Quinn Insurance sale 'put in jeopardy' by under-reporting of reserves
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's employees, the High Court heard today.
The sale of insurance company to the joint venture was completed in late October/early November.
As a result of the sale, all of QIL businesses in the Republic of Ireland, except healthcare, transferred to US insurer Liberty Mutual. Liberty will be wholly responsible for the business.
State-owned Anglo - now the Irish Bank Resolution Corporation - will have no day-to-day role in the business but will act in a loan recovery capacity.
Today Bernard Dunleavy (for the joint administrators of QIL), Michael McAteer and Paul McCann (appointed by the Financial Regulator in April 2010) informed Mr Justice Nicholas Kearns it was 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 the under-reporting of reserves represented a material change to the deal, and affected QIL's cash flows. Counsel said that any collapse would have been "disastrous" for all concerned.
Counsel said there had been a culture of under-reporting of reserves by QIL prior to the joint administrators appointment.
After discovering the under-reporting, the joint administrations, who took disciplinary action against those employees of QIL involved, had to re-negotiate some of the terms of the sale.
The effect of the 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 in the shorter term.
As part of the sale, approximately €740m of public money is to be paid out of the State's Insurance Compensation Fund to the insurer, including an immediate payment of €320m to facilitate the sale.
As a result of the under-reporting, counsel 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.
Counsel said that while these tranches were bigger than initially expected that the overall effect of the renegotiation meant that in the long term less money maybe 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.
The judge agreed to make the order after being informed that the Minister for Finance supported the joint administrator's application.
