Ciarán Lynch (Cork South Central, Labour)
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No. 7 on today's agenda is a review of the collapse of Setanta Insurance and matters in relation to the insurance compensation fund. We are joined by representatives of the Central Bank of Ireland and officials from the Department of Finance. In commencing proceedings, I welcome Mr. Bernard Sheridan, director of consumer protection, Mr. Colm Kincaid, head of consumer protection, and Mr. Mick Stewart, deputy head of consumer protection, from the Central Bank of Ireland; and Mr. Pat Casey, principal officer, financial services division, Ms Bríd Kemple, assistant principal officer, financial services division, and Mr. Antoine MacDonncha, head of legal unit, from the Department of Finance. The format of the meeting will be that Mr. Sheridan will make his opening remarks followed by Mr. Casey. It should be noted that while the Central of Bank has been asked to address a range of matters relating to the collapse of Setanta Insurance, the Department of Finance will address matters specifically relating to the involvement of the insurance compensation fund, ICF. A question and answer session with members will then ensue.
I remind members, witnesses and those in the Public Gallery that all mobile phones must be switched off to ensure they do not cause interference with the broadcasting of the questions and answer session later.
To move on the formalities regarding witnesses appearing before Oireachtas committees, I advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I invite Mr. Sheridan to make his opening statement to be followed by Mr. Casey.

Mr. Bernard Sheridan:

I thank the Chairman and members of the committee for inviting me here today to discuss the recent collapse of Setanta Insurance Company Limited. The failure of any firm which impacts on Irish consumers, policyholders or claimants is a matter of serious concern for the Central Bank. Policyholders buy insurance to protect themselves against future risks and therefore they should be able to rely on the cover for which they have paid. Safeguarding consumers is one of the Central Bank’s primary objectives, and with this in mind, the actions which the Central Bank has taken in regard to Setanta have been with the aim of protecting the interests of Irish consumers.

I will give a brief overview of what the Central Bank’s role has been in regard to Setanta. Setanta is a company which was established in Malta in 2007 and was authorised and supervised by the Malta Financial Services Authority, MFSA. Setanta sold insurance in Ireland on a freedom of services basis, that is, it was entitled to sell here once it had obtained authorisation from the MFSA under the provisions of the Single Market directives. The firm did not operate on a branch basis in Ireland. It did, however, have an administrative office in Blanchardstown. Setanta was required to comply with conduct of business requirements of the Central Bank when selling to Irish consumers. Setanta provided private and commercial motor insurance policies to Irish consumers and sold exclusively through approximately 230 brokers. At the time it went into liquidation, Setanta had approximately 75,000 policyholders, two thirds of which were commercial motor insurance policies and one third of which were private motor insurance policies.

In January 2014 the MFSA directed Setanta to cease carrying on the business of insurance, including the renewal of existing business. On 16 April 2014 Setanta handed back its licence to the MFSA and on 17 April the firm announced that it was commencing a creditors' voluntary liquidation as it was unable to meet its outstanding claims in full. A creditors' meeting was held on 30 April 2014 in Malta at which a liquidator was appointed to administer the liquidation of Setanta. All policies were cancelled by the liquidator with effect from 29 May 2014.

In early September 2013 the Central Bank became concerned about the financial position of Setanta based on market intelligence, and as a result, contacted the MFSA, on a regulator to regulator basis, seeking confirmation that Setanta was solvent and that it had sufficient assets to meets its liabilities to Irish policyholders. The MFSA confirmed that it received monthly management accounts and solvency calculations and, according to its latest management accounts, Setanta was meeting the relevant solvency requirements in terms of the EU solvency I directive.

In October 2013 the Central Bank conducted an inspection of Setanta to examine its practices in regard to claims handling. In November 2013 the Central Bank met Setanta to discuss the findings of the inspection, including our concerns about how the company was reserving for its claims. The Central Bank also contacted the MFSA to share our findings and a copy of our inspection report was forwarded to the MFSA requesting that it take appropriate action. Due to our ongoing concerns for Irish policyholders, the Central Bank continued to engage very closely with the MFSA following the submission of the report to it. In January 2014 the Central Bank received further market intelligence which raised further concerns. We again raised these with the MFSA. We also wrote to the Department of Finance outlining our concerns in regard to Setanta and advised it of the possibility of a potential call on the insurance compensation fund in the event of failure of this firm.

Following receipt of the Central Bank’s report on the findings of the inspection, the MFSA appointed a liability loss adjuster firm in December 2013 to carry out an independent assessment of Setanta’s outstanding loss reserves. On 16 January 2014 the MFSA notified the Central Bank that it had received initial indications from the liability loss adjuster that there was a material shortfall in Setanta’s reserves. Based on the final report received, and its knowledge of Setanta as its prudential regulator, the MFSA directed Setanta to cease writing new business and issuing renewals with effect from the close of business on 24 January 2014 and a Maltese firm was appointed to manage an orderly run-off.

On 27 January 2014 Setanta issued a letter to its entire broker network to inform them of the MFSA’s direction to cease writing new business and issuing further renewals with effect from the close of business on 24 January 2014. Setanta also requested that the brokers issue a letter to the policyholders that provided information about the MFSA’s direction. Following the issuing of the direction, the MFSA continued to engage with Setanta in an attempt to resolve its financial difficulties and ultimately informed the Central Bank on 11 April that Setanta had failed to secure a resolution to its solvency deficit and that the directors were going to propose a voluntary liquidation to its shareholders. On 16 April 2014 the MFSA informed the Central Bank that Setanta had handed back its licence after the shareholders resolved to wind it up.

The Central Bank published a notice on its website on 17 April informing the public and the media about the liquidation of Setanta and that policyholders should make arrangements to obtain alternative cover without delay. This notice has been updated as new developments occurred. At the same time, Setanta notified its broker network that a solvent run-off of the business was no longer possible and that this information should be brought to the attention of policyholders. The Central Bank also communicated directly with the brokers and we instructed them to contact policyholders regarding making alternative insurance arrangements and to offer to assist them to obtain proof of no-claims bonus.

We also engaged with the representative bodies of the brokers, the Professional Insurance Brokers Association, PIBA and the Irish Brokers Association, IBA, as well as Insurance Ireland, to help facilitate policyholders transfer to another insurer. The Central Bank also provided advice to policyholders who contacted us, as well as providing information to the National Consumer Agency.
Currently, the liquidator is in the process of assessing the level of potential claims and the assets and liabilities of Setanta in order to estimate the actual shortfall. This process could take some time, particularly as some claims may not as yet have been submitted, and also some claims may be ongoing for some considerable time.
Policyholders or third party claimants who have not yet submitted their claim to the liquidator should do so as soon as possible. This will ensure the claimant will be included as a creditor of Setanta when its liabilities are being assessed. Our understanding is that premium refunds are automatically included on the creditors list.
The failure of Setanta has clearly impacted on all its policyholders. While the Central Bank’s supervision of Setanta extends to conduct of business issues only, we have sought to protect the interests of Irish policyholders through engagement with the Malta Financial Services Authority, MFSA, the firm and the liquidator. We will continue to ensure affected consumers are fully informed of any developments and toliaise with the MFSA during the liquidation process. I thank the members for their attention.

Mr. Pat Casey:

I thank the committee for the invitation to brief it on the collapse of Setanta Insurance and, in particular, to provide members with information on the role and operation of the insurance compensation fund, ICF, and how this fund may be used to assist those policyholders affected by the closure of Setanta.
The fund was established under the Insurance Act 1964 to make arrangements to meet certain liabilities of insolvent insurers, provide for the Minister to make advances to the fund, and provide for contributions to the fund by insurers. The fund is maintained and administered under the control of the President of the High Court. Amounts are paid from the fund, with the approval of the High Court, to a person in regard to an insurer in liquidation or administration, in respect of claims under policies issued by the insolvent insurer in circumstances where it is unlikely that the claims can be met otherwise than from the fund. The Accountant of the High Court provides annual accounts of the fund to the Department of Finance and the Central Bank, and these are laid before the Houses of the Oireachtas. In the period since the early 1980s, the fund has advanced moneys to Primor plc, formerly PMPA Insurance Company, Icarom plc, formerly Insurance Corporation of Ireland, and since 2011, QIL, Quinn Insurance Limited. Currently, there is a balance of €48 million in the fund.
In accordance with section 5 of the 1964 Act, in the event that the fund does not have sufficient funds to meet a payment approved by the High Court, the Minister for Finance may, on the recommendation of the Central Bank, advance Central Fund moneys to the fund to enable payments out of the fund to be made promptly, and on the terms and conditions he decides to be appropriate. The fund is, ultimately, funded by contributions from insurers. Prior to 2011, the Act provided for charges to be levied on insurers in respect of policies issued regardless of the location of the insured risks. Following advice from the Attorney General that charges could not be levied on insurance companies in respect of risks outside the State, an amendment was made to the 1964 Act through the Insurance (Amendment) Act 2011. The amendment Act provides that the fund shall be funded by contributions from insurers who issue policies in respect of risks in the State, whether the insurers are based in Ireland or in another member state, and it changed the scope of the fund from one that covers the risks of policyholders of Irish authorised insurance companies to one which covers all insured risk in the State, except for specific excluded risks.
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 aggregate of the 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, as substituted by section 7 of the Insurance (Amendment) Act 2011, came into effect on 1 January 2012. The Central Bank set the levy at a maximum 2% of aggregate of the gross premiums paid. The Department of Finance estimates that the levy will generate approximately €65 million per annum. In 2013, the levy generated €64.6 million. The levy is payable quarterly in arrears to the Revenue Commissioners, who have responsibility for its collection, and they transfer the proceeds of the levy to the ICF account.
The committee will be aware that the liquidation of an insurance company is a legally complex and time-consuming process. In general terms, under the Statute of Limitations, claimants are given two years following an accident to make an initial claim. However, it could take several years for a particular case to be settled. Protracted legal challenges also add years, and often additional costs, to the claims process. These are factors that the liquidator is currently examining to get an estimate of the cost of claims in the Setanta liquidation.
Committee members will be aware that the liquidation of Setanta Insurance is still at an early stage. The liquidator has advised us that claims and amounts incurred but not reported are likely to be considerably greater than in the statement of affairs as prepared by the directors at the time of liquidation. The liquidator has appointed Towers Watson to conduct an assessment of the adequacy of the claims reserves quoted in the statement of affairs. To date, he has only received preliminary information from Towers Watson on claims and incurred but not reported reserve amounts as part of a detailed examination of the insurance claims against the company. The liquidator has emphasised that any information on claims is subject to change as more information is received and this may have a material impact on the overall estimate of the likely maximum dividend that will be payable from the liquidation.
On the way claims may be paid out, the main factors relating to the ICF payment of claims as set out in the ICF legislation is as follows. First, a payment may only be made if it appears unlikely that the claim can be met otherwise than from the fund. This means that it is necessary to clarify how much is available from the liquidator to go towards the claim and whether the Motor Insurers Bureau of Ireland, MIBI, is in a position to pay the claim or a portion of the claim. Second, the ICF only pays out on claims where an individual is involved.The Act provides that claims by bodies corporate or unincorporated bodies are not covered by the fund except where there is a liability to or by an individual. While the liquidator has informed us that Setanta had a significant number of commercial policies, he is not in a position to clarify the exact amount at this stage. He has indicated that:

It doesn't necessarily follow that most claims would not be covered by the Fund. While we have not detailed breakdowns, we expect that the majority of claims will relate to liability to individuals and would therefore be covered.

The process to be followed and the formal procedures for making applications will be set out once clarification is reached on a number of issues. It goes without saying that payments made by the relevant parties must be entirely in compliance with laws and agreements under which they operate. In the case of Setanta, it is necessary for all the parties to obtain clarity on the legal position. Furthermore, for the liquidator, each case is subject the terms of the individual insurance policy itself.

According to section 3B of the 1964 Act, as amended, where a person who performs the functions of a liquidator has been appointed to an insolvent insurer in another member state, the Accountant to the High Court may apply to the High Court for approval for amounts due to claimants, subject to the limitations set out in the legislation. The office of the High Court Accountant will liaise with the Central Bank of Ireland and the Department of Finance on the state of the insurance compensation fund, ICF, and its ability to meet claims. The ICF is expected to be adequately funded to meet all claims but the Minister for Finance may advance moneys to the ICF to meet any shortfall, if necessary.

Members will be aware of the Minister's strong desire that matters relating to the liquidation of Setanta be progressed and concluded in an orderly fashion. This is important for the claimants as well as former policyholders of Setanta Insurance. It also is important for the insurance sector as a whole. In summary, Setanta claimants should continue to contact the liquidator regarding their claims until otherwise advised. The liquidator is continuing his work on providing clarity to the extent he can on the full extent of claims and the likely dividend from the liquidation. Once further information becomes available and the outcome of the consideration by the MIBI of its legal advice has been taken into account, the Department will further examine how the ICF can assist those policyholders affected by the Setanta closure. The Department and the Central Bank continue to work with the liquidator to assist in that regard. I am happy to take any questions or clarifications to assist the joint committee.

Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Pat Casey and Mr. the Bernard Sheridan. We will begin with 15-minute rounds of questions and if members wish to share that time with their colleagues, we will do so and we will commence immediately. I seek clarity on a technical matter and this may be a question for Mr. Sheridan or Mr. Casey. People who take out insurance have the option to pay for it on an annual or a monthly basis. Are those who were monthly contributors to Setanta required by the liquidator to keep paying on a monthly basis? Alternatively, is it now accepted, because they have no insurance, that they are not obliged to honour the remainder of the contract?

Mr. Bernard Sheridan:

My understanding is they are not obliged to honour the remainder of the contract in those circumstances.

Ciarán Lynch (Cork South Central, Labour)
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However, resolution will be considered for the period of time for which they were paying insurance.

Mr. Bernard Sheridan:

To the extent that they have overpaid for the period for which they are insured, they will have a claim on the liquidation in respect of that unearned premium.

Ciarán Lynch (Cork South Central, Labour)
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When people are paying insurance, they assume they are covered but they woke up one morning to discover they were not. The first question any member would ask is, how many other Setanta-type insurance debacles potentially exist? Is this the only one that will happen or might other players in the market be in a similar space?

Mr. Bernard Sheridan:

Nobody at the Central Bank can guarantee that no firm will fail. That is part of the system and the challenge is to try to prevent that or to limit the impact-----

Ciarán Lynch (Cork South Central, Labour)
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Mr. Sheridan, that is not what I am asking. An Irish company could fail tomorrow morning and there are bonds and all sorts of measures in place. Moreover, there is protection under the consumer code. A very particular circumstance arose here, in which a company calling itself Cú Chulainn - which is who Setanta became when he grew up - gave the impression that it was an Irish company. This firm branded itself as an Irish company deliberately to operate in the Irish market, but those Irish customers and people living in the State discovered afterwards that it was not an Irish company and that they were not protected within the same regulatory framework as if they had been insured by an Irish company. Are there other Setantas, Cú Chulainns or Carrageen mosses out there? Are there companies which are using Irish names but which are not Irish and which do not provide the level of cover, protection and surety as would Irish companies operating within the Irish regulatory market?

Mr. Bernard Sheridan:

To respond, the framework that applies to insurance companies operating in Ireland largely is driven at a European Union level. That framework provides that if a firm is authorised in its home country, which can be any member of the European Union or the European Economic Area, EEA, it is entitled to sell insurance provided it complies with notification requirements. It also must comply with the minimum standards. These minimum standards will be changed within the next year and a half, when the provisions of solvency II come in and these standards will be raised. At present, however, once a company is complying with the minimum standards set at EU level, it is entitled to operate anywhere throughout the EU market. As to whether there is another Setanta out there, I am unsure whether it is dependent on whether it is in Malta or any other country. It has more to do with how the individual firms are being managed and supervised. I am not sure whether this is country-specific because the rules apply across the EU market.

Ciarán Lynch (Cork South Central, Labour)
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I will not name-check any Irish companies because that would not be appropriate, but had this been an Irish-owned company or a company based in the UK that was registered in London or Dublin, is Mr. Sheridan telling me that were the insurance company with which the customers were doing their business to go wallop, so to speak, they would be in the exact same circumstances?

Mr. Bernard Sheridan:

Essentially, yes. The minimum regulatory regime is applied at EU level and that is what these companies must comply with. Once they do and get authorised in any country in the EU or the EEA, they automatically are entitled, provided they comply with notification requirements.

Ciarán Lynch (Cork South Central, Labour)
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Mr. Sheridan used the term, "minimum regulatory requirement" in the EU. Is the regulatory requirement in Ireland for an Irish-registered company at a different level of regulation? If so, is it greater or less?

Mr. Bernard Sheridan:

At present, the directive is a minimum harmonisation directive which allows countries to apply higher standards. In certain aspects Ireland has applied higher standards and has provided for higher margins - a buffer in place if one likes - to make the firm more solvent. However, other countries in Europe have done the same. Even with those buffers in place, there still is no guarantee that a firm would not fail. It comes back to how it is reserving and how is it meeting the solvency requirements.

Ciarán Lynch (Cork South Central, Labour)
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What makes Malta unique? In this circumstance, what makes it different from an Irish company going wallop?

Mr. Bernard Sheridan:

I am not sure whether anything makes it unique. To be honest, I believe the standards between the two countries were quite similar. However, the standards are heavily dependent on what figures firms are plugging in to meet the standards. That has been the main issue in this regard.

Mr. Pat Casey:

If I might add a little in this regard, I agree with my colleague. The insurance industry is regulated at European Union level and the issue then is to what degree the safety net is there if there is a failure of an insurance company. There is not yet a harmonised approach with regard to the safety net. There are proposals to have a European-wide insurance compensation or protection scheme but it still is at fairly early stages and has not been developed as a proposal. In Ireland, we have the insurance compensation fund and the legislation surrounding it as a safety net. However, a number of restrictions are in place in that regard because of the cost of having in place a complete safety net. For us, the insurance compensation fund is there to protect policyholders in the event that an insurance company becomes insolvent and, consequently, is there at that level of protection.

Ciarán Lynch (Cork South Central, Labour)
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Let us say, for example, that I approached a broker in the morning, as I assume most people who took out Setanta insurance got it through a brokerage. To use Mr. Casey's own term of a safety net in the context of the absence of harmonisation across the European Union, depending on the insurance company with which one deals, that safety net is either closer to the ground or higher up. In the case of the latter, one will fall a lot further before one hits that safety net, given the area of regulation. Could a requirement be placed on the industry in this country - as something over which the State could have control as opposed to waiting for European regulation on harmonisation to happen - that a broker would inform a potential customer that the proposed safety net was different? I was obliged to deal with my car insurance yesterday and one rings around, one deals with the broker and one gets different quotations. One is trying to ensure one is getting the same deal at a cheaper price. However, were someone offering me a cheaper price with a different safety net, that would have me going back to the original quotation. Is there a requirement on the brokerage industry to tell potential customers that the safety net available with a product is less than that available with another product? Forget about the windscreen cover and all the rest, as this question pertains to the safety net in the event of the company going wallop. Is such a requirement in law in place at present for brokers?

Mr. Bernard Sheridan:

Brokers obviously must act in the best interests of the client and they can offer products from entities from which they hold appointments. In general, these are insurance companies throughout the European Union and Ireland. In terms of the safety net, irrespective of which company people use, it essentially is the same. Before one gets the safety net, it is more about whether there is a difference between dealing with a company based in Ireland and one based outside of Ireland, rather than whether people should be told about the safety net if that company fails, because it is based upon where is the risk.

The person is an Irish consumer, so he or she is covered by the insurance compensation fund.

Ciarán Lynch (Cork South Central, Labour)
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If I had booked insurance 12 months ago and Setanta had been suggested to me by a broker, is the witness saying there would have been no necessity for a broker to advise me that there was something technically different in regard to insurance from another jurisdiction as opposed to insurance from this jurisdiction?

Mr. Bernard Sheridan:

No. There is no difference as such. The difference lies in the nature of the companies and how-----

Ciarán Lynch (Cork South Central, Labour)
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Please explain that to me. I do not know what the difference is, but there seems to be something particular to do with Setanta being based in Malta. What is the particularity about it? What is unique about it?

Michael McGrath (Cork South Central, Fianna Fail)
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May I ask Mr. Sheridan to clarify the difference between being prudentially regulated in Ireland and being regulated for conduct of business purposes? For what was Mr. Sheridan responsible in terms of conduct of business purposes with Setanta? I think that is the key issue.

Mr. Bernard Sheridan:

For any firm authorised in Ireland and selling products in Ireland, we are responsible for its prudential supervision, its solvency and its financial situation, as well as how it conducts its business with Irish consumers. If it is a firm that is authorised in another EU country and is selling into Ireland, either on a cross-border basis or a branch basis, the prudential supervision of that entity rests wholly with the home regulator - in this case the Maltese financial regulator.

Ciarán Lynch (Cork South Central, Labour)
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To return to my earlier question, if a broker is selling this insurance and there is a significant difference in the regulation of prudential management, is there a requirement on the broker to make that known to the individual? It may appear the same - for example, that the individual has windscreen cover - but there may be different aspects to purchasing this insurance.

Mr. Bernard Sheridan:

To be fair, the Malta financial services authority is recognised as a supervisory authority under the EU directives, as is the Central Bank of Ireland.

Ciarán Lynch (Cork South Central, Labour)
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I know that.

Mr. Bernard Sheridan:

To be fair to the brokers, I do not think they are in a position to rank or rate the supervisory frameworks within each country. They are entitled to rely upon the fact that it is an EU insurance company, regulated under EU law.

Ciarán Lynch (Cork South Central, Labour)
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In terms of lessons learned, does Mr. Sheridan see any requirement to inform brokers into the future or to give them a directive or framework for assisting Irish customers in respect of the purchase of their product and the different aspects associated with it?

Mr. Bernard Sheridan:

Personally, I think that would be very difficult to impose upon brokers.

Ciarán Lynch (Cork South Central, Labour)
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We are considering brokers.

Mr. Bernard Sheridan:

No. To be fair, that puts a question mark over the whole EU framework whereby we are obliged to recognise firms that are authorised in other countries. Each supervisory authority is recognised as such. The issue of whether consumers should be more aware of the insurance compensation fund and their entitlement under that fund is a fair point.

Ciarán Lynch (Cork South Central, Labour)
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To move on, this is a company that has gone bust, which can happen in any business. Why is the European Commission carrying out an investigation?

Mr. Bernard Sheridan:

Why is it?

Ciarán Lynch (Cork South Central, Labour)
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Yes.

Mr. Bernard Sheridan:

I am not sure why. From our perspective, it is more at the European supervisory authority level in terms of whether there are any lessons to be learned from this. That is what we will be looking at. I am not sure about the European Commission and I cannot speak on its behalf.

Ciarán Lynch (Cork South Central, Labour)
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What is the update on that investigation or examination?

Mr. Bernard Sheridan:

In terms of lessons?

Ciarán Lynch (Cork South Central, Labour)
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Is the process starting, is it halfway through or is it almost completed?

Mr. Bernard Sheridan:

Basically, we are still dealing with the fallout from the failure of this firm, and that is what we are focusing on. We still have work to do in that respect.

Ciarán Lynch (Cork South Central, Labour)
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If there are recommendations such as those I indicated earlier, would Mr. Sheridan's office look favourably towards implementing those recommendations and making the necessary adaptions as to how the industry operates in Ireland and into the future?

Mr. Bernard Sheridan:

Certainly, if it is at EU level, we would. We need to be careful in coming up with recommendations aimed purely at the Irish market, because it is no longer an Irish market but an EU market.

Ciarán Lynch (Cork South Central, Labour)
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I thank Mr. Sheridan. I call Deputy Michael McGrath.

Michael McGrath (Cork South Central, Fianna Fail)
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I welcome our guests. This is another fine mess in terms of insurance and the regulation of the insurance industry not only in Ireland but at European level, coming on the heels of the Quinn Insurance debacle, for which we are still paying and will be paying for a long time to come with a 2% levy, and the issues with RSA Ireland also. It appears from reading the witnesses' opening remarks that the 75,000 customers directly affected are pretty much left high and dry and that those who do not have a claim are out of pocket for the remainder of the year for which they paid for their policy. They have had to take out new insurance policies, which is a major issue for many people as money is very scarce. For those who have claims, it appears to me that they are left high and dry because they have to wait until the liquidation process advances and becomes much clearer. Is there any indication of how long that will take? Typically, when an insurance company is being liquidated, how long is it before there is an agreed statement of affairs?

Mr. Bernard Sheridan:

I am afraid it is fairly unique in terms of the appointment of a liquidator to insurance companies, so there is not a whole lot of precedent. Based on what the liquidator has told us, it is too early at this stage to give any indication of how long the process will take and its cost. He has indicated, in terms of initial views on it, that it may be a matter of a couple of months before he would have that information. That would be at a very early stage, where he would have an initial estimate. I agree with the Deputy that it is the claimants who will be caught up in this process for quite some time.

Mr. Antoine MacDonncha:

We have asked the liquidator to prioritise ascertaining a minimum amount of shortfall. Obviously, it will be some time before he is able to determine exactly how much will be available to meet claims. We have asked him to let us know if he finds that there will be a shortfall of at least a certain percentage so that we can set about providing at least some interim payment, if that proves possible, for policyholders who have claims.

Michael McGrath (Cork South Central, Fianna Fail)
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As things stand today, if a former Setanta policyholder has a claim, his or her only point of contact is the liquidator. The insurance compensation fund will not entertain any claim until the picture surrounding the liquidation has become clearer. Is that the case?

Mr. Pat Casey:

Yes. The liquidator's focus initially was on reducing the number of policyholders who had policies with Setanta. That is where they spent their energy in the initial period. Since then they have engaged with Towers Watson to assist in getting a full assessment of claims. They are still some time away from a completed picture. The information we have is that it will two months or so before that becomes available.

Michael McGrath (Cork South Central, Fianna Fail)
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Is there any indication from the liquidator of the number of Setanta claimants?

Mr. Pat Casey:

The number of claimants is in the region of 2,000. His caveat is that all figures quoted are subject to change as more information is received and, second, the whole incurred but not reported amounts which need to be examined could have a material impact on the overall number of claims and the amount of money involved.

Michael McGrath (Cork South Central, Fianna Fail)
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Are they both first-party and third-party claims?

Mr. Pat Casey:

They include both.

Michael McGrath (Cork South Central, Fianna Fail)
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Of the 2,000, how many are first-party claims?

Mr. Pat Casey:

We have preliminary figures but, again, they are subject to the caveat that these could change. Sorry; I do not have the total number of claims in respect of a split between first and third party. I have the amounts that were set out in the statement they received from the directors at the time.

Michael McGrath (Cork South Central, Fianna Fail)
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Can Mr. Casey give us that information?

Mr. Pat Casey:

The amount is €34.977 million.

Michael McGrath (Cork South Central, Fianna Fail)
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For all intents and purposes, €35 million is the total value of claims that have been lodged-----

Mr. Pat Casey:

As set out in the statement of affairs that the directors had when the liquidator was appointed.

Michael McGrath (Cork South Central, Fianna Fail)
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Do we accept that this is preliminary and that nobody is holding the witnesses to those figures? To make this discussion as meaningful as possible, we need all the information.

Mr. Pat Casey:

Absolutely.

Michael McGrath (Cork South Central, Fianna Fail)
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So the early indications are that total claims of about €35 million are currently being examined by the liquidator.

These involve first-party and third-party claims.

Mr. Pat Casey:

The total number is 2,000.

Michael McGrath (Cork South Central, Fianna Fail)
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Is it possible that, on the conclusion of the liquidation process and after other liabilities have been met, there will be little money left for claimants? What are the potential outcomes?

Mr. Pat Casey:

That is a matter in the first instance for the liquidator, but our understanding is that the unresolved premiums and claims are preferred creditors under Maltese law over and above other liabilities. The liquidator still has quite some distance to go in trying to bottom out the net dividend that will be available for redistribution to those preferred creditors.

Michael McGrath (Cork South Central, Fianna Fail)
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The indications are that the liabilities exceed the assets. This is why Setanta Insurance is insolvent and has had to be liquidated. There is a significant shortfall, which means there will be a call on the insurance compensation fund.

Mr. Pat Casey:

That is the likelihood.

Michael McGrath (Cork South Central, Fianna Fail)
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We can agree on that conclusion. Under the law, the maximum that can be paid out, subject to the nominal ceiling, is 65% of any individual claim.

Mr. Pat Casey:

Or €825,000, whichever is the lesser.

Michael McGrath (Cork South Central, Fianna Fail)
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Which would be a high claim. Assuming that the vast majority will be lower than that threshold, 35% of any claim will not be met. If the money is not available through the liquidation process and the claim lands on the ICF's desk, 35% cannot be paid.

Mr. Pat Casey:

Yes, but claims are subject to a number of other exclusions, which I set out in my opening statement. The ICF only pays out on claims where an individual is involved, so bodies corporate and unincorporated bodies are not covered by it.

Michael McGrath (Cork South Central, Fianna Fail)
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Some claimants might be excluded from availing of the fund if an individual is not involved.

Mr. Pat Casey:

Yes.

Michael McGrath (Cork South Central, Fianna Fail)
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This is possible, given the fact that many of the customers were people with commercial vans whose businesses may have been incorporated. Unless they were sole traders, there may be issues. Is that what Mr. Casey is saying?

Mr. Pat Casey:

Yes.

Michael McGrath (Cork South Central, Fianna Fail)
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We cannot quantify that number yet.

Mr. Pat Casey:

No.

Michael McGrath (Cork South Central, Fianna Fail)
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We do not have a profile of the 2,000 claims so that we might distinguish between corporates and individuals.

Mr. Pat Casey:

The issue is still being examined by the liquidator, with the assistance of Towers Watson.

Michael McGrath (Cork South Central, Fianna Fail)
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We cannot give those claimants any firm indication of when they will know where they stand. The bottom line is that these individuals have been involved in some kind of accident and are out of pocket. They may well be out of work. They are relying on their insurance claims to be processed as quickly as possible. It could mean the difference between a reasonable standard of living and none at all. This is what is at stake, but we are washing our hands of it. According to the Department, it is examining the questions of how the fund can help policyholders affected by the closure, the role of the Motor Insurers Bureau of Ireland, MIBI, and the work of the liquidator. The process to be followed and the formal procedures for making applications will be set out once clarification is reached on a number of issues. Basically, the Department is saying nothing.

Mr. Pat Casey:

The next step is for the liquidator to quantify the company's liabilities and determine how much they exceed its assets so that we might have an idea of how much is available from the liquidation to deal with claims. When that is clearer, the issue of applying to the ICF to compensate claimants will arise. There will be a process by which that can happen.

Michael McGrath (Cork South Central, Fianna Fail)
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Once a claim is made to the ICF, how long does it typically take to be processed?

Mr. Pat Casey:

This situation is unique. The law provides that the Accountant of the High Court can apply to the court every six months to have the situation addressed, but the process by which this will be done remains to be clarified. It will depend on volume.

Michael McGrath (Cork South Central, Fianna Fail)
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If I am Joe Bloggs, a Setanta Insurance policyholder who had an accident, and it becomes clear after three months that there is nothing for me in the liquidation process, my only recourse is to the ICF. How long will I wait once I lodge my claim?

Mr. Pat Casey:

I cannot answer that question now because the Accountant of the High Court would be responsible for assessing the claim and making an application to the High Court.

Michael McGrath (Cork South Central, Fianna Fail)
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We are not talking weeks, but months.

Mr. Pat Casey:

It is a process that we need to examine so that it might be accelerated where possible.

Michael McGrath (Cork South Central, Fianna Fail)
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The Minister for Finance advised the Dáil at the end of April that the MIBI had indicated its intention to accept all third-party claims connected with Setanta Insurance, but Mr. Casey is telling the committee something different today, in that the MIBI is taking legal advice and is not accepting claims. This matter was brought to my attention by a solicitor acting on behalf of a claimant. The solicitor had contacted the bureau and was told the claim had nothing to do with it because it was not accepting claims.

Mr. Pat Casey:

My understanding is that the MIBI has taken legal advice, which will be presented to its board at a meeting on Friday. Once the board has considered that advice, we will be clearer about what claims the MIBI will accept.

Michael McGrath (Cork South Central, Fianna Fail)
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That is unacceptable. Ten weeks ago, the Minister stated on the record of the Dáil that the MIBI was accepting third-party claims in respect of Setanta Insurance. Now, Mr. Casey is telling the finance committee that he does not know and that the MIBI is taking legal advice and will clarify the matter shortly. This is not good enough. There are people who do not know where they stand. They are contacting Deputies. Presumably, they are also contacting the Central Bank. It is not fair.

Ciarán Lynch (Cork South Central, Labour)
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When a bit of certainty is available, will the witnesses inform the committee as quickly as possible?

Mr. Pat Casey:

Yes.

Michael McGrath (Cork South Central, Fianna Fail)
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By Mr. Sheridan's admission, the Central Bank had concerns about Setanta Insurance last September. Did the bank not have a duty of care to Irish policyholders, given the fact that those concerns were confirmed in November following its meeting with and inspection of Setanta Insurance? Policyholders were not alerted to those concerns. The Central Bank kicked the ball back to the Maltese financial regulator. The Central Bank has a legal responsibility for code of conduct purposes. Should Irish consumers have been alerted about its concerns? According to the policies, Setanta Insurance was regulated by the Irish Central Bank for code of conduct purposes. To everyone, this means the company was regulated in Ireland. Even though we now know that prudential regulation is a different matter, that means nothing to most people - let us be honest about it. Should the Central Bank not have alerted people when it became concerned?

Mr. Bernard Sheridan:

The Deputy is correct that we had concerns, but that is what they were. As we have set out, we checked with the Maltese authorities on the firm's solvency position. Clearly, that was their responsibility. The Deputy can read the response in their statement. They are responsible as the supervisory authority, but when our concerns continued, we did not leave the matter there. We were concerned about what impact the company's financial position could have on how the firm processed claims for which we had responsibility under the code in terms of ensuring they were dealt with fairly. We visited the firm to determine what was happening with claims. Based on a relatively small sample of files, our concerns were confirmed, but they related to how the claims were being reserved for on individual files, not the firm's solvency position. We felt it important to refer the matter to the appropriate authority, which we did. We forwarded the report to that authority and continued to engage closely with it to ensure it dealt with the matter as quickly as possible. As the prudential regulator, it was the only one with a full picture of the company. We had a small window - the small number of claim files - through which to look into the company.

Michael McGrath (Cork South Central, Fianna Fail)
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The Central Bank had concerns in September. It met Setanta Insurance in November about those concerns and carried out an inspection, which apparently strengthened its concerns.

However, the Central Bank did not fulfil its responsibility to Irish policyholders - through its regulatory role, for code of business purposes - by letting them know it had those concerns.

Mr. Bernard Sheridan:

As I said, we did act on our concerns by making sure the appropriate regulatory authority was looking at the issue and trying to resolve it. As one can see from the statement by the Maltese authorities, they were taking further steps to try to deal with the solvency position of the firm. We did not feel we were in a position to warn people about the company until the Maltese authorities came to a conclusion on whether there were serious issues there or not. The Maltese took the action they did to try to get the bottom of the matter as a result of our inspection and our pressing of them. They initiated a third-party review of the firm, which confirmed our concerns. Until that point, the company and its representatives were fiercely disputing our concerns. The Maltese authorities proceeded to take serious action by suspending the firm from issuing new policies.

Michael McGrath (Cork South Central, Fianna Fail)
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It is the Central Bank of Ireland's job to protect the interests of Irish policyholders. That is one of its functions, whereas protection of Irish consumers is not a priority for the Maltese authorities. The Central Bank had concerns about this company which were subsequently strengthened, yet no action was taken to alert consumers. Surely some of the losses that have arisen could have been avoided if that had been done?

Mr. Bernard Sheridan:

I am not going to speak on behalf of the Maltese authorities, but they were taking steps to try to resolve the issues in order to avoid the situation we are in where there would an orderly run-off of the company. Our view was that until the appropriate authority confirmed to us the situation with the company, we were not in a position to take the action the Deputy is suggesting. When we got the confirmation, we did alert both the media and public to what was going on.

Regina Doherty (Meath East, Fine Gael)
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Mr. Sheridan indicated that the Central Bank undertook a consumer protection inspection of Setanta Insurance in October 2013 arising from regular interaction between the two regulatory bodies. Why did the bank decide to do this?

Mr. Bernard Sheridan:

We had concerns, as I have outlined, but there was initially nothing to back them up in terms of any evidence. We raised the issue with the authority in Malta, which then confirmed what its position was on the firm. We continued to get information into the Central Bank about the firm. Our concern was how it was dealing with consumers.

Regina Doherty (Meath East, Fine Gael)
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What was the source of the information coming into the Central Bank?

Mr. Bernard Sheridan:

I am not going to specify exactly, because I do not want to impact on the sources of information. It was basically market information coming into us.

Regina Doherty (Meath East, Fine Gael)
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Mr. Sheridan is saying that external information came into the Central Bank which gave cause for concern about this company and prompted the bank to undertake the inspection in October 2013.

Mr. Bernard Sheridan:

Yes. Our concern was whether what we were being told was happening might lead to any detriment for consumers in terms of how the firm was handling claims.

Regina Doherty (Meath East, Fine Gael)
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When the Central Bank undertook that investigation, it discovered the information it was given was correct and accurate. Did the bank then relay that back to the regulator in Malta?

Mr. Bernard Sheridan:

Yes. We looked at a small sample of individual claim files as well as examining other issues in terms of how the company was dealing with consumers. What we found was there seemed to be under-reserving on some - not all - of the files. We relayed that back to the Maltese authorities.

Regina Doherty (Meath East, Fine Gael)
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At that point, did the Central Bank assume from its analysis that the company still had significant assets to look after existing policyholders, which is why the bank did not stop the firm from selling policies into the Irish market from that date?

Mr. Bernard Sheridan:

It is important to clarify that we are not responsible and have not been responsible for the financial situation of this company. We have no role in terms of whether it operates in this State. Once it is authorised in Malta and has gone through the notification requirements, it is entitled to provide services here.

Regina Doherty (Meath East, Fine Gael)
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Who made the decision in January 2014 to stop this company selling Irish policies?

Mr. Bernard Sheridan:

That was the decision by the Maltese authorities.

Regina Doherty (Meath East, Fine Gael)
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The company was liquidated in April 2014. What steps are being taken by the insurance compensation fund, ICF, to ensure people who lodged claims against the company will not end up with a loss arising from those claims? I understand some claims were lodged long before the firm went into liquidation and there have judgments in some cases. Will those people be treated separately when it comes to the operation of the Irish compensation fund? Will they still have to go through the liquidation process?

Mr. Pat Casey:

I will answer the second question first. Those individuals will have to go through the liquidation process.

Regina Doherty (Meath East, Fine Gael)
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Even though they have secured judgments against the company?

Mr. Pat Casey:

Unless a claim was fully settled before the liquidator is appointed, the liquidator is then responsible for the orderly liquidation of the company and how that is managed, including all claims and settlements. I set out in my opening statement the role of the ICF and the limitations on its ability to fund. Proceedings will be subject to those legal requirements.

Regina Doherty (Meath East, Fine Gael)
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Is Mr. Sheridan really of the view that the regulator acted in the best interest of Irish policyholders in this matter? The Central Bank was given information by a third-party source in September, which source Mr. Sheridan is not willing to share us, that there were irregularities in this company. When the bank undertook to investigate the matter its fears were confirmed and it reported its findings back to the regulator in Malta. However, it failed to protect the 75,000 people who are now out of pocket and prevent the €35 million in losses that arose from this company going into liquidation. It is very difficult to accept that we were acting in the best interest of Irish policyholders by keeping this information, which the Central Bank had since last September, from them.

Mr. Bernard Sheridan:

What we had last September was a very general concern about there possibly being something wrong with the company. We escalated that to the appropriate authority and we have indicated the response it came back with. We could have taken the position at that point that our job was done, the Maltese authorities were clearly responsible and we had no role in the financial supervision of the company in question. However, because of our concern-----

Regina Doherty (Meath East, Fine Gael)
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I would say the Central Bank has a financial supervisory role which should have obliged it to act to protect Irish citizens who were buying from this company. There are 75,000 of them out of pocket.

Mr. Bernard Sheridan:

As I was about to say, because of our concern for Irish policyholders, we decided to carry out an inspection to see what impact these allegations, if they proved true, might be having on how claims were handled. We went into the offices, looked at a small number of files and found there was evidence of under-reserving in some cases. It is important to note that under-reserving does not mean a firm is going to go into liquidation.

Regina Doherty (Meath East, Fine Gael)
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It did in this case.

Mr. Bernard Sheridan:

That was not an automatic conclusion based upon what we had seen. I would say, however, that we were right to go back and escalate the issue to the Maltese authorities. Could we have done any more? I do not think we could have done. We pressed the authorities in Malta to take action, which it did by way of appointing a third party to get to the bottom of the issue. That was the responsibility of the Maltese. In my view, we have acted in the interests of Irish policyholders.

Ciarán Lynch (Cork South Central, Labour)
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We are obliged to suspend for a short time to accommodate the taking of a division in the Dáil. When we resume, Deputy Heather Humphreys will have the floor. Is that agreed? Agreed.

Ciarán Lynch (Cork South Central, Labour)
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We will resume in public session with Deputy Kieran O'Donnell.

Kieran O'Donnell (Limerick City, Fine Gael)
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What is the role of the Central Bank in the insurance compensation fund?

Mr. Colm Kincaid:

We have a limited role, as set out by the Department of Finance in its statement. It involves quantifying the amount needed in the fund and advising the Government on the levy that needs to be set.

Kieran O'Donnell (Limerick City, Fine Gael)
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I had a look at the Act and the Central Bank carries out an annual assessment of the financial position of the fund. The Central Bank has a role in the fund. Was Setanta paying levies into the fund?

Mr. Colm Kincaid:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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It was clear that the Central Bank had concerns going back to September. Over a two-month period between September and November, the Central Bank appears to have carried out an inspection at Setanta, including contacting the Maltese financial services authority about insolvency. There was also an inspection of Setanta in Ireland and, in November 2013, the Central Bank contacted the Maltese financial services authority to share its findings. At that point, could the Central Bank have issued a direction to brokers in Ireland to issue no further Setanta policies? Did the Central Bank have those powers?

Mr. Bernard Sheridan:

That responsibility rested with the Maltese authorities in terms of the ability of the company to sell into Ireland. They were selling through brokers.

Kieran O'Donnell (Limerick City, Fine Gael)
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The problem with the Setanta product is that it was licensed by the Maltese financial services regulatory authority but only sold the product in Ireland. The company is paying the levy into the insurance compensation fund. Clearly, the Central Bank had serious concerns but the company continued to write new products. The brokers were uneasy about the Setanta product but they were sure they could continue to deal with policies. If Mr. Sheridan wished to do so, did he have the authority, based on the findings, to give instructions to the brokers that, in the opinion of the Central Bank, they should not look to new products or renewing existing Setanta products, such as car insurance, to Irish customers? At this moment, there are claims of €5 million. Does Mr. Sheridan know the value of premiums people paid but did not get the benefit of in terms of cover?

Mr. Bernard Sheridan:

From the liquidator, it appears to be some €10.5 million.

Kieran O'Donnell (Limerick City, Fine Gael)
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It amounts to almost €45.5 million between premiums that have not been refunded and €35 million in claims. The Motor Insurers Bureau of Ireland is hedging its bets and there are 75,000 customers out there. Our role is to question whether the Central Bank was asleep at the wheel. The Central Bank had concerns but the question is whether it had the authority, if it wished, to tell brokers about them. The products were sold through brokers and, from my sources, I know they had concerns. Based on the fact that the Central Bank does an audit on the insurance compensation fund and that this product was only being sold through Ireland, did the Central Bank have the authority to issue instructions to the brokers at any stage? Setanta was dealing with Irish customers so it was purely an Irish situation. The Central Bank had carried out its inspection of Setanta in October 2013 and then met Setanta to discuss its findings and inspections, including concerns about the company reserving its claims.

Did the Central Bank have the authority to issue either guidelines or directions? It regulates brokers. Did it have the authority to issue directions based on its concerns?

Mr. Bernard Sheridan:

The answer is no. Authority rested purely with the Maltese authorities in terms of the ability of the company to do its business in Ireland. We had no basis for taking such action.

Kieran O'Donnell (Limerick City, Fine Gael)
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Clearly, the Central Bank had a basis on which to do so.

Mr. Bernard Sheridan:

No.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is Mr.Sheridan suggesting there was no basis, despite the findings of the audit? In November 2013 the Central Bank carried out an audit of Setanta Insurance. By January it realised no new products were being written. Clearly, there was a problem. Is Mr. Sheridan telling me that in November 2013 the Central Bank had no problem with Setanta Insurance?

Mr. Bernard Sheridan:

No, what I am saying is we had no basis. We carried out an inspection - it was not an audit - of a small number of claim files because we were concerned about how the firm might be dealing with claims. As a result of this and based on that small sample and a minority of the files we had examined, it appeared the firm was underestimating what it had provided to meet these claims.

Kieran O'Donnell (Limerick City, Fine Gael)
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Clearly, that means there was a problem. Did the Central Bank not automatically question the level of reserves to ensure solvency of the firm?

Mr. Bernard Sheridan:

That is the responsibility of the Maltese authorities. We have no visibility and no authority to actually do that.

Kieran O'Donnell (Limerick City, Fine Gael)
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What about the 75,000 customers in Ireland? Setanta Insurance was dealing purely in the selling of motor insurance into Ireland.

Ciarán Lynch (Cork South Central, Labour)
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I am sorry, but the Deputy is out of time.

Kieran O'Donnell (Limerick City, Fine Gael)
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Surely, in terms of regulation, the Central Bank had a responsibility to the 75,000 Setanta Insurance customers and-----

Ciarán Lynch (Cork South Central, Labour)
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There is no "and"; the question has been asked.

Kieran O'Donnell (Limerick City, Fine Gael)
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I simply want a quick "Yes" or "No" answer. Did the Central Bank have a responsibility to the 75,000 Setanta Insurance customers in Ireland?

Mr. Bernard Sheridan:

To be honest, I really do not think it is a "Yes" or "No" answer. We have a responsibility to protect the interests of Irish policyholders and believe we did so in this case inasmuch as we possible could have. We referred the matter to the Maltese authorities and continued to press them to take action as quickly as possible because we were concerned about the firm. As set out in their statement and ours, they carried out a thorough and independent review. We had no visibility in terms of the overall financial position of the firm. That was not our responsibility. However, we certainly brought our concerns to the attention of the Maltese authorities. They undertook their role and the actions they took are set out. Come January, they issued the direction to cease writing new business.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is there not a flaw-----

Ciarán Lynch (Cork South Central, Labour)
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No more questions, please. We must be fair to the Deputy's colleague. If he continues, we will be taking time off her.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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With the benefit of hindsight, should a mechanism have been put in place and authority given to the Central Bank to protect brokers and policyholders where the bank had serious concerns about a company?

Mr. Bernard Sheridan:

The framework in place in Europe clearly sets out responsibilities between home and host regulators and I have no wish to blur these lines. The home authority has full responsibility for prudential matters in the case of insurance companies. It is right that if a regulator has concerns or information, it can share that information with the appropriate authority. That is what we did.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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We want to prevent this from happening again. Passporting is a vehicle which enables all financial service providers operating within the European economic area to provide services on a cross-border basis. Does the Central Bank take the view that there should be a review of passporting requirements? What steps does the bank take when providers are offering products that clearly have been priced at an uneconomic rate? Does it have any role in respect of companies registered outside Ireland that are providing products at a reduced premium?

Mr. Colm Kincaid:

The concept of passporting is a logical consequence of the fact that, once authorised in one European Union or EEA member state, a company has been authorised to provide its services throughout the European Union. I will outline how it works. We are notified when a company is passporting in to the State. There is provision for host state regulators to receive periodic information on the volume of business being written in that member state. However, the responsibility to engage in prudential supervision rests with the home state regulator. The host state regulator is only responsible for the conduct of business.

There was a question about pricing. What represents uneconomic pricing for a given insurer is something of which only the prudential supervisor of the home member state would have sight. This is because to understand whether that is the case, the regulator must be aware of the full financial position of the company. The prudential supervisor has visibility in that regard, rather than the conduct of business supervisor.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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Does the Central Bank believe we should consider reviewing the arrangements in place to tighten them somewhat?

Mr. Colm Kincaid:

There are solvency requirements, systems and controls that institutions must have in place to ensure they have the resources to meet their liabilities. This is set out in a framework known as Solvency I which has been and is being revised at European level. From January 2016 onwards, we will have Solvency II, a more sophisticated and robust regime that will apply throughout Europe. We already operate many of its features in the State in respect of the companies we prudentially supervise. Of particular relevance in this case is the fact that Solvency II will introduce a more codified method of valuation of assets and liabilities throughout Europe and more uniform approaches to actuarial standards and practices. The responsibility to establish sufficient resources are available to pay claims is, first and foremost, a that of the management of the insurance company. It must get it right. Clearly, where a company does not, in the first instance, estimate correctly how much money it will need to treat a claim, from that point on, all of its calculations will come up short.

Heather Humphreys (Cavan-Monaghan, Fine Gael)
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I thank the deputation.

Pearse Doherty (Donegal South West, Sinn Fein)
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I welcome our guests. I suggested to the committee that we have this hearing because I believe passionately that many of the 75,000 policyholders with Setanta Insurance have been let down. They were insured with a company which they believed to be regulated here but which, it turns out, was regulated in Malta and went into liquidation. They were let down because they had seen the treatment of insured policyholders of other insurance companies in the past and the same treatment was not afforded to them. Furthermore, in the case of those who have been involved in accidents and have claims, there is still no clarity in respect of where they stand and how these claims will be processed.

I have a series of questions and will try to be as brief as possible. If the deputations could be as brief with their answers, I would appreciate it.

I received a response to a question I had tabled to the Minister for Finance on 30 April. It states the Motor Insurers Bureau of Ireland indicated that it intended to accept all third party claims in connection with Setanta Insurance policies. We dealt with the matter and now know that is not the case and that the bureau is seeking legal clarification. We should receive that clarification on Friday. My question is for Mr.Casey. The Minister made that statement in the Dáil. Did the MIBI indicate to the Department or the Minister that it intended to accept all third party claims in connection with Setanta Insurance policies?

Mr. Pat Casey:

My understanding is that it indicated as much at the outset ibecause there was uncertainty about how the liquidation was going to proceed and we could not have unsure drivers. If that was to be the case, the issue was how would the MIBI fund contribute to the overall resolution in the absence of a full refund being available from the liquidator. The early indications were that the MIBI fund would be available to assist in that regard, if there was a shortfall. Subsequently, it became clear that the bureau needed to have legal certainty on several matters and it informed us that it would do so.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Department has no view on whether the MIBI fund should be available. Is that the position?

Mr. Pat Casey:

The Department has not completed its consideration of the issue. We must wait until we know what the position of the MIBI is. We will then do so.

Pearse Doherty (Donegal South West, Sinn Fein)
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Is there potential for the Department to challenge the view of the MIBI if the bureau comes back and states it is not processing third party claims?

Mr. Pat Casey:

We will need to consider what comes out of the MIBI's consideration of the legal position and then decide on what we are going to do. It is a matter we will examine.

Pearse Doherty (Donegal South West, Sinn Fein)
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I want to delve into the matter of commercial policies.

The Central Bank informed us that two thirds of the 75,000 policyholders had commercial motor insurance polices and that one third had private motor insurance policies. Mr. Casey mentioned that the insurance compensation fund only pays out on claims where an individual is involved. He went on to state that while the liquidator had informed him that Setanta had a significant number of commercial policies, he was not in a position to clarify the exact number at this stage.

Can we clarify what we are talking about in terms of commercial policies? Can one have a commercial policy on which the insurance compensation fund can still pay out? If I had a company, had insurance in the name of the company and it was a commercial policy, that would not be paid out of the fund but if I had a company and had commercial insurance in my name, could that be paid out of the fund? Can we get some clarity as to what type of commercial policies will not be able to access the fund?

Mr. Antoine MacDonncha:

It is governed by section 3(6) of the Insurance Act 1964. If, for example, two company cars collide with each other, nobody is injured and physical damage is done to both of those cars, the insurance compensation fund would not pay out for any of the claim arising from that because there is no claim coming from an insured individual, or a natural person, nor is there any sort of liability towards an individual, or a natural person. It would not cover those circumstances but wherever there is a liability on the part of a natural person, which should be covered by a policy of insurance, or a liability towards a natural person, that is where the insurance compensation fund steps in.

If it is the case that a sole trader has an insurance policy in a personal capacity, if the sum is due to him or her as an individual, then even in the example I gave earlier where two company cars were damaged but no personal injuries arose, the fund could also step in in those circumstances.

Pearse Doherty (Donegal South West, Sinn Fein)
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If I have a small trading company called Leinster House Limited, Leinster House Holdings or whatever, I go to Setanta Insurance to take out commercial insurance under the name of Pearse Doherty and I go down the road and hit a wall and injure my back or whatever, can I make a claim? Am I entitled to make a claim from the fund?

Mr. Antoine MacDonncha:

It is very difficult to generalise. If there is a liability towards an individual in his or her personal capacity, then that liability will be met by the fund. If there is a liability due from an individual, that liability can also be met from the fund up to the limits that apply and subject to the exceptions that apply.

In the Deputy's example, he said he owned a company but was insuring a van in his own name or in a personal capacity. In that circumstance, the insurance fund would pay out for the wall. If the Deputy does not have comprehensive insurance, obviously it will not pay out for him.

Ciarán Lynch (Cork South Central, Labour)
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If it goes to court and there is an award of €100,000 against an individual in terms of compensation, which an insurance company would meet 100%, given what Mr. Casey said earlier, the fund will only cover €65,000 and the individual will have to make up the shortfall of €35,000.

Mr. Antoine MacDonncha:

The insurance compensation fund will only pay 65%.

Ciarán Lynch (Cork South Central, Labour)
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Who pays the other 35%?

Pearse Doherty (Donegal South West, Sinn Fein)
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Nobody pays it.

Ciarán Lynch (Cork South Central, Labour)
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If there is a court ruling that one should receive compensation of €100,000, what happens then?

Mr. Antoine MacDonncha:

If a person has an individual liability, in terms of that €100,000, the reality of that liability-----

Ciarán Lynch (Cork South Central, Labour)
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If the court awards a person €100,000 in compensation following a personal injury, the insurance compensation fund will pay €65,000. Does that mean that the person who is found liable for that personal injury, who should have insurance, is now liable for €35,000?

Mr. Antoine MacDonncha:

Yes. If the court finds the person is liable for the-----

Ciarán Lynch (Cork South Central, Labour)
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The court always finds one is liable but one's insurance company pays for it.

Mr. Antoine MacDonncha:

That is correct.

Ciarán Lynch (Cork South Central, Labour)
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Mr. MacDonncha is saying that the person is now personally liable for €35,000 because the insurance compensation fund does not cover that.

Mr. Pat Casey:

We are speculating somewhat here. The claims will have to be examined on an individual basis by the liquidator before he can make a determination. In regard to the example given, I am not a lawyer but it would appear to me that the individual has a couple of choices left for that €35,000. The individual can go back to the court to seek to have a remedy put in place where somebody else pays it. A portion of the distribution from the liquidator could be available. The individual could have alternative funds in place and the court may instruct the individual that he or she must meet it himself or herself. There could be another alternative of which I am not aware.

Pearse Doherty (Donegal South West, Sinn Fein)
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One of the big concerns I would have is that two thirds of Setanta's customers had commercial insurance. Of the 2,000 claims, which amount to €35 million, on average we could say that two thirds of them had commercial policies. However, there is a big question mark over whether a commercial customer would be entitled, under certain circumstances, to access the fund at all. Is it the case that if one is a non-commercial customer, one knows one can rely on the fund with its limitations of up to 65%? However, if one is a commercial customer, there is a question mark as to whether one will get paid from the fund at all at this point in time.

Mr. Pat Casey:

I understand what the Deputy is asking. The issue is quite complex and legally complicated. The liquidator has said that in his view, from the analysis done of those commercial claims, it is not as clear cut that none of them quality. It depends on the nature of the claim. Each of those claims will be examined individually with Towers Watson and the liquidator will be in a position to give us further clarity in about two months' time when it has done that examination.

Pearse Doherty (Donegal South West, Sinn Fein)
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There are commercial claims at this point in time. There are citizens in Ireland, with big claims and small claims, will simply not have access to the fund.

Mr. Pat Casey:

It is expected there will be a proportion who will, but it may not be the full two thirds the current split is or whatever the percentage is.

Pearse Doherty (Donegal South West, Sinn Fein)
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Can Mr. Casey give any indication to the committee as to what we are looking at? Would it be one third of the policyholders or lower than that?

Mr. Pat Casey:

I cannot give an indication but what I can say is that when we put this to the liquidator, and I do not want to misquote him, he said that the Act provides - that is, the insurance compensation fund legislation - that claims by bodies corporate or unincorporated bodies are not covered by the fund, except where there is a liability to or by an individual. While Setanta has a significant number of commercial polices, it does not necessarily follow that most would not be covered by the fund. The liquidator said he does not have detailed breakdowns and that he expects that the majority of claims under those policies will relate to liability to individuals and would, therefore, be covered. That is what he is examining with his lawyers and Towers Watson in terms of providing us with further information.

Pearse Doherty (Donegal South West, Sinn Fein)
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Obviously, it is legally complex and technical but could there be a situation where one of those claimants, who would have a large claim of €825,000, for example, which means a personal injury, would not be able access to the fund as a result of the way his or her policy was structured? Is that possible or are we just talking about damages to walls and vehicles?

Mr. Antoine MacDonncha:

It is not possible because if there is a personal injury situation like that, where somebody has a large liability towards him or her, it is obviously a personal injury to an individual person and it is not an injury to a corporation. In those circumstances, the fund will be available.

Pearse Doherty (Donegal South West, Sinn Fein)
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The fund will be available even though it was the company that had the insurance.

Mr. Antoine MacDonncha:

Yes. If a company has insurance and a pedestrian is knocked down, that pedestrian is entitled to-----

Pearse Doherty (Donegal South West, Sinn Fein)
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No. What about the driver of the car? If the driver of the car-----

Mr. Antoine MacDonncha:

If there is a sum due under that insurance policy to the driver of the car, because of an injury the driver sustains, then the insurance compensation fund will meet that.

Pearse Doherty (Donegal South West, Sinn Fein)
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The owner of the company, who is driving the commercial vehicle, would be able to access the insurance compensation fund.

Mr. Antoine MacDonncha:

That is correct.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Department was only informed of the problems within this company in late January. Thereafter, it basically hung 75,000 Irish customers of Setanta Insurance out to dry. I am not sure whether there were other options available but did the Department consider any? The customers in question paid their premiums to the company, which was regulated by the EU, and they would have expected to have their claims paid in full.

Mr. Pat Casey:

When he refers to other options, does the Deputy have any particular ones in mind?

Pearse Doherty (Donegal South West, Sinn Fein)
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Was the possibility of taking the company into State control examined? For example, throughout the entire process the company was seeking buyers. In view of the fact that the company did not have any customers outside Ireland, the Department applied a different rule in respect of it than was the case with Quinn Insurance. Did the Department consider following that example and ensuring that claims were dealt with? If this had been done, we would not have been left with the mess of premiums which had been paid not being honoured. It must be remembered that the company was heavily involved with small and medium enterprises.

Mr. Pat Casey:

The issue here is that this company was registered in Malta and, as such, was regulated by the Maltese authorities. That is the key point. How it was regulated was under Maltese law. My understanding is that at the end of January the company was still considered to be putting itself into an orderly run off. The Malta financial services authority requested that it stop taking on new business but it was still expected to meet its claims in full. That was the position.

Pearse Doherty (Donegal South West, Sinn Fein)
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So the Department did not consider any other solution.

Mr. Pat Casey:

No, because-----

Pearse Doherty (Donegal South West, Sinn Fein)
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That is fair enough.

Mr. Pat Casey:

-----that was the option under Maltese law. The authorities in Malta were expecting there to be an orderly run off.

Pearse Doherty (Donegal South West, Sinn Fein)
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If MIBI states that it will not process third-party claims and that these can be processed by the insurance compensation fund, will there be a hierarchy of payments or will all payments be processed at the same time?

Mr. Antoine MacDonncha:

If a claim is to be met by the MIBI, the legislation specifically states that the fund will not pay out that claim. So if a claim is falling due to be met by MIBI, then the fund does not have a role to play.

Pearse Doherty (Donegal South West, Sinn Fein)
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If MIBI states that it is not paying out on third-party claims, then there is no sequence wherein all first-party claims have to be processed by the insurance compensation fund before third-party ones.

Mr. Antoine MacDonncha:

No, all claims go into the insurance compensation fund at the same level. Obviously, it is not a situation whereby we are concerned that the insurance compensation fund will not have sufficient funds available in order to meet the claims that will fall due.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Maltese have an additional buffer of 0.5%. What is the position with the Central Bank in this regard?

Mr. Colm Kincaid:

We require insurance undertakings to hold 150% of the minimum EU buffer requirement in respect of the solvency margin. It is roughly 1.5 times the minimum. However, some companies are required to hold more.

Pearse Doherty (Donegal South West, Sinn Fein)
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So it is fair to state that the Irish directors of this Irish company established it in Malta because if they had set it up here, they would have been obliged to set aside a buffer which is three times greater than that which is required by the Maltese authorities.

Mr. Colm Kincaid:

The Maltese authorities have set out in their statement that they also required an additional buffer of the same quantum.

Pearse Doherty (Donegal South West, Sinn Fein)
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Malta insists on an additional buffer of 0.5 times the required margin of solvency. Is this the same as that required by the Irish Central Bank?

Mr. Colm Kincaid:

It is the same.

Mr. Bernard Sheridan:

Yes, it is actually the same. The problem arises in respect of what is used to make up that buffer. Obviously, that is impacted upon by the policy with regard to reserving. While the buffer is the same, the real issue relates to what is behind that buffer.

Mr. Colm Kincaid:

Just to explain, the 50% over and above the solvency requirements in terms of law - to which the Maltese authorities refer in their statement - is the same quantum as I have described. It is 1.5 times the minimum EU requirement.

Pearse Doherty (Donegal South West, Sinn Fein)
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When discussions took place with the Maltese authorities in September, did they indicate that Setanta Insurance had been failing to meet the buffer requirements since 2011?

Mr. Colm Kincaid:

No. What they told us in September was that based on its management accounts, the company was solvent and was meeting the minimum European requirements in accordance with Solvency I. It is worth bearing in mind that the point of having additional buffers is that one hopes that some of these companies will fall into them. Where a company falls into its buffer, the regulator will require the entity to raise extra capital and put some other arrangement into place to meet the-----

Pearse Doherty (Donegal South West, Sinn Fein)
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I wish to pose a final question. I am of the view that the Central Bank was extremely lax in respect of this matter. Mr. Sheridan can bat for his own side in a moment in respect of that assertion on my part. It seems that the only flag that was raised for consumers came in the form of the widely-circulated press release. On numerous occasions we asked the Minister what he was doing to ensure that customers would not be at a loss as a result of the decision taken in January. It does not appear that the Central Bank took any serious action to protect customers from having their policies renewed by an institution which the Malta financial services authority had directed to stop renewing them. Was the Central Bank aware of the fact that policies were being renewed after the 24 January cut-off point? What action is it taking in respect of the renewal of those policies? Is the Central Bank of the view that it was appropriate that the policies in question were renewed? The Irish Brokers Association has referred to a statutory instrument and stated that its members issue renewal notices prior to renewal dates. This means that if a notice was issued on 23 January last and even though it had been informed that it could not do so from the following day, Setanta still renewed the relevant policy five weeks and six days later. That is what happened to many people who renewed their policies and paid their premiums in full. Those people subsequently were without insurance cover, which means that they lost out on the double. What action has the Central Bank taken - or is it going to take - in respect of that practice?

Mr. Bernard Sheridan:

The Deputy is right. The Maltese authorities directed the firm to cease writing new business and renewing policies. They are investigating the fact that policies were sold post 24 January. We have been in contact with them and they are looking into the matter. They have committed to sharing the results of their investigation with us. At this stage we cannot say what happened, how it happened or whether it was at the level of the insurance company. Obviously, the latter was certainly the case because the company continued to underwrite some business that was going through the pipeline. The suspension was issued by the Maltese authorities to the company. The company wrote to all its brokers confirming the suspension and they were all obliged to write to the policyholders to make them aware of it.

Pearse Doherty (Donegal South West, Sinn Fein)
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However, the brokers, who are regulated by the Central Bank, still renewed policies.

Mr. Bernard Sheridan:

I agree that the brokers continued to do it. What is at issue is the basis on which they were doing so. The Maltese authorities are investigating the role the company played in terms of underwriting the relevant policies. None of those policies would have been renewed unless the firm facilitated the underwriting of the business. That is what is being investigated by the authorities.

Ciarán Lynch (Cork South Central, Labour)
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I call Deputy Spring, who has 15 minutes. I understand the Deputy wishes to share his time with Deputy Conway. How does the Deputy wish to share the time.

Arthur Spring (Kerry North-West Limerick, Labour)
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Ten minutes for me and five for Deputy Conway.

Ciarán Lynch (Cork South Central, Labour)
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That is fine.

Arthur Spring (Kerry North-West Limerick, Labour)
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Mr. Sheridan informed Deputy Micheal McGrath that the expected liability in this case will be €35 million. Is that broken down between individual and corporate business in any way?

Mr. Pat Casey:

Not between individual and corporate business.

Arthur Spring (Kerry North-West Limerick, Labour)
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So all the business is lumped together. In view of the fact that there are 2,000 claims, this means that the €35 million averages out at approximately €17,000 per claim. With exceptions and limits, the fund will allow a maximum payment of approximately 65%.

Mr. Pat Casey:

Yes, it is subject to the cap of €825,000.

Arthur Spring (Kerry North-West Limerick, Labour)
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That works out at a payment of €11,375. In simple terms, therefore, the average shortfall is going to be approximately €6,125 per claim.

That bleeds into some €12.25 million of assets which is required from the company in order to fix up the shortfall that exists, as that is 35% of the overall liabilities. Mr. Casey talked about the ratios and provisions that had to be in place. Have we any indication what level of provision we would expect to be in place? He referred to a figure of 1.5 times but we are looking at just 35%. Mr. Casey also made a point in regard to the form of assets that are the buffers, how liquid they are and how accessible they are ultimately to the liquidator. Can he give us some detail on what he would expect to find when he scratches beneath the surface?

Mr. Pat Casey:

I am not at liberty to disclose anything in regard to the assets. That is a matter for the liquidator as he continues to examine the assets and liabilities.

Arthur Spring (Kerry North-West Limerick, Labour)
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Does Mr. Casey know at this point in time?

Mr. Pat Casey:

We have a preliminary view but that is still being examined by Towers Watson. The part to understand is that the liquidator has appointed Towers Watson to examine this and to have a full examination of the claims process and the total number of claims. What the liquidator has clearly said to us is that he has a figure of 2,000 claims but, in addition, there is a further amount of claims that needs to be taken into account which were incurred but not reported. While he does not know how big or small that is, he expects it could be substantial and could have a material effect.

Arthur Spring (Kerry North-West Limerick, Labour)
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Given there are 75,000 policies overall, what quantum of money would Mr. Casey expect to see as a reserve? An awful lot of the policies that were bought were cash injections which did not run the full course of the policy and were not put into the overall exposure. Therefore, a large percentage of these would be in an asset form. Of the 70,000 to 75,000 policies, what kind of assets would the witnesses predict are behind that?

Mr. Colm Kincaid:

I will try to address that. Under the current regime, the first thing a company has to do is prudently estimate how much money and resources it will need to meet its liabilities on an expected basis, so it takes a prudent approach to what is expected to happen and it sets aside resources to meet that. We spoke earlier about the inspection we carried out in October and into November, in which we looked at the claims files. What we noticed on the claims files was that what the claims team was estimating as the amount it might need for the claim seemed low. That is what we meant when we said earlier that one cannot extrapolate from that into anything else. How much is held in terms of reserves really depends on a company's prudential assessment of what it thinks its liabilities are going to be. The solvency margin is then a measure of freely available assets it must maintain over and above that to act as a buffer against unexpected shocks. If I follow the Deputy's reasoning correctly, one cannot extrapolate from the number of policyholders necessarily or the quantum of reserves that are shown in the statement of affairs as to what the prudential level of reserving should be, because that is something that only the prudential supervisor and the company itself could do with all of the financial information.

Arthur Spring (Kerry North-West Limerick, Labour)
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That is what I am asking. Has the Central Bank got access to that information?

Mr. Colm Kincaid:

That is information that would be within the company as financial information that would be supervised by the home state regulator. This is the point I was making earlier. All we had visibility on was what the claims team was saying a particular claim might cost.

Arthur Spring (Kerry North-West Limerick, Labour)
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I understand. The alarm bell that went off in Mr. Kincaid's office was due to the fact some of the files picked up that the amount allocated for dealing with those cases was low. That does not talk about the provisions, it talks about the execution, and that could bleed into the overall profitability of the company being higher. That would not suggest to me there is a problem with the provisions but that there could be profiteering, more than anything else. What led the Central Bank to opt for further investigation?

Mr. Colm Kincaid:

If one looks at the file and one sees the claims team is underestimating how much a claim is going to cost, one could take an implication from this that, when the firm comes to establish how many assets it needs to reserve to meet that claim, it is going to under-reserve. That was the concern we highlighted. I believe the Deputy is getting at a point in regard to the liquidator and the liquidation which perhaps I am not hitting. That is the point our inspectors looked at.

Arthur Spring (Kerry North-West Limerick, Labour)
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There are two issues. First, are the people who took out insurance with Setanta going to get their money back and are people going to be looked after in accordance with what one would expect in a developed democracy? Second, what are we doing to prevent this from happening again in the insurance industry in Ireland? I do not believe anybody who hears about this meeting will get a sense of comfort, given the provisions of the ICF and the overall provisions Setanta had in Malta, that they are going to get all of their money back - some €35 million. We are not getting that message. If the witnesses think that is going to be the case, will they convey it? I know they said in the opening statement that this will come back to the Department of Finance again in terms of looking for further funds, which pushes it back in here, but the insurance industry itself should be regulated to the point where it can look after itself.

Let me put a point to the witnesses. This is a situation where Irish directors own a Maltese company that insures in Ireland. Is that correct?

Mr. Bernard Sheridan:

There are Irish shareholders who own a company which is licensed and registered in Malta.

Arthur Spring (Kerry North-West Limerick, Labour)
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Are they the directors of that company?

Mr. Mick Stewart:

There are three directors and, as far as I know, two of them are Maltese.

Arthur Spring (Kerry North-West Limerick, Labour)
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Two are Maltese and one is Irish?

Mr. Mick Stewart:

Yes.

Arthur Spring (Kerry North-West Limerick, Labour)
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This is a catastrophe for the policyholders. Has the Central Bank done anything to pursue these directors either in Ireland or in Malta for breach of their fiduciary duties and possible reckless trading?

Mr. Colm Kincaid:

Whether Setanta and its directors complied with the rules that applied to Setanta as a matter of Maltese law, under the EU framework relating to Malta, is a matter for the Maltese authorities. The MFSA is carrying out a number of investigations at the moment and, as I said earlier, we will continue to engage with the authorities in Malta. They are conducting their investigations and when we get better visibility on what the outcome of those investigations is going to be, we will take stock of whether there is any further action for the Central Bank to take. The matters the Deputy is referring to are matters of Maltese law and Maltese compliance.

Arthur Spring (Kerry North-West Limerick, Labour)
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Given the fact it was trading here, if it was found to have been engaging in reckless trading, I would urge the Central Bank to do something to ensure there are implications and not to let people off.

Everybody who takes out insurance looks for the best deal. As the Chairman said earlier, we do not go through the specifics; we look at the bottom line price and make sure the basics are covered. What recommendations are the Central Bank putting to the Department of Finance? Have we learned anything in order to stop this happening again? Is this an issue that needs to be brought up to a European Commission level in order to prevent bogus operations taking place and essentially representing themselves as Irish companies when they are not.

Ciarán Lynch (Cork South Central, Labour)
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With Irish branding, green shamrocks and all the rest of it.

Arthur Spring (Kerry North-West Limerick, Labour)
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Yes. I do not blame the Central Bank for this and it is working within the parameters it has. However, someone is to blame for it and the policyholders want to know who that is. The most urgent point is to ensure they get as much money back as possible. What needs to be done to stop this happening again and what is being done?

Mr. Bernard Sheridan:

It is a fair point. As I discussed earlier, clearly, we cannot guarantee this is not going to happen again. It is back to how the firms are being managed and supervised. At European level, the solvency II directive will certainly be a step up in terms of the supervisory framework and risk assessments that are in place and the role of the supervisor. Another issue is the engagement and co-operation among supervisory authorities, which is an important area we need to consider as a result of this. We certainly had very close engagement with the Maltese authorities but that was when the problems arose, so that is another issue we can certainly look at.

Arthur Spring (Kerry North-West Limerick, Labour)
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That is not very comforting.

Ciarán Lynch (Cork South Central, Labour)
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Mr. Casey wants to add a comment and I will then bring in Deputy Conway.

Mr. Pat Casey:

I wanted to add one point of information.

Of the 2,000 unsettled claims, the breakdown I have is: 1,333 commercial policies, totalling €22.133 million, and 671 personal policies, totalling €12.843 million.

Arthur Spring (Kerry North-West Limerick, Labour)
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Deputy Pearse Doherty alluded to the fact that the commercial sector would not see all of its money, but will individuals see all of their money and will the exposure lean heavily towards the commercial companies?

Mr. Pat Casey:

Again, the liquidator has made it clear that there are a number of caveats in regard to these figures.

Arthur Spring (Kerry North-West Limerick, Labour)
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I understand that.

Mr. Pat Casey:

He has also made it clear that only an examination of individual policies will provide him with a complete picture.

Ciarán Lynch (Cork South Central, Labour)
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I must ask Deputy Arthur Spring to give way to Deputy Ciara Conway.

Ciara Conway (Waterford, Labour)
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Following the line of questioning on the Motor Insurers Bureau of Ireland, MIBI, and following a series of parliamentary questions I submitted to the Minister on this issue, we were told the claims of third parties could and would be met. However, from the point of view of those with an outstanding claim, there seems to be a great deal of confusion in this regard. Let us look at the reality. We need to be mindful that we are talking about catastrophic injuries, deaths and people who have lost loved ones. The timeframe in dealing with these claims is an issue. In response to a parliamentary question on 18 June I was told the Department of Finance had had a meeting with the MIBI on 11 June to discuss the issue of Setanta Insurance and that it had informed the Department it expected legal certainty in the following weeks. What does that mean? What is the current position and when can persons awaiting claims to be processed to have certainty? We need to check what is happening in this regard.

The European Union has the European Food Safety Authority, but what do we have as its equivalent for financial products and passporting? How do we protect consumers? Mr. Sheridan cautioned against having regulations specific to the Irish market because we operated in a European context. However, is he aware of any country that has domestic regulations to ensure this would not happen again?

My other question-----

Ciarán Lynch (Cork South Central, Labour)
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The Deputy is out of time. Deputies should, please, prioritise their questions.

Mr. Bernard Sheridan:

There is no single European supervisory authority. The industry is based on the premise that there are home host regulators and that companies are entitled to sell insurance provided they have managed to be authorised in their home country.

On the framework we use in Ireland and what we apply to firms in respect of which we provide for prudential supervision, we have strengthened the framework, including in the area of reserve management. Also, Solvency II will strengthen the framework. In terms of what we have learned, we have tried to be at the forefront of what the regulatory framework should be.

Mr. Pat Casey:

To clarify the legal advice, I understand the board of the MIBI will meet on Friday and consider the legal advice it has received on matters it has raised. It will discuss that advice with its legal advisers.

Ciara Conway (Waterford, Labour)
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Who will be given information on the outcome of that board meeting? Will the information be given to the individuals who have been in contact with the MIBI? Will it be given to us and the Department of Finance? Will it be made public?

Mr. Pat Casey:

That is a matter for the MIBI, but I expect it will contact us. We will be in contact with it on the outcome of the discussion on the legal advice available. In regard to individuals who may have raised legal questions directly with the MIBI, it is a matter for the MIBI to respond to them.

Ciara Conway (Waterford, Labour)
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I have another question on European -----

Ciarán Lynch (Cork South Central, Labour)
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This is the Deputy's last question, as she is running out of time.

Ciara Conway (Waterford, Labour)
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It relates to European-wide regulation. I understand what has been said and that we have been to the fore in trying to influence practice, but given what the European markets have been through in the past few years, it is staggering that regulators do not yet interact with each other. How many other insurance companies like Setanta Insurance are there in Ireland? I understand most insurance companies here are not Irish owned. Am I correct in thinking FBD is the only Irish-owned and operated insurance company in the country? If financial regulators across Europe are not interacting with each other, how many more customers will be impacted on and how many more difficulties will we encounter?

Mr. Bernard Sheridan:

In Ireland we have a large number of Irish-authorised insurance companies, but they do not all do business in Ireland. In fact, the majority do no business in Ireland. However, we supervise them prudentially in the same way. We are also the conduct of business supervisor for the firms selling in Ireland. There is consistency across the market in that regard.

On whether there is another Setanta Insurance, we have a large number of firms - I am not sure of the exact number - that have notified us of their intention to sell different types of insurance policy in Ireland. However, the number is quite small in the case of motor insurance and these firms are generally not of the size of Setanta Insurance. Generally, they are in particular categories of insurance in which there would have been one big provider. I am not really sure how I should answer the question of whether there is another Setanta Insurance. The European framework is to be and should be applied consistently across countries. Where it fails is where individual firms do not live up to that standard. It is up to the supervisors to make sure they do.

Ciarán Lynch (Cork South Central, Labour)
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Before we move to Deputy Joe Higgins, I seek clarity on a point raised by Deputy Ciara Conway. Are there cases comparable to what happened in the case of Setanta Insurance or is its case unique? Is it unique to Ireland or is there a precedent? Have there been similar collapses in the market?

Mr. Bernard Sheridan:

The Setanta Insurance case is not unique in the sense that there is a large number of companies selling in Ireland the headquarters of which are outside Ireland. I do not know how many are selling exclusively in Ireland, but I am sure a small number of them are doing so. On whether it is unique in terms of its failure, it is not because it was supervised by a supervisory authority equivalent to us and licensed by that authority. I do not make a distinction - I do not believe I can do so - in terms of whether it is supervised by the authorities in the United Kingdom or Malta or wherever else. It is a difficult question to answer. About what are we talking precisely? Is it the model, the European framework or the fact that it was selling only in Ireland?

Ciarán Lynch (Cork South Central, Labour)
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The question is very simple. If I was talking to a German, an Austrian or an Italian this afternoon, would he or she say to me that the very same thing happened in his or her country and that another country was involved in terms of the company involved trading out of Cyprus, Lithuania or Ireland? Therefore, the case would not be unique in the sense that it would have happened previously.

Arthur Spring (Kerry North-West Limerick, Labour)
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It seems to be unregulated.

Mr. Bernard Sheridan:

I am not sure about a failure, but it is not unique for a company located in Ireland to only be selling in another country in Europe.

Joe Higgins (Dublin West, Socialist Party)
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Have the Maltese sent the fraud squad to this company?

Mr. Bernard Sheridan:

I am not aware that they have done so. As I have not asked that question, I cannot answer it.

Joe Higgins (Dublin West, Socialist Party)
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Did I hear correctly that the claims submitted so far amounted to approximately €35 million? How much would a company normally have to hold in reserve in banks to provide for such an eventuality? Can we have a rough estimate of how much should be held in the bank?

Mr. Colm Kincaid:

Insurance companies are required to have technical assets - assets of particular acceptability - to cover their expected claims. Therefore, if it believed it would pay out €35 million in claims, it would have to have at least €35 million in assets to cover them.

Joe Higgins (Dublin West, Socialist Party)
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Therefore, this company, understanding the business in the way it should, would have had at least €35 million already.

Mr. Colm Kincaid:

Yes, it would have to have assets to cover its foreseeable liabilities.

Joe Higgins (Dublin West, Socialist Party)
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How much is there?

Mr. Colm Kincaid:

We have the statement of affairs the company made when it went into liquidation. As mentioned, the liquidator is looking over all the figures. I believe it is in the region of €17 million.

Joe Higgins (Dublin West, Socialist Party)
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Where is the rest of the money, the money that should be available?

Mr. Colm Kincaid:

The issue identified is that the firm was not properly reserving for the liabilities it had. The €35 million is the current estimate of liabilities for its claims.

Mr. Mick Stewart:

That is correct. On the day of the creditors' meeting, the net assets for the directors amounted to €17 million. The liquidator has since gone in and has said that figure is short. At present, he estimates €35 million is required to cover the current claims.

Joe Higgins (Dublin West, Socialist Party)
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The money the company was taking in from its Irish clients should be such as to be approximately €35 million. I presume considerable amounts of money were taken in. Where did it go?

Mr. Mick Stewart:

This is the nub of the question. Our concern at the beginning was that the firm was under-reserved. It did not have €35 million because the reserves were smaller than they should have been.

Joe Higgins (Dublin West, Socialist Party)
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So it did something else with the money rather than keeping it in reserve?

Mr. Mick Stewart:

We are talking about the reserves. The reserves were a certain amount. The company had smaller amounts. I cannot say for sure it ever had the €35 million.

Mr. Colm Kincaid:

The issue with reserving is that the company was underestimating its liabilities and, therefore, did not hold against those liabilities the assets that it needed to hold.

Joe Higgins (Dublin West, Socialist Party)
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Potentially, it took in enough to have the proper reserve. Is that correct?

Mr. Colm Kincaid:

Potentially. I could not say that it did.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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If premiums were too low, for example.

Mr. Colm Kincaid:

We would be getting into matters concerning the financial state of the company, financial practices and the supervision of the company. It is the Maltese authorities, rather than ourselves, that have an insight into these.

Joe Higgins (Dublin West, Socialist Party)
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Okay , who are these people? Do we know who is behind Ganado Trustees and Fiduciaries Limited?

Mr. Mick Stewart:

They are Irish shareholders.

Joe Higgins (Dublin West, Socialist Party)
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Why would a bunch of Irish shareholders go all the way to Malta to set up an entity that is to conduct business back in Ireland?

Mr. Bernard Sheridan:

We are reluctant to speculate on that. We cannot speak on behalf of the firm, nor can we speak on behalf of the Maltese authorities as to why they felt it was appropriate to authorise it.

Joe Higgins (Dublin West, Socialist Party)
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I presume the delegates have examined the systems and method of regulation in Malta. Is there something that makes it more favourable commercially to go to Malta to set up rather than just setting up in Ireland?

Mr. Bernard Sheridan:

Obviously there was. I cannot speculate on what that was. We had not carried out an assessment as to why they would have gone there. They were subsequently authorised by the-----

Joe Higgins (Dublin West, Socialist Party)
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Surely that is an assessment that should be made with a view to pointing out to the European Union that it is absolutely ridiculous to allow a group of citizens to go somewhere 1,000 miles away so as to trade from a distance and not be under the same scrutiny that they would otherwise be under if they traded at home.

Mr. Bernard Sheridan:

Yes, but it is not unique in Europe. Quite a lot of companies in Ireland are in a similar set of circumstances. The expectation is-----

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is even more scary.

Mr. Bernard Sheridan:

Perhaps it is from the Deputy's perspective but the expectation is that they would be supervised appropriately in their home countries. The Irish market is made up of many firms but many of them are not actually selling in Ireland; they are selling, as the Deputy suggests-----

Joe Higgins (Dublin West, Socialist Party)
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The European Union, has been ramming through the services directive and other such measures, and has been promoting the so-called freedom to make profit in any corner from any corner. Does that not expose some of the flaws? It is obvious that if a company operating in Ireland were regulated here, the regulation would be more stringent.

Mr. Bernard Sheridan:

Possibly. The Deputy is correct that additional challenges are presented when one is supervising a firm that is actually engaging in activities that are not in one's home country. There are additional challenges associated with understanding the local market and local risks.

Joe Higgins (Dublin West, Socialist Party)
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This Central Bank should make representations to the EU bureaucracy in that regard.

How many staff were in the firm's Blanchardstown office?

Mr. Colm Kincaid:

I do not know that figure off the top of my head.

Joe Higgins (Dublin West, Socialist Party)
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That would be an interesting one to probe also. Was this just a kind of shop front?

Mr. Colm Kincaid:

No, it was a substantive operation. I just do not know off the top of my head the number of staff there.

Joe Higgins (Dublin West, Socialist Party)
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What kind of suspicions put the delegates on the trail of the company to begin with? Why were people suspicious? I am not asking who made statements but what was said.

Mr. Bernard Sheridan:

I suppose it was largely in respect of its practices and concerns regarding its financial situation and the reserving.

Joe Higgins (Dublin West, Socialist Party)
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Did some brokers, for example, feel the premiums were too low given the amounts in question?

Mr. Bernard Sheridan:

Clearly, pricing is one signal.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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My questions follow those points directly. Some 75,000 policyholders have been shafted. Many of them are small and medium enterprises and many are individuals. Somebody has failed to see this coming. If this discussion is to mean anything, we need to learn lessons. It strikes me that the dogs on the street could have worked out that there was something wrong with a company if it was licensed in Malta although its shareholders were primarily Irish, it was selling exclusively to the Irish market, its main staff operations were in Ireland and, through its name, it packaged itself as Irish. That is fishy straightaway as far as I am concerned. I cannot believe somebody in the Central Bank did not figure out much earlier that it was fishy. Why the hell would a company do that? There has to be some scam at play. It is trying to evade regulation, taxation, or both. Surely that is obvious. It is absolutely terrifying that the delegates tell me this is happening all over the place in Europe. There are companies based in Ireland that do not do any business in Ireland. Why are they here? What is the reason for their being here? There are companies selling insurance mainly in Ireland, such as Setanta, that are not licensed here.

I had an inquiry from the manager of my son's football team asking why there is such a radical difference between motor insurance premiums offered by various insurance companies. There are staggering differences, yet the underwriters of the insurance are the same people. Therefore, there is something fishy going on. The regulatory regime has failed, both at national and European levels. Is that not obviously the case? Must we not seriously ask what went wrong, why we did not spot this and whether there is an endemic problem that could mean there will almost certainly be a recurrence?

Mr. Bernard Sheridan:

It is a fair challenge. We are going to conduct a review of this event in the Central Bank to determine whether we could have done things differently. None of what occurred would have been an issue had the firm been properly run. Our concerns were about the reserving. If the company had been properly run-----

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I have to interrupt Mr. Sheridan on that. I heard the phrase "properly run" and must challenge it. The point of regulators is precisely to deal with people who do not do business properly.

To throw it back and say some firms do not behave as they should is not acceptable. Sure, if they all behaved as they should, there would be no need for regulation. The reason the Central Bank is there and we need laws and regulation is that we know there are many in cut-throat, profit-driven, competitive markets, including insurance, who do not play by the rules. There are cowboys left, right and centre. We had it with Quinn. I am only speculating, but it looks like this gang was up to the same thing as Quinn. It appears they were under-provisioning as they were using the money for other things, as Quinn was. Money that should have been applied to provision against losses was being used to leverage other business deals elsewhere. That is what he was doing.

Pearse Doherty (Donegal South West, Sinn Fein)
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The Deputy should ask a question.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Surely, Mr. Sheridan cannot be serious when he says that companies should just behave better. Surely, we must have a more stringent regime of regulation.

Mr. Bernard Sheridan:

I agree, but the primary responsibility rests with the individuals running the firm. We cannot guarantee that there will be no failures. The Deputy is right that a great deal of the supervisory framework is about how it is implemented. The framework will be strengthened. We have already strengthened it post other issues with other firms while Solvency II will strengthen it in the wider European context, but that is no guarantee. It is how that is implemented that is key. I agree with the Deputy that it is down to supervisory authorities to implement that.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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If this committee is going to come out with useful recommendations, I put it to Mr. Sheridan that a simple thing we could learn where companies are doing there business here while being licensed elsewhere is to look at them straight away. Is that not an obvious conclusion to draw? We should go straight in and start looking at those companies and ring the alarm bells with the regulatory authorities in the countries in which they are licensed. If it does not add up that they are licensed in one place and doing all their business here, should we not do that immediately?

Mr. Bernard Sheridan:

Many companies are doing business in Ireland to a small extent from most other EU countries. We would have to narrow it down. All those businesses are doing it on a legitimate basis. I would not like to tar everyone doing business here on a cross-border basis with the same brush as Setanta.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I am sure there are lots of legitimate people out there, but I cannot think of a reasonable explanation for a company selling insurance exclusively into Ireland, having its base of operations and employees here, and presenting itself as Irish all the while being licensed somewhere else. If there are other firms like that, should we not be looking at them straight away to ensure we are not here again within a few months or a couple of years?

Mr. Bernard Sheridan:

That is certainly something I will take away. It is a fair challenge back.

Joe Higgins (Dublin West, Socialist Party)
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Is there a brass plate somewhere in Malta carrying the name of this company?

Ciarán Lynch (Cork South Central, Labour)
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Deputy Higgins has already been in. Mr. Sheridan can answer the question.

Joe Higgins (Dublin West, Socialist Party)
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Does the company have any physical presence whatsoever in Malta? Do we know?

Mr. Bernard Sheridan:

It has a small presence in Malta as far as I am aware. As has been pointed out, the bulk of their operations was in Ireland.

Joe Higgins (Dublin West, Socialist Party)
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It was in the attic of somebody's house, by the look of it.

Ciarán Lynch (Cork South Central, Labour)
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To keep the meeting going, I will give the members as much time as they wish if Deputy Boyd Barrett is willing to pair with me on the vote. I will let Deputy Pearse Doherty ask a supplementary if he wishes to do that. Otherwise, I will suspend the meeting.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I will pair with the Chairman.

Pearse Doherty (Donegal South West, Sinn Fein)
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I will be finished before that.

Ciarán Lynch (Cork South Central, Labour)
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We will let Deputy Doherty in with one supplementary and then pair off and conclude the meeting.

Pearse Doherty (Donegal South West, Sinn Fein)
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Deputy Boyd Barrett is finished.

Ciarán Lynch (Cork South Central, Labour)
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Deputy Doherty played a blinder. Thanks a million. We can pair this out to two of us.

Pearse Doherty (Donegal South West, Sinn Fein)
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I will ask a couple of quick questions as there is a vote in the Dáil. Listening to Mr. Sheridan and in view of the actions of the Central Bank on provisioning, is it the case that if the company was regulated in Ireland, as a bare minimum, the problem in terms of blanket provisioning would have been identified earlier?

Mr. Bernard Sheridan:

Based on our own experience and approach to supervision, when firms fall below the additional buffer we have in place, similarly to Malta, we engage in a robust challenge back to them. We have taken enforcement action against firms which have fallen below that buffer. We see the buffer as critical to protecting policy holders.

Pearse Doherty (Donegal South West, Sinn Fein)
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While the Central Bank does not engage in prudential supervision, it has used whatever power it had to go in and find out what was under the hood of the company, which really sparked the alarms in terms of Malta, even though it knew for two years that the company was below its additional buffer. Is that fair to say?

Mr. Bernard Sheridan:

We had some concerns. We went in and escalated it pretty quickly to the Maltese authorities.

Pearse Doherty (Donegal South West, Sinn Fein)
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Deputy Higgins mentioned the following here. Was the Central Bank at any time concerned about a conflict of interest between the company and the manner in which it was established, and the fact that brokers were selling their insurance products? A number of shareholders in the company are either directors or senior employees and a number of directors are in brokers and groups that provide services for numerous brokers in the State. Laura Noonan wrote as far back as 2008 of a potential conflict of interest given the fact that so many of the owners of Setanta Insurance were involved in the broker industry in Ireland. There was a legitimate question about how a punter seeking the best deal on his or her motor insurance could obtain that from a broker company a director of which was also an owner of Setanta Insurance. Were they peddling their company to maximise their profits? Is this something the Central Bank looked at or was concerned at all about?

Mr. Bernard Sheridan:

I am not aware that we looked into it. We have specific requirements imposed on brokers in the area of conflicts of interest in terms of avoiding and disclosing them. There is an overriding requirement in the code that they must act in the customer's best interest. We have no evidence and have not investigated that.

Pearse Doherty (Donegal South West, Sinn Fein)
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Is it acceptable for an insurance company to be owned by the directors of broker companies?

Mr. Bernard Sheridan:

We have nothing prohibiting that but the Deputy is right that it raises a conflict of interest issue in respect of which we have requirements in place.

Pearse Doherty (Donegal South West, Sinn Fein)
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I suggest that it is something the Central Bank looks into.

My last question is for both the Department and the Central Bank. This is about the mess we are in. It is a mess one way or another. We have a company that went into liquidation and do not know when payments will be processed. We do not know if we can access MIBI to process some of the payments. We do not know how many commercial claims will not be paid by any of the funds. It has properly been highlighted that the great concern here is that claims in some cases involve matters of life and death. We are talking about serious injuries, death and people in very vulnerable situations. It is very clear that there will be no quick fix in this and that the matter will go on for a number of months until the liquidator finds out what assets and liabilities he has and whether the fund must be accessed.

Mr. Sheridan said that it was unprecedented to have an insurance company go into liquidation. Could we not look at a situation - tell me if I am just crackers on this - where the insurance fund pays out 65% of all claims and becomes a creditor of the assets of the company? The insurance fund is going to pay out 65% of all claims anyway up to a maximum of €825,000. Obviously things are structured a certain way, but instead of all this red tape could we not start to act in the interests of citizens - the claimants out there - and introduce legislation, if necessary, to provide that the insurance fund can pay out 65% of all claims where a company goes into liquidation? While people may get more if there are assets within the company, there would be an up-front payment. The insurance fund would then recoup whatever it could from the assets of the liquidated company.

Mr. Pat Casey:

That is a fair question. The law governing the ICF does not set out the administration process.

It is clear that it is seen as the fund of last resort. As I mentioned in my opening statement, the payment may only be made if it appears unlikely that a claim can be met otherwise than from the fund. These are matters upon which we need to reflect. The purpose of the fund is to pay out where there is a valid claim. Its purpose is not to delay payments or otherwise. Right now, there is an absence regarding what the liquidator's position is. We need to await the outcome of that to get some indication of what is available for redistribution from its assets and see the impact of that. We also need to wait for the legal advice and the outcome of that consideration and see what role the fund can play in respect of making the claims. We will reflect on the suggestion made. I am not saying "Yes" or "No". The procedures are not specified, and that is one of the things we will be looking at.

Mr. Antoine MacDonncha:

It might be worth saying that the legislation does not really facilitate an up-front 65% payment. However, the first job we have asked the liquidator to do is to come back to us and tell us whether there is a minimum shortfall. At that point, if we are certain that there will be a shortfall of, say, 30%, even under the existing legislation, we could look at making an up-front payment in that amount. It is something we are exploring and we cannot promise that it is something we will be able to do but we are at least exploring it and are mindful that it would be helpful for people to have some interim payment if it is possible.

Pearse Doherty (Donegal South West, Sinn Fein)
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I anticipate that it will be quite a long period before this is resolved - to the end of the year or beyond. I am not sure if that is the Department's intention or expectation. There is an openness on the part of my party and, I presume, the Opposition towards changing the rules in respect of the unprecedented scenario of a company going into liquidation. At the end of the day, it would not cost the fund any more. It is just a case of cashflow within the fund. While it may not be available within the rules, we should be looking at changing the rules if needs be to deal with what was an unforeseen circumstance at the time the rules were drawn up.

Ciarán Lynch (Cork South Central, Labour)
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I will bring in Deputy Boyd Barrett on his supplementary.

Is there some sort of consumer interface with the Setanta customers in this situation? Is a particular hotline in place for them or are they just searching on the Internet?

Mr. Bernard Sheridan:

The liquidator has been in contact with all policy holders.

Ciarán Lynch (Cork South Central, Labour)
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In writing?

Mr. Bernard Sheridan:

In writing. Obviously, all the policies had to be cancelled. The policy holders were advised of the information that is available on the website of the firm, which is being updated as things develop. We will also be proactively getting messages out to those policy holders as things develop.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Following on from Deputy Doherty's question, the Irish Brokers' Association said that the same treatment should have been applied to the customers and policy holders of Setanta that was applied to Quinn Insurance, but that was not the case, and that in the case of Quinn Insurance, policy holders got a clear commitment that there would be no loss. What is stopping us from doing that? Is it just because the company was in Malta? If that is the case, I put it to the witnesses that this is crazy. We say the regulatory failure was because the company was in Malta and it was the one responsible, but the ICF picks up the tab anyway. We pay the bill and the company did all its business here but the policy holders do not get the same treatment as people affected by the Quinn Insurance case did. Is not unfair and inconsistent? Can anything be done about it?

Mr. Antoine MacDonncha:

Given the way the legislation is framed, the policy holders get exactly the same treatment if it was an Irish-authorised insurance company that was in liquidation. It does not differentiate based on the fact that this company is authorised in Malta as opposed to here. They are receiving the same compensation that would be available to somebody pursuant to the ICF if an Irish-authorised company went into liquidation.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Is there a divergence of treatment in terms of Quinn Insurance and Setanta customers?

Mr. Pat Casey:

Yes, and the reason is that Quinn Insurance was put into administration. The company was seen as a going concern that had a problem relating to the guarantees that impacted on its solvency ratio, but when it was put into administration, the underlying business was regarded as being OK and, therefore, it needed to be given time to trade its way out and come back on to a commercial footing. Setanta went into voluntary liquidation because it was unable to meet its liabilities. When it went in at the end of January, it was on the basis that there was to be an orderly wind-down of the company. The information provided by the Maltese regulator in response to the committee's queries sets out quite clearly that a number of attempts were made by the company from the end of January until mid-April to get adverse claims development cover to assist in a process in which it had a party interested in buying the company. That fell through after due diligence and the company was unable to put additional capital in. In that light, the company was put into liquidation on a voluntary basis. The distinction is that one was put into liquidation and, therefore, the terms of the liquidation set out in the ICF apply subject to cappings, etc., while the other one was put into administration because it needed a period of time to get over a financial difficulty but was seen as being able to trade.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I understand. First, that divergent treatment is completely unfair from the point of view of the policy holders. It would probably be the case that if we had the responsibility for trying to sort things out and keep things going, or selling off the policies to somebody else who would maintain them so there were no losses to premium holders, there would probably be far greater motivation to salvage things in the interests of the policy holders than there might be in Malta which, to be honest, does not have any great interest in solving it. I am not saying Malta did not make efforts - I have no idea what efforts it did or did not make - but it is fairly obvious that we would have made more efforts, because everything was based here and all the policy holders were here.

Mr. Pat Casey:

It is important to be clear that if Setanta was regulated by the Central Bank on a prudential and supervisory basis here and went into liquidation, the treatment of policy holders and claims would be identical. It would still be subject to the same qualifications set out in the law in respect of the treatment of policy holders in an insolvency situation. It is important to understand that it would have the same caps and treatment.

Ciarán Lynch (Cork South Central, Labour)
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To help Deputy Boyd Barrett, the safety net is the same regardless of who owns the company, but the risk of falling into a safety net seems to vary from jurisdiction to jurisdiction because prudential management varies from one to the other. I suppose the top-line concern here is that, as Deputy Boyd Barrett indicates, if I buy a product in the morning, I might be getting the same windscreen and tow rate cover and the same comprehensive insurance but the prudential management of the company I am taking out insurance with is risk-weighted based upon the jurisdiction it is in. In terms of consumer protection, how do I as a consumer know that this product is prudentially sounder than the other product? How do we get to that place where consumers have that level of protection?

Mr. Antoine MacDonncha:

The purpose of the harmonisation of rues across the EU and directives such as Solvency II, Directive 2009/138/EC, is to give that assurance to people that we set minimum standards, that those standards should be applied evenly in every jurisdiction and that, irrespective of which jurisdiction somebody is regulated in, they should be subject to those same minimum requirements.

Ciarán Lynch (Cork South Central, Labour)
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The difficulty with Mr. MacDonncha's response is that to score a point one must get the ball over the bar. However one can score a point like Ronan O'Gara and put it 13 metres over the bar. In some jurisdictions the ball is put over the bar a great deal higher. Industry unfortunately will just get the ball over the bar in some jurisdictions when one has a global or universal system. The bar for prudential management in Ireland seems to be a great deal higher than it is in other areas, so regardless of the level the European Union sets as a bar, the difficulty that I and every other citizen has as a consumer is that the company from which I get my insurance may have different prudential risk management from other companies. Is there a case that the bar needs to be heightened?

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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May I add to what the Chairman has said? That is one element of the question, but there is also the issue of the odd location where the business seeks the licence. Is that an issue? There are a great many firms that do no insurance business in Ireland but are licensed in Ireland. There are firms that do all their business here but are licensed in places such as Malta. There must be some reason for businesses to do this. Are insurance companies doing this because of the distance between where they conduct their business and the authority whose job it is to license and regulate them, the companies know that it is a bit harder for the regulator to regulate them?

Ciarán Lynch (Cork South Central, Labour)
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I think the issue is not about the regulation but about the standard of the regulation.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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That is what I mean. I am using the term "regulation" in the most general sense, of ensuring that companies are doing business properly.

Mr. Bernard Sheridan:

The Chairman has made a fair point. I agree that the current standard is a minimum harmonisation standard across Europe. I believe the Central Bank has a stronger and more robust regulatory framework based on that standard than other jurisdictions. When the new standards, which are a higher standard, come in across Europe the challenge is that the supervisory authorities actually apply them consistently and that individual firms live up to those standards.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Let me use an example of the problems that the Central Bank might face. If a company does all its business in Malta, but the Central Bank in Ireland is the body that licenses it and is responsible for its prudential regulation, is it not harder to the Central Bank to keep an eye on it if it is doing all its business in Malta? Similarly it had to be quite difficult for Maltese authorities to keep an eye on companies that operate in Ireland

Ciarán Lynch (Cork South Central, Labour)
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There will be a vote in three or four minutes.

Mr. Bernard Sheridan:

I agree with the Deputy completely. When one regulates a company that operates outside one's country it poses additional challenges. The conduct of business standards across Europe is currently being developed to be more consistent. Again we believe our standards are higher than those in many other countries.

I hear the point the Deputy makes. It is more challenging but that is the model in Europe, that is what is allowed and provided for. People are entitled to do that.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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I suggest that we need to red flag the issue of companies that are doing all their business in one place but for some inexplicable reason are seeking the licence to conduct their business elsewhere. This needs to be red flagged immediately and the existence of this phenomenon needs to be examined.

I have a final question. Given the inconvenience and the losses that are being suffered by the policyholders, are there potential penalties or sanctions against the future involvement of these directors and shareholders in the insurance business or will they face general sanctions for what they have been responsible?

Mr. Colm Kincaid:

As I mentioned earlier, the first issue is whether the company in Malta contravened any of the rules that apply in Malta under the EU framework. The penalties that would flow from that would be matters of Maltese law. The Malta regulator is currently conducting an investigation on a number of fronts, so we will see what will come from that. I am not conversant with what penalties will apply in Malta. As a matter for ourselves in Ireland, based on the conclusions of the investigations in Malta we would look to see if there is any follow up action by the Central Bank. Obviously wherever companies come to be authorised in Ireland, they have to go through our authorisation processes, our fitness and probity processes and so on.

Richard Boyd Barrett (Dún Laoghaire, People Before Profit Alliance)
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Let us say that they are in breach, that there is insufficient provisioning, that they were doing what the Quinn Group was doing, using moneys that should have been for the provision against claims for other things. If they are guilty of these kinds of practices, what are the sanctions? Would they be allowed to do business here or anywhere in Europe again?

Mr. Colm Kincaid:

The sanctions that would apply would be a matter of Maltese law and the MFSA would have to advise on what penalties they or any other authority in Malta would impose.

Ciarán Lynch (Cork South Central, Labour)
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Let me summarise. It is not an allegation that a company has engaged in a criminal or negligent matter but the issue is that the prudential requirements vary from area to area. Because of the prudential difference, the exposure in one area is greater than in another. Both Mr. Casey and Mr. Sheridan say it is the issue of harmonisation across the European jurisdiction to ensure that it does not matter whether companies operate out of Malta or out of Ireland, that the Maltese as well as Irish citizens have good insurance coverage. Is the proposed harmonisation standard below, equal or above the Irish standard that is in place?

Mr. Bernard Sheridan:

It is a higher standard but is something we have been working progressively towards rather than waiting for the directive to come into force in 2016. We have upped the framework quite substantially in advance of that. My colleague, Mr. Colm Kincaid, will comment.

Mr. Colm Kincaid:

I think if one is referring to Solvency II, there is a number of features of Solvency II which we would already have in the State. There is a panorama of provisions, Solvency II is a very long directive. The current regime at EU level is a minimum regime. We have a lot of enhancements to that regime at a prudential level that will apply in this State for a company authorised in this State.

Ciarán Lynch (Cork South Central, Labour)
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I thank the officials from the Department of Finance and the representatives from the Central Bank for coming before us today and for briefing the committee informatively on an issue of important interest.

As there is no other business, we will adjourn.