Mr. Ronan Hession:

I thank the joint committee for the invitation to attend to discuss Setanta Insurance. I am a principal officer in the financial services division of the Department of Finance and joined by Ms Antoine Mac Donncha, head of the Department's legal unit. In my opening statement I would like to outline for the committee the role of the Department in the Setanta Insurance process thus far and explain the role of the Minister more generally in the statutory framework for insurance compensation.

The Minister's primary role relates to the statutory framework and funding arrangements for the insurance compensation fund which was established under the Insurance Act 1964. The purposes of the Act are to establish the insurance compensation fund to meet certain liabilities of insolvent insurers; to provide for the making of loans to the fund by the Minister; and to provide for contributions to the fund by insurers. The fund is maintained and administered under the control of the President of the High Court acting through the accountant for the courts of justice. The Minister has no statutory role in the payments process or the administration of the fund. Section 5 of the Act provides that the Minister may, on the recommendation of the Central Bank, advance from the Central Fund to the insurance compensation fund such sum as he thinks proper to enable payments from the fund to be made expeditiously. The funds provided by the Minister are in the form of a repayable loan. Having regard to the potential calls on the fund, the existing reserves and the expected insurance levy receipts, the Central Bank wrote to the Minister in January 2015 recommending that up to €140 million would need to be advanced by him to the fund this year. As potential calls related to Setanta Insurance could be met from existing reserves, this figure is required to cover calls by Quinn Insurance Limited related to the disposal of its UK book, as announced earlier this year. The Minister has agreed to make a repayable loan to the fund for this amount.

The insurance compensation fund is, ultimately, funded by contributions from insurers. The Insurance Act 1964, as amended, provides that the fund is funded by contributions from insurers who issue policies in respect of risks in the State, whether the insurers are based in Ireland or another member state. Under the Act, the Central Bank has responsibility for determining whether the fund requires financial support and the level of contribution to be paid to the fund by insurers. The contribution may not exceed 2% of the aggregate gross premiums paid to each insurer for policies issued in respect of risks in the State. A levy in accordance with section 6 of the Act came into effect on 1 January 2012. The Central Bank has set the levy at the maximum 2% of the aggregate gross premiums paid. The levy is payable quarterly in arrears to the Revenue Commissioners which have responsibility for its collection and the transfer of the proceeds of the levy to the insurance compensation fund account.

Under section 2, the accountant for the courts of justice is required to submit an abstract on the fund’s accounts and a report on the administration of the fund to the Minister which he must publish and lay before the Houses of the Oireachtas. The most recent published accounts relate to 2013. They show a total owing to the Minister for Finance of some €986.9 million, of which €197.8 million was issued in 2013, and show insurance levies for that year of some €64.7 million. They also show outstanding amounts owed to the fund from companies placed in administration previously - Icarom, formerly the Insurance Corporation of Ireland, €164 million; Primor, formerly PMPA, €139 million; and Quinn Insurance, €1.158 billion. I am advised that the current balance in the fund is some €96 million.

Having set out the Minister's role under the statutory framework, I will now explain the Department's role in the Setanta Insurance process thus far. On 16 January 2014 the Central Bank first wrote to the Department alerting it to the concerns about the solvency margins of Setanta Insurance and advising that a potential call on the insurance compensation fund could arise. On the same day the Maltese Financial Services Authority directed Setanta Insurance to cease writing new business. On 16 April the Maltese regulator informed the Central Bank that Setanta Insurance had handed back its licence after the shareholders had resolved to wind up the company. At that stage the Department's understanding was that claims not honoured by Setanta Insurance could be submitted to the Motor Insurers Bureau of Ireland, MIBI. On 30 April a liquidator was formally appointed to Setanta Insurance. The Department met the liquidator's representative in Ireland and the liquidator within a week of their appointment. At the time the Department also held meetings with senior officials in the Department of Transport, Tourism and Sport and the Motor Insurers Bureau of Ireland.

I should explain that the Motor Insurers Bureau of Ireland was established in 1955 for the purpose of compensating victims of road traffic accidents caused by uninsured and unidentified vehicles. It operates under a written agreement dated 29 January 2009 between companies underwriting motor insurance in Ireland and the Minister for Transport. The Minister for Finance is not party to the agreement and has no responsibility in respect of the MIBI or the agreement.

On 23 July 2014 the MIBI advised the Department of Transport, Tourism and Sport that it had obtained legal advice from which it had concluded that the 2009 agreement with the Minister for Transport did not require the MIBI to satisfy awards against drivers covered by a policy of insurance where the insurer was unable to pay all or part of an award because of insolvency. On 25 July the Department of Transport, Tourism and Sport and the Department of Finance jointly sought the advice of the Attorney General on the question of MIBI liability. On 1 September the Attorney General’s advice was received, on foot of which the Minister for Finance decided to proceed on the basis that the MIBI would not be playing a role in compensating claimants due awards under Setanta Insurance policies. On foot of this, the Department of Finance met the liquidator and the Courts Service regarding the arrangements for the processing of payments under the insurance compensation fund. Based on the information available, the liquidator stated it was not likely that he would be in a position to meet more than 30% of the insurance claims from the assets in liquidation. Therefore, on the basis that the insurance compensation fund might only pay out up to a maximum of 65% on an eligible individual claim, the possibility of advance payments of 65% on eligible claims to the fund was examined by the accountant. The accountant obtained clarification on this question. He informed the Department that, having considered legal advice on the operation of the legislation, he was satisfied that it was appropriate to make applications to the President of the High Court for approval to release moneys from the insurance compensation fund prior to completion of the liquidation of the company. Any payment from the fund would be a once-off and final payment. The State Claims Agency was engaged to provide support for the accountant in terms of (i) the necessary expertise required to ensure only valid claims would be paid from the insurance compensation fund and (ii) administrative support required to deal with the volume of work arising from the Setanta Insurance case.

At the time the liquidator advised that he was aiming to make an application to the insurance compensation fund to meet outstanding claims early in 2015 in respect of the following categories of claims: claims where settlements had been agreed between Setanta Insurance and the claimant; claims where the Personal Injuries Assessment Board had issued orders to pay that had been accepted by Setanta Insurance and the claimant; and claims that had been the subject of court awards. The accountant advised at that stage that he was aiming to make an application in respect of the first batch of 300 claims to the President of the High Court before end of March 2015. On 26 March 2015 the Minister for Finance received a letter from solicitors acting for the accountant for the courts of justice. The letter states that prior to making any application to the High Court for payment from the insurance compensation fund pursuant to the Insurance Act 1964, the accountant must be satisfied that it appears unlikely that the relevant claim can be met otherwise than from the fund. On foot of legal advice, the accountant has decided to make an application by way of special summons to the High Court, pursuant to Order 3, Rule 22 of the Rules of the Superior Courts, for a trial of an issue of law to determine whether the MIBI is liable for claims made under policies issued by Setanta Insurance. The letter emphasises that the accountant is anxious that this issue of law be determined without delay with a view to providing certainty for affected Setanta Insurance policy holders as soon as possible. We have been further advised that the direction of the High Court is being sought on the appropriate parties to the trial of this issue which may include the Minister for Finance. Obviously, this impending trial limits what I can say about any issue that may be relevant to the forthcoming judicial consideration of this matter. However, I will endeavour to be as helpful as I can to the committee within that constraint.