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.

Third, in a liquidation situation, the ICF only pays out 65% of the total claim or €825,000, whichever is the lesser. Fourth, the ICF does not refund unearned premiums.
The Motor Insurance Bureau of Ireland is a non-profit-making organisation registered in Ireland, which was established by agreement between the Government and those companies underwriting motor insurance in Ireland, in accordance with the EU motor insurance directives. All insurance companies underwriting motor insurance in this country must, by law, be members of the MIBI and contribute to funding claims in proportion to their market share. The principal role of the MIBI is to compensate innocent victims of accidents caused by uninsured and unidentified vehicles. This is regulated under the terms of a 2009 agreement between the MIBI and the Minister for Transport, Tourism and Sport.
The MIBI does not operate a fund. Claims are received and issued to one of four major insurers which handle the claims on behalf of the MIBI. When claims are settled, MIBI member motor insurance companies are levied to make up the amount due. This means that the MIBI is funded entirely by premiums paid by insured policyholders and it has a responsibility to ensure all its payments are appropriate and fair.
The arrangements put in place by the MIBI for dealing with the Setanta claims is a matter for the MIBI itself under the terms of the agreement and, as such, it falls outside the remit of the Minister for Finance to issue instructions to the MIBI. The situation of Setanta Insurance, where an insurance company has gone into liquidation, is believed to be unprecedented. Given this fact and its potential impact, the MIBI is taking legal advice as regards its role and responsibilities. The MIBI board will meet in the coming days after which further clarifications are expected relating to that legal advice and its outcome.
The question as to how the ICF can assist those policyholders affected by the Setanta closure, the role of the MIBI and the work of the liquidator continues to be examined by the Department.

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.