authority, after a position with the UK’s Financial Services Authority (FSA). In his address to the EIF, which dealt mainly with Solvency II and insurance regulation, he nonetheless made it clear that his office would employ “rigorous scrutiny,” not just of financial models, but for the entire industry.

Taking over Ireland’s second largest insurer, after discovering a potential €454 million ($612 million) shortfall in its accounts, was a bold step. According to news reports, it’s estimated the move could cost an average €2000 ($2695) for every person in Ireland, as a result of increased levies on insurance premiums to settle Quinn Insurance claims.

The company, a direct writer of personal lines, especially car insurance, has never been a member in good standing of the Irish insurance community. Over the years it has been accused of “sharp practices,” and has had more than one run in with insurance regulators. Nevertheless, the failure of the second largest all-Irish based insurer is a further blow the country’s faltering economy.

However, as Sarah Goddard, CEO of the Dublin International Insurance Marketing Association (DIMA) pointed out; “The fact that the regulator acted quickly and decisively with Quinn shows the strength of financial regulation in Ireland.” That reliability will continue to be tested, but it is one of the country’s greatest assets, as a number of speakers at the conference pointed out.