Mr. Aidan Carrigan:

I apologise as I will have to depart early for a flight at 4 p.m. Mr. Casey will be well able to cover for me in my absence.

I thank the Chairman for the invitation to appear before the Joint Committee on Finance, Public Expenditure and Reform to outline the Minister's views on the increased call upon the ICF resulting from the Quinn Insurance administration process. Before doing so, let me outline the main elements.

On 31 July, the joint administrators presented their tenth report to the High Court. That report set out that the potential call on the ICF would be up to €1.65 billion, representing an increase of €875 million from the amount of €775 million set out in the application to the High Court of 14 December 2011. The joint administrators indicated to the High Court that the main reasons for the increased call on the fund are: an increase in the best estimate of the ultimate claims by Grant Thornton actuaries - €208 million; a new adverse-deviation reserve for potential claims in Ireland and the United Kingdom - €300 million; a contingency reserve to protect against currency fluctuations - €215 million; and a further reduction in asset values in the investment portfolio and revisions to trading estimates - €152 million.

The administrators pointed out in their report that the projected call on the insurance compensation fund, ICF, now includes considerable contingencies and that it is hoped these will not be called upon. They made the point that poor claims handling and reserves practices as well as a culture in Quinn Insurance Limited, QIL, of suppressing estimated claims all contributed to an under-provisioning for claims. The joint administrators have undertaken several actions relating to claims settlement which could reduce the ultimate claims cost. They have indicated that were they to remove most of the accounting adjustments and use a best estimate calculation, the call on the fund would more likely be in the range between €1.1 billion and €1.3 billion rather than the €1.65 billion for which they have provided.

The Minister is mindful that there is concern among Members of the Houses of the Oireachtas that they were not made aware of the increase in the call on the ICF at an earlier stage. The Minister understands this concern and believes it is important that some explanation should be provided. The committee is aware that the joint administrators are court appointed officers and have a duty to update the High Court at regular intervals on developments relating to the administration. In circumstances in which they believe there is likely to be a significant increase in the call on the ICF, the joint administrators must be in a position to demonstrate that additional funding will be available, otherwise the court will not be in a position to approve the release of moneys from the fund.

In preparation for their court application, the joint administrators drew the attention of the Department to the possibility that there was likely to be a significant increase in the call on the ICF in April 2012. At that stage the information provided by the joint administrators was still provisional in nature and was provided to the Department in confidence as part of preparations for their High Court appearance. We were advised that the information was preliminary and still had to be confirmed by their internal procedures. The Minister was concerned about the scale of the proposed increase at that stage and advised the joint administrators accordingly. In the following weeks, the 2010 QIL annual accounts were finalised and the administrators determined that there was need for a contingency reserve against currency fluctuations, leading to a further increase in the potential call on the fund. On receipt of this information in July, the Department wrote to the joint administrators on behalf of the Minister expressing his frustration, especially with the fact that the call on the ICF could reach €1.65 billion. This correspondence was produced in the High Court by the joint administrators as an exhibit for their court appearance of 7 August 2012 and, as such, is in the public domain. At that stage the joint administrators had yet to inform the court and it would not have been appropriate for the Minister to have brought the details into the public domain in advance of it being presented to the High Court.

The Minister shares the committee's concern about the significant increase in the potential call on the ICF from €775 million to €1.65 billion as reflected in the correspondence with the administrator. This increased call is significant from a budgetary perspective because while the contributions to the fund will be recouped, they still cause short-term strain on the economy at a time when a range of competing financial demands are being placed upon the Exchequer. The reduced best estimate calculation of between €1.1 billion and € 1.3 billion represents small consolation but it is a target which the Minister is keen the joint administrators should work towards achieving. The Minister has consulted the Central Bank about his concerns at the increasing call on the ICF and at the conduct of the administration. The bank has made the point that reserve calculation by its nature is a difficult and complex process heavily dependent on several factors, including a firm's claims handling process and its approach to reserve setting. The bank indicated its understanding that the adverse loss development was related to business written prior to the firm being put into administration. In other words, in the bank's view, the joint administrators have not conducted themselves in a way to cause any losses to increase.

The Minister has emphasised to the joint administrators the importance of taking appropriate measures to ensure cost-effective management of the claims settlement process and to ensure everything possible is done to minimise the call on the ICF. To achieve this objective, the joint administrators have informed the Department that as part of a new enhanced governance structure, a claims advisory committee has been set up to guide and advise them and QIL management on future claims strategy and policy. They have indicated to the Department that the claims advisory committee is devising a strategy for managing the settlement of outstanding claims as quickly as possible and at the lowest possible cost. Further, to protect Exchequer interests, the Minister has ensured the State Claims Agency is more involved in the administration process, especially in the claims management area, which is critical to keeping the call on the ICF down to its lowest level. It should be noted in particular that, at the Minister's request, Mr Ciarán Breen, director of the State Claims Agency, has been appointed as chair of the claims advisory committee. The Department proposes to continue to work closely with the joint administrators and to use the services of the State Claims Agency to monitor progress with a view to ensuring, in as much as it can, that the most cost-effective outcome to this process is achieved.

It is hoped this overview is helpful to the committee's understanding of the call on the ICF. The Minister shares the concerns of the committee at the escalation of costs. I assure the committee that the Minister will continue to pay close attention to the matter. We are open to any questions the committee considers appropriate.