Oireachtas Joint and Select Committees
Wednesday, 1 April 2015
Joint Oireachtas Committee on Finance, Public Expenditure and Reform
Setanta Insurance Liquidation: Discussion
2:00 pm
Liam Twomey (Wexford, Fine Gael)
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Setanta Insurance Company Limited went into liquidation in April 2014. At the time of entering liquidation, the company had approximately 75,000 policyholders. Currently, just under 1,800 claims are still open. As part of the liquidation process, all policies were cancelled by the end of May 2014. The purpose of the meeting will be to update the committee since its previous engagement on this topic and, specifically, to review progress relating to claims and the liquidation process.
I welcome the liquidator of Setanta Insurance Company Limited, Mr. Paul Mercieca. Mr. Mercieca is based in Malta and I thank him for taking the time and trouble to travel to Ireland and his willingness to appear before the committee. Mr. Mercieca is accompanied by his colleague, Dr. Matthew Bianchi.
I welcome Mr. Sean Quigley, Accountant of the Courts of Justice. Mr. Quigley is joined by his colleague, Ms Denise Mullins. I also welcome Mr. Ronan Hession of the financial services division of the Department of Finance. Mr. Hession is accompanied by Mr. Antoine Mac Donncha.
The format will be as follows: Mr. Hession, Mr. Mercieca and Mr. Quigley will make their opening remarks. I ask them to be brief. A question and answer session will then allow matters to be clarified.
I remind members, witnesses and those in the gallery that all mobile phones must be switched off.
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. If, however, they are directed by it to cease giving evidence on a particular matter and 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 asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.
I ask Mr. Hession to make his opening remarks.
Mr. Ronan Hession:
I thank the joint committee for the invitation to attend to discuss Setanta Insurance. I am a principal officer in the financial services division of the Department of Finance and joined by Ms Antoine Mac Donncha, head of the Department's legal unit. In my opening statement I would like to outline for the committee the role of the Department in the Setanta Insurance process thus far and explain the role of the Minister more generally in the statutory framework for insurance compensation.
The Minister's primary role relates to the statutory framework and funding arrangements for the insurance compensation fund which was established under the Insurance Act 1964. The purposes of the Act are to establish the insurance compensation fund to meet certain liabilities of insolvent insurers; to provide for the making of loans to the fund by the Minister; and to provide for contributions to the fund by insurers. The fund is maintained and administered under the control of the President of the High Court acting through the accountant for the courts of justice. The Minister has no statutory role in the payments process or the administration of the fund. Section 5 of the Act provides that the Minister may, on the recommendation of the Central Bank, advance from the Central Fund to the insurance compensation fund such sum as he thinks proper to enable payments from the fund to be made expeditiously. The funds provided by the Minister are in the form of a repayable loan. Having regard to the potential calls on the fund, the existing reserves and the expected insurance levy receipts, the Central Bank wrote to the Minister in January 2015 recommending that up to €140 million would need to be advanced by him to the fund this year. As potential calls related to Setanta Insurance could be met from existing reserves, this figure is required to cover calls by Quinn Insurance Limited related to the disposal of its UK book, as announced earlier this year. The Minister has agreed to make a repayable loan to the fund for this amount.
The insurance compensation fund is, ultimately, funded by contributions from insurers. The Insurance Act 1964, as amended, provides that the fund is funded by contributions from insurers who issue policies in respect of risks in the State, whether the insurers are based in Ireland or another member state. Under the Act, the Central Bank has responsibility for determining whether the fund requires financial support and the level of contribution to be paid to the fund by insurers. The contribution may not exceed 2% of the aggregate gross premiums paid to each insurer for policies issued in respect of risks in the State. A levy in accordance with section 6 of the Act came into effect on 1 January 2012. The Central Bank has set the levy at the maximum 2% of the aggregate gross premiums paid. The levy is payable quarterly in arrears to the Revenue Commissioners which have responsibility for its collection and the transfer of the proceeds of the levy to the insurance compensation fund account.
Under section 2, the accountant for the courts of justice is required to submit an abstract on the fund’s accounts and a report on the administration of the fund to the Minister which he must publish and lay before the Houses of the Oireachtas. The most recent published accounts relate to 2013. They show a total owing to the Minister for Finance of some €986.9 million, of which €197.8 million was issued in 2013, and show insurance levies for that year of some €64.7 million. They also show outstanding amounts owed to the fund from companies placed in administration previously - Icarom, formerly the Insurance Corporation of Ireland, €164 million; Primor, formerly PMPA, €139 million; and Quinn Insurance, €1.158 billion. I am advised that the current balance in the fund is some €96 million.
Having set out the Minister's role under the statutory framework, I will now explain the Department's role in the Setanta Insurance process thus far. On 16 January 2014 the Central Bank first wrote to the Department alerting it to the concerns about the solvency margins of Setanta Insurance and advising that a potential call on the insurance compensation fund could arise. On the same day the Maltese Financial Services Authority directed Setanta Insurance to cease writing new business. On 16 April the Maltese regulator informed the Central Bank that Setanta Insurance had handed back its licence after the shareholders had resolved to wind up the company. At that stage the Department's understanding was that claims not honoured by Setanta Insurance could be submitted to the Motor Insurers Bureau of Ireland, MIBI. On 30 April a liquidator was formally appointed to Setanta Insurance. The Department met the liquidator's representative in Ireland and the liquidator within a week of their appointment. At the time the Department also held meetings with senior officials in the Department of Transport, Tourism and Sport and the Motor Insurers Bureau of Ireland.
I should explain that the Motor Insurers Bureau of Ireland was established in 1955 for the purpose of compensating victims of road traffic accidents caused by uninsured and unidentified vehicles. It operates under a written agreement dated 29 January 2009 between companies underwriting motor insurance in Ireland and the Minister for Transport. The Minister for Finance is not party to the agreement and has no responsibility in respect of the MIBI or the agreement.
On 23 July 2014 the MIBI advised the Department of Transport, Tourism and Sport that it had obtained legal advice from which it had concluded that the 2009 agreement with the Minister for Transport did not require the MIBI to satisfy awards against drivers covered by a policy of insurance where the insurer was unable to pay all or part of an award because of insolvency. On 25 July the Department of Transport, Tourism and Sport and the Department of Finance jointly sought the advice of the Attorney General on the question of MIBI liability. On 1 September the Attorney General’s advice was received, on foot of which the Minister for Finance decided to proceed on the basis that the MIBI would not be playing a role in compensating claimants due awards under Setanta Insurance policies. On foot of this, the Department of Finance met the liquidator and the Courts Service regarding the arrangements for the processing of payments under the insurance compensation fund. Based on the information available, the liquidator stated it was not likely that he would be in a position to meet more than 30% of the insurance claims from the assets in liquidation. Therefore, on the basis that the insurance compensation fund might only pay out up to a maximum of 65% on an eligible individual claim, the possibility of advance payments of 65% on eligible claims to the fund was examined by the accountant. The accountant obtained clarification on this question. He informed the Department that, having considered legal advice on the operation of the legislation, he was satisfied that it was appropriate to make applications to the President of the High Court for approval to release moneys from the insurance compensation fund prior to completion of the liquidation of the company. Any payment from the fund would be a once-off and final payment. The State Claims Agency was engaged to provide support for the accountant in terms of (i) the necessary expertise required to ensure only valid claims would be paid from the insurance compensation fund and (ii) administrative support required to deal with the volume of work arising from the Setanta Insurance case.
At the time the liquidator advised that he was aiming to make an application to the insurance compensation fund to meet outstanding claims early in 2015 in respect of the following categories of claims: claims where settlements had been agreed between Setanta Insurance and the claimant; claims where the Personal Injuries Assessment Board had issued orders to pay that had been accepted by Setanta Insurance and the claimant; and claims that had been the subject of court awards. The accountant advised at that stage that he was aiming to make an application in respect of the first batch of 300 claims to the President of the High Court before end of March 2015. On 26 March 2015 the Minister for Finance received a letter from solicitors acting for the accountant for the courts of justice. The letter states that prior to making any application to the High Court for payment from the insurance compensation fund pursuant to the Insurance Act 1964, the accountant must be satisfied that it appears unlikely that the relevant claim can be met otherwise than from the fund. On foot of legal advice, the accountant has decided to make an application by way of special summons to the High Court, pursuant to Order 3, Rule 22 of the Rules of the Superior Courts, for a trial of an issue of law to determine whether the MIBI is liable for claims made under policies issued by Setanta Insurance. The letter emphasises that the accountant is anxious that this issue of law be determined without delay with a view to providing certainty for affected Setanta Insurance policy holders as soon as possible. We have been further advised that the direction of the High Court is being sought on the appropriate parties to the trial of this issue which may include the Minister for Finance. Obviously, this impending trial limits what I can say about any issue that may be relevant to the forthcoming judicial consideration of this matter. However, I will endeavour to be as helpful as I can to the committee within that constraint.
Liam Twomey (Wexford, Fine Gael)
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I thank Mr. Hession. I ask Mr. Mercieca to make his opening remarks.
Mr. Paul Mercieca:
I thank the joint committee for inviting me. I have gladly accepted the invitation because I hope my presence and that of my team will be of assistance to the committee. I also hope my presence will help to facilitate an early resolution of the process in dealing with claims.
To give some background on the company, it was incorporated on 21 June 2007 in Malta and was regulated and supervised by the Malta Financial Services Authority, MFSA. The company was authorised to write the following classes of insurance business - accident, land vehicles, goods in transit, motor vehicle liability, miscellaneous financial loss and legal expenses. The company was also authorised to sell private and commercial motor vehicle policies in Ireland in exercise of its European passport right as an insurance undertaking to provide services in terms of the relevant EU legislation and directives. Accordingly, since 2007 the company carried out its business from its offices in Dublin.
On 23 January 2014 the board of directors resolved that, save in the case of receiving funds, the company would cease writing any new business, and offer renewals beyond the close of business on 24 January 2014. As a consequence, at an extraordinary general meeting of Setanta held on 16 April 2014, it was resolved that the company surrender its insurance business licence to the MFSA and be immediately dissolved. Furthermore, at a meeting of the creditors of the company held on 30 April 2014, I was appointed liquidator of the company. The liquidation is a creditors voluntary liquidation under the provisions of the Maltese Companies Act 1995 and is, I am advised, similar to a creditors voluntary liquidation under the Irish Companies Act.
The situation I found on liquidation was that the statement of affairs drawn up by the company as at 16 April 2014 showed a deficiency, meaning net liabilities exceeding assets, slightly in excess of €17 million. The outstanding claims reserve included in the statement of affairs was €28 million. This reserve is the provision for claims that have not been paid and should include provisions both for claims which had been notified to the company and for claims which had occurred but which had not been notified to the company. At the time of being placed in liquidation, the company had approximately 75,000 policyholders, approximately two thirds of which were commercial vehicle policies and approximately one third being private motor insurance policies.
Policyholders were immediately advised of the liquidation by means of the company website and notices in two national daily newspapers in Ireland. They were advised that their policies would be cancelled in due course and advised to take out new policies with immediate effect. All insurance policies were subsequently cancelled on 26 May 2014 with respect to private vehicles and 29 May 2014 with respect to commercial vehicles. The cancellation was considered to be in the best interest of policyholders in order to avoid a situation where policyholders would continue to drive vehicles insured by the company in circumstances where their claims will not be paid in full.
I have appointed Deloitte Malta to perform a review of certain procedures and decisions on the transactions undertaken by the company in the six month period leading up to the liquidation of the company. This review is to be carried out in connection with the requirements of the relevant provisos of the Maltese Companies Act 1995. This review has been hampered due to the fact that details of the majority of the ultimate beneficial shareholders are not publicly available as the shareholdings are registered in the names of licensed trustees and-or nominees. Accordingly, an application has now been made to the relevant Maltese courts to obtain the names of the ultimate beneficial shareholders from the trustees and-or nominees holding the shares and from the MFSA. Furthermore, Deloitte Malta has been asked to perform a review of the business to assist me in obtaining an understanding of the circumstances that brought about the failure of the company. On the basis of the draft report provided to me by Deloitte Malta, I have engaged a lawyer to review the company’s records and relevant documentation to establish whether, in his opinion, there are grounds to suggest an action could be brought against the persons responsible for running the company. This review is currently ongoing and I am due to have a preliminary meeting with the lawyers next week on this matter.
Upon my appointment as liquidator of the company, I proceeded with appointing the actuaries Towers Watson to review and assess the claims position and to report such assessment of the claims reserve. Towers Watson presented its report on 3 September 2014 and subsequently issued the final report on 16 September 2014. The report comprises an analysis of the unpaid reserves, estimates of the liability for outstanding claims at 31 May 2014 together with a valuation of the volatility of the estimate. The report estimates the gross claim liability at €67.7 million on the assumption that the claims run off is paid in line with normal circumstances. The report further concludes that additional reserves of between €20 million and €27.5 million represent a reasonable estimate of the adverse development potential on future gross unpaid claims as a consequence of the company’s liquidation. Accordingly, the total provision for claims is estimated at between €87.7 million and €95.2 million.
I will provide some information on where we are today. In active claims, on my appointment on 16 April 2014, there were 1,669 claims, which has increased by 79 to 1,748 last week. There are 1,037 personal injury claims and 711 damage to property claims. Of these claims, 1,265 are eligible for payment from the fund and 483 are not. The claims estimate I referred to in the statement of affairs was €28 million, which has increased to €53 million as of 24 March. This means it has almost doubled, increasing by €25 million. The basis of estimating liability for claims by the company is still based on the assumption that claims run-off is paid in line with normal circumstances and does not include any provision for adverse development potential arising as a consequence of both normal random variations in claim costs and from the impact of the company’s liquidation. It is pertinent to point out that, even on this basis, claims have already increased by €25 million from the date of liquidation. I have appointed Arthur Cox as my legal advisers in Ireland and the firm is co-ordinating all the court cases involving the company and liaising with other lawyers handling our cases.
There has been an increase of 201 active cases since the company's liquidation in April 2014, taking it to 619 cases. I have prepared an estimated outcomes statement on the assumption that the liquidation process will take at least another three years to conclude. I have also taken into account the actuarial report available to me in terms of the potential claims liability and the assets available. Based on the above, I estimate that the amount available to creditors having insurance claims on the final liquidation of the company will not exceed 30% of the amounts due to them. I must emphasise that this is a best estimate and the estimate could change materially as circumstances change.
On the insurance compensation fund, discussions have been ongoing with the Department of Finance and, in particular, the accountant of the courts of justice since I met his representatives on 3 September 2014 about accessing the insurance compensation fund in Ireland. As it is the prerogative of the accountant of the courts of justice to apply to the court for access to the compensation fund, I have been working closely with him through my representative in Ireland to facilitate this process in every way possible. Indeed, there has been a high level of co-operation between all concerned in dealing with what is a very complex issue. I have submitted a preliminary list of claims to the accountant of the courts of justice who retained the Irish State Claims Agency to review those claims. I understand that the agency has confirmed that the claims are suitable for submission to the compensation fund. While I have been informed that the accountant of the courts of justice had received advice that the MIBI had no role to play in compensating claimants, I understand that a contrary legal opinion has been received recently from his solicitors. Until this matter is resolved the accountant of the courts of justice is reluctant to submit the relevant application to the Irish courts for access to the compensation fund. While, as liquidator, I am entitled to seek access to the compensation fund, I am advised that I have no direct right of recourse to the MIBI. Recent developments have unfortunately created a situation of uncertainty, which hopefully will be resolved speedily for the benefit of all concerned, and most especially the claimants. I consider the positive resolution of this matter to be fundamental in unlocking the claims situation and therefore speeding up the liquidation process.
I am also advised that the equivalent compensation scheme in Malta is not available for claims against the company made by any of its policyholders and claimants.
I am obliged to hold a creditors meeting by July 2015 at which I shall present an account of my actions and dealings in winding up the company, together with a summary of receipts and payments. It is my intention to hold this meeting in June this year.
It is not possible, unfortunately, to make an accurate prediction as to how long the liquidation proceedings will take as there are too many variables at this point, many of which are out of my control.
Mr. Seán Quigley:
I thank the Chairman and members of the committee for the invitation to attend the meeting and brief the committee on the operation of the Insurance Compensation Fund, with particular reference to Setanta Insurance Company. I am joined by Ms Denise Mullins from the accountant's office. I am conscious of the time constraints so I will keep my opening statement as brief as possible. However, I wish to take the opportunity to briefly outline the background to the fund, how it operates and some significant activity in managing the fund, particularly since 2011. I will also update the committee on the current position regarding the Motor Insurance Bureau of Ireland, MIBI, relating to Setanta Insurance.
The Insurance Compensation Fund was established under the Insurance Act 1964 to make arrangements to meet certain liabilities of insolvent insurers. The fund is maintained and administered under the control of the President of the High Court acting through myself, the Accountant of the Courts of Justice. Amounts are paid from the fund, with the approval of the High Court, to a person in relation to an insurer in liquidation or administration, in respect of claims under policies issued by the insolvent insurer in circumstances where it seems unlikely that the claims can be met otherwise. In regard to claims for companies in liquidation, all payments are subject to a limit of 65% of the amount of the claim or €825,000, whichever is the lesser. The fund will also pay the full amount of legal and other costs necessarily and reasonably incurred by the person endeavouring to secure payment from the fund.
As was stated earlier, the Minister for Finance puts the Insurance Compensation Fund in funds where there are insufficient moneys to pay out. From October 2011 to the end of December 2014, the State has advanced a net€833.3 million to the Insurance Compensation Fund. The total interest charged by the Minister for Finance on amounts advanced during this period amounted to €80,390,482. The closing balance on the loan from the Minister for Finance to the fund at the end of December 2014 was €913,690,482. The current balance on the Insurance Compensation Fund is€96 million.
A levy was introduced in 2012 and €190.3 million has been paid into the fund by the Revenue Commissioners in respect of that levy up to the end of December 2014. I provide an annual statement on the fund to the Department of Finance and the Central Bank.
Furthermore, the Accountant of the Courts of Justice is, in respect of any amount paid out of the fund, a creditor of the insolvent insurer which has received the funds. The total creditors of the fund at 31 December 2014 amounted to€1.361 billion. The details of that have been provided to the committee.
To focus on some of the activity since 2011, since the introduction of the Insurance (Amendment) Act 2011 there has been significant activity for the accountant’s office in managing the fund. I will give a brief summary of the main areas of activity.
In March 2010, by order of the High Court following an application by the Financial Regulator, joint administrators were appointed to Quinn Insurance Limited, QIL. Between November 2011 and December 2014 the fund made nine payments amounting to €1.158 billion to the Quinn Insurance administrators. In 2014, the fund received €100 million back, which was forwarded to the Department of Finance as part repayment of the loan. The net payments to Quinn Insurance administrators have amounted to €1.058 billion to date. The last payment to Quinn Insurance was in November 2013, which was €40 million, at which time the President of the High Court set a limit of €1.158 billionon the amount that would be paid to Quinn Insurance administrators.
Another claim on the fund arose in respect of Lemma Europe Insurance Company Limited, in liquidation. Lemma Europe Insurance Company Limited is a Gibraltar registered company and the Supreme Court of Gibraltar ordered its winding-up on 24 January 2013. In November 2013, a claimant against Lemma Europe Insurance Company wrote to my office making an application to the fund. Our legal advisers reviewed this claim and were satisfied that it was valid. I subsequently made an application to the High Court in July 2014 to pay out 65% of the total claim. The amount that was paid was €29,166. The Lemma Europe Insurance Company liquidator has indicated that there are potentially 14 other claims. However, these claims have not been settled and we are not in a position to give a value for these potential claims. One distinction between Lemma Europe Insurance Company and Setanta Insurance is that the former did not issue motor insurance policies.
As the committee is aware, Setanta Insurance went into liquidation in April 2014. It was a Maltese incorporated company. While this company was based and regulated in Malta, all of its policies covered motor insurance risks in the Republic of Ireland. Following Setanta Insurance going into liquidation in April 2014, the Office of the Accountant of the Courts of Justice has had significant engagement with the Department of Finance and the liquidator through his representatives in Dublin. There were a number of legal and administrative issues to be resolved, which also required extensive engagement with our own legal advisers. This was the first time we had to deal with an insurer in liquidation on this scale and the first time we had to deal with one that was registered in another EU state. The processes are different compared with an insurer in liquidation registered in the State. The essential differences are, first, it is the accountant and not the liquidator who makes application to the fund and, second, claims on the fund can only be made very six months.
The Setanta Insurance liquidator indicated at an early stage that there would be a significant shortfall between the funds available from the liquidation and the value of the claims. The available funds after liquidation would not exceed 30%. On this basis, given the cap on the payment that can be paid from the Insurance Compensation Fund of 65%, as the Accountant of the Courts of Justice, I decided to facilitate the processing of payments from the fund as soon as possible, and therefore it was agreed to make advance applications to the fund before the liquidation process was completed. The liquidator had advised that settlements could only be paid out by him after all of the company's liabilities were quantified, including claims.
The legislation provides for the recovery of amounts that, in the aggregate, exceed a sum due to claimants from an insurer in liquidation in respect of a risk situate in the State. These provisions and penalties give me, as the accountant, sufficient comfort should a situation arise where an overpayment is made. I will only make an application to the President of the High Court where I am satisfied that claims qualify under the provisions of the applicable legislation. To ensure this is the case, we have been working closely with the liquidator of Setanta Insurance to identify eligible claimants in accordance with the Insurance Act 1964, as amended. I am also pleased to inform the committee that the State Claims Agency agreed to my request to provide expert advice and input that was not available within my office to validate claims before they are brought forward to the High Court.
The accountant's office had all of the necessary arrangements in place to deal with Setanta Insurance claims by the end of December 2014 and it was expected that the first tranche of claims would be submitted to the High Court in the first quarter of 2015. The first tranche of claims reviewed by the State Claims Agency on my behalf included 189 claims with a value of some €4 million, together with legal costs of approximately €132,000.
There was one other matter we had to deal with in respect of the Insurance Compensation Fund in recent years. This was a judicial review relating to an insurer, Independent Insurance Company Limited, a UK insurer that had gone into liquidation in 2001. I refused an application for payment from the fund, as the liquidation occurred before the introduction of the Insurance (Amendment) Act 2011 and, as such, the claimant was not deemed eligible under the provisions of the Act. The claimant did not agree with this decision and initiated judicial review proceeding against the Accountant of the Courts of Justice. This matter came to court in July 2014 and the position taken by the accountant was upheld.
Finally, I will address the issue of the Motor Insurance Bureau of Ireland, MIBI, in relation to Setanta Insurance. The issue of the possible liability of MIBI for claims from policy holders arising from the Setanta Insurance liquidation was raised with me at meetings in the Department of Finance in August and September 2014. I was advised that MIBI was not liable. This was confirmed in an e-mail dated 29 September 2014 from the Department of Finance. I was informed that this position was based on the advice of the Attorney General. While I did not receive a copy of the Attorney General’s advice, details of the key points considered by the Attorney General in arriving at the decision were provided to me by the Department. At that stage, taking account of the Attorney General’s advice, I had no reason to believe that MIBI was liable for Setanta Insurance claims.
I then proceeded, as a matter of priority, to address the legal and administrative issues that had to be resolved to enable claims to be made on the fund.
As I mentioned, we had all the necessary arrangements in place to deal with claims in December 2014. In late January 2015 the President of the High Court received representations from the Law Society expressing serious concerns regarding the exclusion of the Motor Insurers' Bureau of Ireland, MIBI, from the process of dealing with Setanta claims. Having immediately reviewed the matter with the President of the High Court, we agreed that the matter needed to be resolved, in the interests of protecting taxpayers’ money, before we could proceed to make any payments from the fund. As you will appreciate, the President, as the person who controls the fund, needed to be satisfied that any payments made from the fund complied with the legislation. I immediately sought the opinion of senior counsel on the matter. That opinion was received on Thursday, 19 March 2015. While I cannot disclose details of the opinion, I can give the committee an extract from it:
I believe there is an arguable case that the MIBI could have a liability in respect of Setanta claims. It would be incumbent upon the Accountant, and ultimately the Court, to ensure that before payments can be made out of the fund, a view is formed as to whether it is unlikely that the relevant claims can be met by the MIBI before approving payments from the fund. I do not believe that the Accountant or the Court can be satisfied of that without having the issue judicially determined.
Arising out of that, since Thursday, 19 March 2015 I have been actively engaging with my legal advisers to progress the matter of having the issue judicially determined as soon as possible. The President of the High Court has indicated to me that this matter will get priority in terms of scheduling of hearings. It is hoped that it can be concluded by July 2015. On Thursday, 26 March 2015, my legal advisers wrote to the Minister for Transport, Tourism and Sport, the Minister for Finance, the Motor Insurers' Bureau of Ireland, and the Attorney General regarding the matter. The letter indicated that I, as the accountant of the Courts of Justice, would be making an application by way of a special summons to the High Court, pursuant to Order 3, Rule 22 of the Rules of the Superior Courts, for a trial of an issue of law to determine whether the Motor Insurers' Bureau of Ireland is liable for claims made under the Setanta policies. My legal advisers are currently finalising this application to the High Court and I expect it will be filed during the first week of the next law term, which is the week beginning Monday, 13 April 2015. As of this morning I have agreed the wording of the special summons, an affidavit with my legal advisers, and this will be filed very shortly with the central office in the High Court. That is a very brief overview of what is a large and complex matter. I am happy to take any questions from the members.
Liam Twomey (Wexford, Fine Gael)
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As this is a very detailed issue, I ask Deputy Michael McGrath to limit his contribution to questions.
Michael McGrath (Cork South Central, Fianna Fail)
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I welcome all the witnesses and thank them for their time and for their opening statements. It certainly is a complex issue. It is something of a mess at the moment and there is obviously quite a legal wrangle going on which is going to have an impact in terms of the liquidation and the way that claimants will be dealt with as part of this process. First, I will go through some of the issues with the liquidator, Mr. Mercieca. The statement of affairs which the company prepared initially in April of last year showed a deficiency of about €17 million. If we go forward to page three of his statement, the picture seems to have changed considerably, with the outstanding claims reserve at €28 million. Does Mr. Mercieca have an estimate now, in terms of liabilities versus assets, of what the deficiency is likely to be compared to the estimate of €17 million almost a year ago?
Mr. Paul Mercieca:
As I said in the report, the estimates outcome statement predicts a 30% maximum repayment to insurance creditors. That is based on the actuarial report from Towers Watson which took the claims reserve up to the figures I mentioned earlier. In terms of the actual claims we have today, I also mention the projection of a €25 million increase in claims estimate, based on the latest information available to me.
Michael McGrath (Cork South Central, Fianna Fail)
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The information given to this committee, I believe by the Department or Central Bank in July 2014, was that there were in the region of 2,000 claimants, with claims amounting to €35 million. Does that €35 million now equate to the gross claim liability of €67.7 million?
Mr. Paul Mercieca:
That €67 million is an estimate of the projected claims and development of those claims, based on an industry standard as prepared by Towers Watson. I am not sure what that figure mentioned by the Deputy is, but the current claims estimate is at €53 million. That is what the company is reserving today.
Michael McGrath (Cork South Central, Fianna Fail)
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Fifty-three?
Michael McGrath (Cork South Central, Fianna Fail)
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Can the witness reconcile that €53 million with the gross claim liability of €68 million?
Mr. Paul Mercieca:
On Wednesday, 16 April 2014, when Setanta went into liquidation, the statement of affairs prepared by the company directors at the time had a claims reserve, including the initial €17 million, of €28 million. As of Tuesday, 24 March 2015, this has increased to €53 million, an increase of €25 million. Towers Watson reported to me in May 2014 that it projected it could go all the way up to €67.7 million, with a further €20 million or so in terms of further deterioration. However, we have not got to that figure; that is the projected figure.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. But we must plan on the basis that this is a possibility-----
Michael McGrath (Cork South Central, Fianna Fail)
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Yes, but the scale of the claims reserve increase could be from €28 million one year ago to a figure of potentially over €90 million, if Towers Watson's worst case scenario comes to pass.
Michael McGrath (Cork South Central, Fianna Fail)
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But it is fair to say that the picture has deteriorated considerably since Mr. Mercieca's appointment?
Michael McGrath (Cork South Central, Fianna Fail)
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The claims reserve may have gone up from €28 million to as high as €95.2 million, if Towers Watson is correct?
Michael McGrath (Cork South Central, Fianna Fail)
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Is it correct that the witness has 1,748 Irish claims on the books?
Michael McGrath (Cork South Central, Fianna Fail)
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Have payments been made to any claimants so far?
Michael McGrath (Cork South Central, Fianna Fail)
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None whatsoever? Mr. Mercieca estimates that 30% of the value of the outstanding claims will be met.
Michael McGrath (Cork South Central, Fianna Fail)
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Does that hold true even if the total claims liability reaches €90 million?
Michael McGrath (Cork South Central, Fianna Fail)
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What is preventing the witness from commencing the process of making payments in respect of claims which are agreed? Where a settlement is agreed, why can the 30% not be paid?
Mr. Paul Mercieca:
By law I am not allowed to make payments until I know the full extent of my liabilities, which I do not know at this point in time, if for no other reason than that there are 600 court cases still in progress and cases are still developing. Until I know the full extent of my liabilities I am not permitted by law to make out any payments.
Michael McGrath (Cork South Central, Fianna Fail)
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But Mr. Mercieca will not know the full extent of the liabilities until each and every case is concluded.
Michael McGrath (Cork South Central, Fianna Fail)
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That could take years.
Mr. Paul Mercieca:
That is why the resolution of the issue we talked about earlier today is fundamental to unlocking the claims situation. The situation today is that we cannot actually sit down with anybody and settle a claim. For argument's sake, if someone has a claim for €10,000 and if I sit down with him or her to say, "I do not know how much I am going to pay you and I do not know when I am going to pay you," then I believe the chances of reaching agreement are remote.
Michael McGrath (Cork South Central, Fianna Fail)
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Can Mr. Mercieca clarify that if the legal issue surrounding the potential liability of the Motor Insurers' Bureau of Ireland is clarified, the liquidator will still be unable to make payments?
Mr. Paul Mercieca:
If the fund is able to make payments up to 65% in the circumstances in which they can make payments, then we will be able to sit down with claimants and say that potentially they can get a certain amount from the fund and there is a balance of 30% or 35% of their claim due.
There is more chance of unlocking the situation and reaching agreement.
Michael McGrath (Cork South Central, Fianna Fail)
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Okay. I suppose what Mr. Mercieca is-----
Michael McGrath (Cork South Central, Fianna Fail)
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I can see that, and am coming to that issue among others, but I am unclear. A few moments ago, Mr. Mercieca stated that he could not make any payment until the full extent of the liability had been clarified. It will not be clarified until 1,619 cases have been concluded. Even if the Motor Insurers' Bureau of Ireland legal issue is concluded, is Mr. Mercieca saying that he is prohibited under Maltese law from making payments until he has complete clarity on the extent of-----
Michael McGrath (Cork South Central, Fianna Fail)
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In Malta.
Dr. Matthew Bianchi:
It is the nature of a liquidation process that everyone is paid the same percentage of his or her claim. One cannot give someone more than someone else in percentage terms. One must wait to identify the entire payment that must be made and then give everyone the same percentage.
Michael McGrath (Cork South Central, Fianna Fail)
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Will any claimant receive money from the liquidator, as opposed to the Insurance Compensation Fund, ICF, and the MIBI, until after all of the court cases have been concluded?
Michael McGrath (Cork South Central, Fianna Fail)
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Mr. Mercieca has no discretion in that matter.
Michael McGrath (Cork South Central, Fianna Fail)
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It is provided for in Maltese law.
Michael McGrath (Cork South Central, Fianna Fail)
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On the potential role of the MIBI, it is clear that the initial advice from the Attorney General sits alongside alternative advice that the accountant has received and at the very least puts a question mark over the Attorney General's advice. Having read the extract from the senior counsel's opinion that the Courts Service received and given the mandate within which Mr. Quigley must work, I accept that the service must exhaust the issue and get a final determination on the liability of the MIBI before it can make a payment. What are the consequences for the fund or its role if the MIBI is found in law to have a liability? How would it relate to liability of the ICF, which is as much as 65%?
Mr. Seán Quigley:
I must be careful about an issue that is to be determined by the courts. That may well be one of the issues that is determined by the courts, but if we operate on the basis that the ICF is a payer of last resort, then, if MIBI has a liability, the ICF could possibly not get involved. However, I have to be careful in what I say, because this matter will be before the courts shortly.
Michael McGrath (Cork South Central, Fianna Fail)
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If the finding is that the MIBI does not have a liability, can Mr. Quigley proceed with his application to the High Court and can the ICF pay out ahead of any payment from the liquidator to claimants?
Michael McGrath (Cork South Central, Fianna Fail)
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I will ask further questions in a minute.
Liam Twomey (Wexford, Fine Gael)
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I have two questions to ask before moving on. Has Mr. Mercieca identified who the shareholders are and what their responsibilities are in the collapse? Who had supervisory responsibility? What supervision of Setanta Insurance was there? Mr. Mercieca might answer before I invite Deputy Regina Doherty to contribute.
Liam Twomey (Wexford, Fine Gael)
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A year later?
Mr. Paul Mercieca:
We have not yet established who they are. We have applied to the courts because most of the shareholdings are registered in the names of nominees and trustees. We have applied to the courts for those nominees and trustees and the Malta Financial Services Authority, MFSA, to divulge to us who the beneficial shareholders are.
Liam Twomey (Wexford, Fine Gael)
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To which courts has Mr. Mercieca applied? The Irish courts?
Liam Twomey (Wexford, Fine Gael)
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But most of the shareholders are supposedly domiciled in Ireland.
Liam Twomey (Wexford, Fine Gael)
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We know nothing about the shareholders.
Mr. Ronan Hession:
My recollection, which I can correct from my notes, is that the report from the Maltese regulator that was provided to the committee in July identified some of the key players involved, but a substantial amount of the shareholding was in the name of a company or trust of sorts. The net issue is who is behind that. This is the basis for the liquidator's application or legal work to get the courts to release those names.
On the second part of the Chairman's question, relating to who was responsible for supervising, the regulatory authority involved was the MFSA. The way that the regulatory system across Europe works is that firms can get authorised in one country by their home regulator and sell business on a passporting basis into other jurisdictions. Setanta Insurance was authorised in Malta. Therefore, the MFSA was its home regulator. The Central Bank was what is called a host regulator - that is, it dealt with conduct-of-business issues, the consumer interface, etc. As to the financial position, the lead supervisor was the MFSA.
Liam Twomey (Wexford, Fine Gael)
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We will return to this issue.
Regina Doherty (Meath East, Fine Gael)
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It is a pity the lead regulator is not present to discuss the matter with us. The questions so far have kept coming back to that. I have two questions. I welcome our witnesses and thank them for attending, particularly the two gentlemen who have travelled. The directors who prepared the statement of means in April arising from the €28 million have all left. Were any of them shareholders?
Mr. Paul Mercieca:
I cannot answer as to whether any of them was a shareholder, as I do not have a list of shareholders. To be technical, I have one shareholder. It is a holding company called Setanta Holdings Limited, but I am talking about knowing the shareholders in that. As to whether the directors are gone, their powers ceased upon the company being placed in liquidation. It is not a question of whether they are gone. Their involvement ceased on that date.
Regina Doherty (Meath East, Fine Gael)
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Their powers were well established before 16 April, unfortunately. I did not mean that they might continue to have power, but they have information that is relevant to Mr. Mercieca's work. He does not know whether they were shareholders even though they were directors. Does the regulator know whether they were shareholders?
Regina Doherty (Meath East, Fine Gael)
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But he has not shared that list with Mr. Mercieca?
Regina Doherty (Meath East, Fine Gael)
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It seems bonkers. What changed between the original statement of €28 million in claims and the current estimate of up to €53 million or the potential €92 million? Did the directors give Mr. Mercieca false information in April 2014 or have other claims come out of the woodwork of which they were not aware at the time?
Mr. Paul Mercieca:
It is a combination of things. There have been 79 new claims. There has been a deterioration in the claims that existed - in other words, developments in those claims. New circumstances have come to light, requiring new provisioning, reserving and costing. There are 200-odd new court cases, which require further provisioning. This is the reason for the increase to €53 million from €28 million.
Regina Doherty (Meath East, Fine Gael)
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What behaviour gave Mr. Mercieca concern enough to hire a body to investigate the actions that were taken before the liquidation?
Regina Doherty (Meath East, Fine Gael)
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Mr. Mercieca is saying that it was not obvious from the statement of means in recent years what caused the company to go under.
Regina Doherty (Meath East, Fine Gael)
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I thank Mr. Mercieca.
Turning to Mr. Hession and Mr. Quigley, are two arms of the State arguing with each other about which is responsible for paying or whether both are responsible? Is this where the legal action is going? According to the Department of Finance, the Attorney General has stated that the MIBI is not responsible, whereas another arm of the State is suggesting that it is.
Mr. Ronan Hession:
The Attorney General's advice is that MIBI, Motor Insurance Bureau of Ireland, might not have a role and that it might not be down to a State body but the insurers themselves as a private company. Its advice is that it is not responsible.
The recent development arises from approaches from the Law Society. It has advice raising a question over the issue. On foot of that, advice was sought by the Courts Service accountant that stated this needs to be resolved judicially.
Regina Doherty (Meath East, Fine Gael)
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The value of the insurance fund is €96 million. If the courts determine that the fund will not share the costs, is Mr. Quigley in a position to cover whatever the outstanding claims come to?
Mr. Seán Quigley:
If the court determines that the insurance compensation fund, ICF, is the only payee, then it is not a question of whether the €96 million is sufficient because there could be other claims against that from any of the other parties and ones that we do not know about at this stage. If the fund has a liability and there are not sufficient funds available, the Minister, in consultation with the Central Bank, can put extra funds into it.
Regina Doherty (Meath East, Fine Gael)
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In a worst-case scenario, does Mr. Quigley envisage the fund will be able to fulfil the full value if the courts determine it to be the case?
Pearse Doherty (Donegal South West, Sinn Fein)
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This is sometimes a bit difficult to follow and a royal mess for those who have claims with Setanta Insurance. The last thing they wanted to see was this to end up in the courts which will delay payment further. I appreciate all involved are doing everything they can to resolve this, however.
Given their experience in this case, what do the delegations believe needs to be done to ensure a mess of this nature is not created again? I know it is a unique situation where an Irish company registered in Malta sold into the Irish market but went belly up. Are there any proposals to ensure we are not in the situation again?
Mr. Seán Quigley:
I am probably the person who has least impact in this. Obviously, it is only through legislation that the courts, myself and the president, have a role. It is a matter for the Minister and the Oireachtas to legislate for these situations. I am probably least qualified to offer an observation on this.
Mr. Ronan Hession:
There are several elements to this. How does one ensure firms are run right in the first place? How does one ensure regulators make sure they are run correctly? If there is a problem, how does one ensure they act early so one is not left with only 30% of the assets for the liquidation process? If things go wrong, how does one ensure the safety nets work and do what they are supposed to do?
Change will kick in from January next year with the solvency II directive, a major new directive in the insurance field. There will be a new basis for capital requirements which will be more consistent across Europe. These will be more risk-based and will be more robust, as everyone agrees. There will also be an emphasis on qualitative aspects such as governance, a key issue which has been addressed upfront in other parts of the financial sector and has now been given more emphasis in the insurance sector. There will be a greater emphasis on closer supervision across borders as there are many firms in the European market which sell insurance products across the continent or are based in one country but selling them in another. Group supervision will be much tighter and the level of overall co-operation between supervisors will be better.
I have been in this committee room several times over the past several years with the Minister for Finance discussing various regulatory reforms to enhance our own Central Bank’s powers. We have had several historical cases in Ireland of insurance companies failing. Up to €6.5 billion of state aid has been put into European insurers over the past six years according to the European Commission. Ireland has the ICF and we have yet to find out what its role would be if any in this case. The payments have only gone through the initial assessment phase before actually going through any pay-out phase from the ICF.
Not every country has an insurance compensation fund. There are only 11 in Europe. In some of those, such as Germany and Poland, it is just for life assurance. Ireland is one of the few countries that has a compensation fund which has been in place for the past 50 years. This is a very difficult, complicated and unprecedented example which will test the ICF framework. The Minister has asked the Department to review the framework and to report back as to whether it needs to be strengthened. We will be doing this when there is greater clarity with the legal position concerning substantive insurance later this year.
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Hession spoke at length about the preventive arm of the framework to ensure that a company does not go belly up. While we may be one of the unique countries to have an insurance fund, it is of little comfort at this point to claimants with Setanta Insurance because they are not clear as to who will meet their claims. Maybe it is premature, given that legal clarity is required around certain issues, but we need to streamline the system to ensure if something happens like this in the future, we will not be in a situation into the second year where the courts have to decide on key issues which we were told were resolved last year.
Is it the understanding of the delegation that the MIBI got legal opinion itself on its own initiative to suggest that it should not be included in the scheme?
Pearse Doherty (Donegal South West, Sinn Fein)
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Then the Government asked the Attorney General for her opinion.
Mr. Seán Quigley:
That is correct. As a public servant myself, I had no reason to question that advice. It was only when a third party, the Law Society, challenged that interpretation that we needed to get a senior counsel opinion. This will result in having the matter determined for once and for all in the High Court.
Pearse Doherty (Donegal South West, Sinn Fein)
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Will Mr. Quigley explain to me the process as to how this is determined?
Mr. Seán Quigley:
There is a special summons which will be the trigger mechanism. The first action the courts have to take is to determine who the parties to the case will be. At this point, the Law Society has agreed that it will be bringing the argument concerning liability. It will be a matter for the court to determine the four other parties which we have identified - the Minister for Finance, the Minister for Transport, Tourism and Sport, the Attorney General and the MIBI - to decide how they will approach it. I will not be a party; I will simply trigger the mechanism.
Pearse Doherty (Donegal South West, Sinn Fein)
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I presume the Department of Finance and the Department of Transport, Tourism and Sport can decide not to be a party to this. It would be financially beneficial to the State if the MIBI were subject to paying out on some of these claims.
Pearse Doherty (Donegal South West, Sinn Fein)
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Obviously, it will reduce the liability on the State from the insurance compensation fund. Is that not so?
Mr. Antoine Mac Donncha:
That is correct. The High Court will determine who the parties are to be. I anticipate that the MIBI will take the lead role in any argument or opposition to the application from the Law Society of Ireland because the MIBI ultimately is the one that has the most skin in that game. It may be that the High Court will direct that other potential parties should also be parties to it. Our role is likely to be much more limited than the one the MIBI is going to take in that event.
Mr. Ronan Hession:
Any money the Minister, on behalf of the taxpayer, gives to the insurance compensation fund is repayable to him. Whatever the fund pays out, therefore, is ultimately recouped from insurers and goes back to the Minister. If the MIBI pays out, it is also the insurers that are paying. I want to clarify that it is not necessarily the case that the State is in or out of pocket. Ultimately, it is the insurance companies that are paying. Of course, if the fund pays out, it will impact on its ability to repay the Minister and the timeline because it will be paying out more. However, what the Minister gives to the insurance compensation fund is a repayable loan.
Pearse Doherty (Donegal South West, Sinn Fein)
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Yes, but there are costs associated with it when one has to make big lump sum payments and it also affects borrowings in that one has to borrow the money if one does not have it lying around. Has there been a determination that the Minister will argue that the MIBI is not be liable for this payment? Has that decision been taken within the Department?
Pearse Doherty (Donegal South West, Sinn Fein)
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Mr. Quigley can correct me if I am wrong, but he has said he did not have access to the detail of the Attorney General's legal opinion. Does that surprise him? I know that the legal opinion is only for the Government.
Pearse Doherty (Donegal South West, Sinn Fein)
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Without straying into the case but on the generalities, if the MIBI is liable, it is not governed by the 65% rule in the payment for claims. Is that correct?
Pearse Doherty (Donegal South West, Sinn Fein)
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As regards those who have claims with Setanta Insurance, if the courts decide that the MIBI is liable, they could have them paid in full.
Mr. Ronan Hession:
As I do not want to hypothesise, let us leave Setanta Insurance aside and say ordinarily if the MIBI makes a payment, it is not subject to the figure of 65%. The Minister for Finance is not part of the agreement, but my understanding from the MIBI is that it is not subject to the 65% limit. I think its liability is for a third party, rather than a first party. As regards Setanta Insurance first party or third party claims, we do not know.
Pearse Doherty (Donegal South West, Sinn Fein)
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As regards third party claims, for which the MIBI would be liable up to a level of 100%, with how many is the liquidator dealing?
Pearse Doherty (Donegal South West, Sinn Fein)
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Therefore, the outcome of the court case for 1,444 claimants is really important. If the Minister is a party to this claim and wins, the claimants will only receive 65% from the insurance compensation fund, whereas if he loses and the MIBI is deemed liable, the claimants could receive up to 100% outside what the liquidator will then step in with. Is that correct?
Mr. Ronan Hession:
The Deputy is asking me to go further than I can go in clarifying. Leaving aside Setanta Insurance, the MIBI is not subject to the same limits. It ordinarily pays for a third party and we do not know what its role will be. I am not sure if it is a case of winning or losing; it is a case of clarifying what the law states. It is a trial of law as opposed to people suing each other. As I am not a lawyer, I probably should not go beyond this. However, if the nub of the Deputy's question is that it does not involve a 65% cap, we will have to wait for the liquidation to take place.
Pearse Doherty (Donegal South West, Sinn Fein)
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I appreciate that and that we cannot stray into legal matters, but this case could be of huge importance to 1,444 claimants. They could be paid extra as a result. We were talking about the insurance compensation fund, the MIBI being paid by its insurance policy holders and the State's share being recouped, but this is crunch time for claimants in terms of the payments that could be made. Is that correct?
Pearse Doherty (Donegal South West, Sinn Fein)
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In relation to the benefit-----
Liam Twomey (Wexford, Fine Gael)
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I am sorry, Deputy, but I am going to move on. I will come back to him later for his next question.
Kieran O'Donnell (Limerick City, Fine Gael)
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I wish to check something with Mr. Quigley. The issue around the Motor Insurers Bureau of Ireland appears to be critical. When it first arose in August-September last year, was any counsel's opinion sought at the time? It appears to have arisen on the basis of the Law Society of Ireland getting on to the President of the High Court. Was any legal opinion sought at that stage?
Kieran O'Donnell (Limerick City, Fine Gael)
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At the time, what was the basis of the opinion that the MIBI would not be responsible for claims?
Kieran O'Donnell (Limerick City, Fine Gael)
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Therefore, Mr. Quigley followed up on the issue when the President of the High Court was requested to consider it by the Law Society of Ireland. Based on a senior counsel's opinion, I am assuming this issue categorically will be the subject of a court hearing. Is that correct?
Kieran O'Donnell (Limerick City, Fine Gael)
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Am I correct in saying there is no cap or limit on what the Motor Insurers Bureau of Ireland can claim?
Kieran O'Donnell (Limerick City, Fine Gael)
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Unlike in the case of the insurance compensation fund in respect of which there is a cap of 65%.
Kieran O'Donnell (Limerick City, Fine Gael)
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Therefore, if it transpires at the court sitting - I am not pre-judging it - that the MIBI is liable to pay, who will be deemed responsible in terms of the sequence of events involved? Assuming that the MIBI is liable to compensate, who will be the first party to pay out? Legally, will it be the MIBI or the insurance compensation fund?
Kieran O'Donnell (Limerick City, Fine Gael)
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What view will be taken in terms of the insurance compensation fund? That obviously is the critical aspect.
Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.
Kieran O'Donnell (Limerick City, Fine Gael)
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There could be a situation where, if the MIBI was liable, individuals could receive compensation to a figure of 100%, as distinct from there being a cap of 65%. The liquidator is saying compensation of around 30% could be provided on top of the figure of 65%.
Kieran O'Donnell (Limerick City, Fine Gael)
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A limit of 65%.
Kieran O'Donnell (Limerick City, Fine Gael)
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I welcome the liquidator, Mr. Mercieca, to Ireland. Where does he fall in the sequence of events? He thinks a claimant will receive up to a maximum of 30% of the value of whatever claim is outstanding. Is that correct?
Mr. Paul Mercieca:
Based on the actuarial reports I have received which project the claims up to the figures I mentioned and on the estimates for the costs of the liquidation for the next three years - I keep repeating they are best estimates - ultimately, we will not be able to pay more than 30% of insurance claims.
Kieran O'Donnell (Limerick City, Fine Gael)
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This company is in effect regulated by the Maltese regulator.
Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Mercieca appears to have a difficulty in locating the beneficial owners of Setanta Insurance. Am I correct in saying that?
Kieran O'Donnell (Limerick City, Fine Gael)
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Would they not have been required to do that as part of getting the licence from the Maltese regulator at the time?
Kieran O'Donnell (Limerick City, Fine Gael)
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Would the regulator not be obliged to provide that information directly to Mr. Mercieca?
Kieran O'Donnell (Limerick City, Fine Gael)
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Do we have someone from the Maltese regulator here today?
Kieran O'Donnell (Limerick City, Fine Gael)
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In terms of Mr. Mercieca's work, I was a Setanta mortgage policyholder through a broker so I know first-hand what happened at the time. Basically one's policy was renewed but there was no guarantee on how long it would last. This happened around the start of 2014 and then it ceased so that people had to go to other insurance companies, as I had to do. It seems extraordinary that a company of this size was regulated by the Maltese regulator. Mr. Paul Mercieca was appointed liquidator on 16 April 2014-----
Kieran O'Donnell (Limerick City, Fine Gael)
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On 30 April. The statement of affairs posted at that stage showed a deficit of €17 million.
Kieran O'Donnell (Limerick City, Fine Gael)
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What is that deficit now?
Kieran O'Donnell (Limerick City, Fine Gael)
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The latest-----
Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Mercieca believe, looking back now - I do not want to prejudice anything - that the company was trading while insolvent for a period?
Kieran O'Donnell (Limerick City, Fine Gael)
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There were 75,000 policyholders. The company traded exclusively in Ireland.
Kieran O'Donnell (Limerick City, Fine Gael)
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The 75,000 holders were exclusively in Ireland. Is it correct to say that the company was given the licence by the Maltese regulator?
Kieran O'Donnell (Limerick City, Fine Gael)
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By whom was it supervised? Was it supervised in terms of inspections on how the company operated? How did that happen?
Kieran O'Donnell (Limerick City, Fine Gael)
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It seems extraordinary that we are in a situation where we do not know the beneficial owners. I assume when Mr. Mercieca locates the beneficial owners, and they have substantial assets, he will pursue those assets on behalf of Setanta mortgage holders.
Kieran O'Donnell (Limerick City, Fine Gael)
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But on the basis that there are assets, would Mr. Mercieca in his role as liquidator be required to pursue those assets on behalf of Setanta mortgage holders?
Kieran O'Donnell (Limerick City, Fine Gael)
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They may be one and the same.
Mr. Paul Mercieca:
Yes, but again I cannot reach that conclusion at this stage. It is something that is ongoing. It is something we are looking at. I am trying to establish if there was wrongdoing. I am not suggesting there was any wrongdoing, but I need to get a proper understanding of the circumstances as to why this happened.
Kieran O'Donnell (Limerick City, Fine Gael)
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Will Mr. Mercieca ensure his review is expedited as quickly as possible? Will he pursue the beneficial owners of Setanta Insurance in the interests of the 75,000 policyholders in Ireland, many of whom had private motor insurance policies? Will he advance the proceedings as quickly as possible in terms of the High Court review in order that the claimants in the Setanta liquidation are paid their entitlements as quickly as possible? This issue has gone on for too long. We must ensure something like this never happens again. As a committee this is an issue we will be pursuing but in terms of regulation we have to look at the situation in terms of companies like Setanta Insurance which are in effect operating onshore but being regulated offshore. That is an issue to which we need to give careful consideration to ensure this never happens again.
Liam Twomey (Wexford, Fine Gael)
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Mr. Mercieca said in his opening statement that he had engaged with a lawyer to see whether, in his opinion, there were grounds for an action to be brought against those responsible for running the company. Has Mr. Mercieca suspicions that there may be concerns about how the company was run and that he may well need to pursue the directors or those responsible for running the company?
Mr. Paul Mercieca:
As I said, it is expected of me in my responsibility as liquidator to get a good understanding. I would be failing in my duties if I did not have this understanding and reach my own conclusions. At this stage, it is premature to speculate whether there was wrongdoing of any sort. I am not suggesting that there was, I am just saying that the review I have commissioned is one that I have a responsibility to do. If I did not do it, I would be failing in my responsibilities. It is ongoing. I have not had any feedback yet. It is premature to speculate as to what that might be.
Liam Twomey (Wexford, Fine Gael)
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The total number of claims as of the end of March 2015 is around 619, that is, approximately 1% of the 75,000 people who were insured with Setanta Insurance. As the cost of the claims could run to €90 million, the average cost of claim is running at €150,000. That appears high when compared with equivalent costs in other insurance companies. Mr. Hession said there has been €6.5 billion worth of insurance collapses in Europe? Is that correct?
Liam Twomey (Wexford, Fine Gael)
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Are we are responsible for €1.5 billion of that €6.5 billion?
Liam Twomey (Wexford, Fine Gael)
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A quarter of all state aid towards collapsed insurance companies is paid out by Ireland and we are members of the European Union.
Liam Twomey (Wexford, Fine Gael)
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Given the failure of Quinn failure and of this company as well, is there a problem with regulation? Should we be looking at our regulations in this area?
Mr. Ronan Hession:
Broadly speaking, when one speaks about insurance, one is speaking about a European regulatory framework. As I outlined to Deputy Pearse Doherty, a complete overhaul is taking place. From January 2016, that will become effective and should make the system much stronger. We have also enhanced our domestic regulator, the Central Bank. The Central Bank has done its own review internally of its own procedures and is stepping up the management information it requires from insurers, especially looking at brokers and more on-site inspections of brokers.
The Central Bank tends to do risk-based supervision. Brokers, being quite small by comparison, up to now were possibly not as high-risk. They have tried to correct for that. Setanta was operating about 230 brokers, so it was a sizeable company in terms of the market. They are paying greater scrutiny in that respect.
There is a need to ensure the regulatory system is fully kitted out to deal with this type of problem. It will still be a European system and will rely on good co-operation. The good co-operation exists and there is no reason to suggest there is a breakdown.
In this case, looking at how the problems at Setanta came to a head, it goes back to September 2013 when the Central Bank asked a straight question of the Maltese whether Setanta was solvent. The Maltese came back with the solvency certificate to say it was meeting its minimum requirements. The bank brought it a step further, did a sample of claims from the office in Blanchardstown and raised the question of the level of reserving. That was challenged by the Setanta directors at the time, and in fairness to the Maltese, they got Grant Thornton Malta, I think, the auditors of Setanta, to do a review. They came back and said it was a little bit short on reserving but not materially so. The bank pressed further and got an independent assessment, and at that stage, coming up to December 2013, a more serious question was emerging. There was a level of persistence from the Central Bank, and in spite of the objections from the directors, the Maltese and the Central Bank kept pressing to get the answer. It was from there that the first direction came in January, I think on 16 or 24 January, to stop writing new business. There was then a period of months where the Maltese were pressing the Setanta directors to raise capital. There were a couple of bidders in the frame who dropped out about 11 April, roughly a week before the company was liquidated.
It is always important to ensure there is connectivity around a system. The system in insurance is global so if there is not co-operation between supervisors, it cannot work. In this case, a quite detailed report was given to the committee last July from the Maltese regulator which sets out those steps and brings out the level of interaction that can happen in a case like this.
Liam Twomey (Wexford, Fine Gael)
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This question is to Mr. Quigley. If the Motor Insurers' Bureau of Ireland, MIBI, is made liable, is 100% responsible and is involved in 1,400 of the 1,700 cases, does it have recourse to the liquidator for funding?
Liam Twomey (Wexford, Fine Gael)
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Can anyone comment on that? If it is made responsible for 1,400 of the cases, can it go back to the liquidator?
Liam Twomey (Wexford, Fine Gael)
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The liquidator should pay out first and then the MIBI-----
Liam Twomey (Wexford, Fine Gael)
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We could end up in a situation where anyone with a claim could be waiting a decade while we wait for the Statute of Limitations to run out and for claims to be settled.
Mr. Antoine Mac Donncha:
There is provision in the MIBI agreement for the MIBI to pay out where a judgment is not met. I would guess that the MIBI would then be entitled under the agreement to try to recover that from the liquidator subsequently. The MIBI will have to deal with that on its own and reach its own conclusion on it. It is not necessarily for us to give any firm view on it here.
Liam Twomey (Wexford, Fine Gael)
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It looks like it will go on for years.
Michael McGrath (Cork South Central, Fianna Fail)
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What I have heard so far, and please correct me if I am wrong, is that of the 1,748 claims, no claimant has received a cent since the company was put into liquidation, no one can say with any certainty when any money will be paid out to a claimant, and no one can rule out the possibility that claimants will suffer a loss at the end of this. Is there anything inaccurate in any of that?
Michael McGrath (Cork South Central, Fianna Fail)
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What level of communication is ongoing with claimants?
Michael McGrath (Cork South Central, Fianna Fail)
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Are claimants being proactively contacted and given updates or is the onus on them to check in with the liquidator?
Michael McGrath (Cork South Central, Fianna Fail)
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Some time ago I saw a letter issued by a solicitor acting on behalf of the liquidator warning a former Setanta policyholder that he may be personally liable in the event that a third party injury claim succeeds and there is insufficient money to settle the claim. The letter went on to say that such a successful third party claim could result in a judgment being registered against the former policyholder. Is that the case?
Michael McGrath (Cork South Central, Fianna Fail)
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Is it the case that the liquidator has not instructed lawyers to issue such letters that Mr. Mercieca is aware of?
Michael McGrath (Cork South Central, Fianna Fail)
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Does Mr. Quigley know what led to the intervention of the Law Society regarding the role of the bureau?
Mr. Seán Quigley:
Once the Law Society approached the President of the High Court, it emerged that the Law Society had been in correspondence with the Minister for Transport, Tourism and Sport over the MIBI liability. We would not have been aware of that so it was only from the point at which the Law Society raised it with the President that we decided we needed to get clarity of the issue and get senior counsel opinion.
Michael McGrath (Cork South Central, Fianna Fail)
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The insurance compensation fund, ICF, can only apply to the court for permission to make a payout every six months in the case of a foreign company that has been liquidated, so it has to bundle the cases. It has not gone yet because of the outstanding court cases. Is that the position?
Michael McGrath (Cork South Central, Fianna Fail)
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My next question is for the liquidator again. Can he give the broad categories of the 483 claims that are not eligible for payment from the compensation fund? Do they involve companies and so forth?
Michael McGrath (Cork South Central, Fianna Fail)
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Regarding the company law in Malta that governs a liquidation process, is the hierarchy or ranking of creditors who get paid in the scenario similar to Irish law or are there differences between Maltese and Irish law in terms of the distribution of resources?
Michael McGrath (Cork South Central, Fianna Fail)
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Deputy Doherty teased out the issue of the bureau and that, depending on the outcome of the case in the court, the bureau may be 100% liable.
That is a matter of speculation. If it is not, the insurance compensation fund, ICF, liability is capped at 65% and the liquidator cannot make any payments to claimants until all the cases have been concluded and there is absolute certainty about the total liability.
Michael McGrath (Cork South Central, Fianna Fail)
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How long, typically, does a liquidation of this nature take? There have been liquidations in Europe.
Mr. Paul Mercieca:
These liquidations, particularly of this nature, tend to be complicated. As we have just discussed, there are many legal issues surrounding them so it is impossible to speculate on how long it will take. All I can do is repeat what I have said. To me, this is fundamental in resolving this issue. If this process takes too long, it will increase costs and make finance settlements more difficult. The resolution of this issue is fundamental to unlocking the claims position, as I have indicated. I cannot tell the Deputy how long that will take.
Michael McGrath (Cork South Central, Fianna Fail)
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I know. We all need to remember that behind this story there are many victims of accidents and crashes. There are people who suffered very serious injury. One Deputy mentioned that a fatality was involved in one accident. I do not know the detail. People are out of pocket and people's livelihoods have been destroyed in some cases. These are ordinary tradesmen. There are major consequences. If we can do anything as a committee or Parliament to help the liquidator's work in bringing this to a conclusion, it should let us know. Perhaps we can raise matters with the Government and the appropriate Minister, or there may be legislative matters. The witnesses would find willing support here.
Michael McGrath (Cork South Central, Fianna Fail)
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Yes.
Liam Twomey (Wexford, Fine Gael)
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Average claims are €150,000 so there are serious litigation issues within the €90 million.
Michael McGrath (Cork South Central, Fianna Fail)
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Where is the Chairman getting that figure?
Liam Twomey (Wexford, Fine Gael)
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I am dividing the €90 million among the 700 cases.
Michael McGrath (Cork South Central, Fianna Fail)
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There are approximately 1,700 cases.
Liam Twomey (Wexford, Fine Gael)
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Yes, I apologise.
Michael McGrath (Cork South Central, Fianna Fail)
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There are 1,748 cases.
Liam Twomey (Wexford, Fine Gael)
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My figures are wrong.
Michael McGrath (Cork South Central, Fianna Fail)
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The average would be approximately €54,000.
Liam Twomey (Wexford, Fine Gael)
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It still significant, although some would be very small.
Mr. Paul Mercieca:
On that point, I stated that the €90 million is a projection of what the claims could be. It does not necessarily mean there will be 1,748 claims. There could be many more claims to reach that €90 million. The 1,748 claims we have today equate to the €53 million we are providing. The projection from actuaries is that the €53 million could be €90 million. In the same way, claim numbers could go up from 1,700.
Liam Twomey (Wexford, Fine Gael)
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That is useful.
Pearse Doherty (Donegal South West, Sinn Fein)
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We appreciate the clarification. Without divulging any confidential information, what are the highest third-party claims? What is the ball park figure?
Pearse Doherty (Donegal South West, Sinn Fein)
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It is in excess of €1 million. If the insurance compensation fund paid out for that case, that party would be at least €350,000 short of the claim, depending on other factors.
There was a bit of discussion regarding shareholders, and the liquidator is going to the courts to find out who is the beneficial owner of the company. I examined the company records for 2013 and 2012, which mentions two holding companies. The witness mentioned that he is aware of one, Setanta Holdings Limited.
Pearse Doherty (Donegal South West, Sinn Fein)
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In 2013, it owned 11,049,195 shares. The second shareholder was GANADO Trustees, which owned one share. From the witness's experience, is that type of structure usual? Would there be two trustees and holding companies, one with 11 million shares and the other with one share?
Liam Twomey (Wexford, Fine Gael)
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There is a vote in the Dáil so we might finish the session when the Deputy concludes his questioning.
Pearse Doherty (Donegal South West, Sinn Fein)
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Both of these shareholders are registered at the same address, 171 Old Bakery Street, Valletta. Is this a familiar place?
Mr. Paul Mercieca:
To comment on what the Deputy has said, there is a requirement under Maltese law that there must be two shareholders in any company. There cannot be just one shareholder. It is very common to have one shareholder holding 99.9% and another holding 0.1% of a company. The one share is probably that arrangement. The shareholdings have now changed to new shareholders. The nominees quoted by the Deputy were subsequently changed.
Pearse Doherty (Donegal South West, Sinn Fein)
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That was changed after 2013.
Pearse Doherty (Donegal South West, Sinn Fein)
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Company accounts indicate directors from Foxrock and Dundrum. We have their names and addresses. Have the directors given any information about the owners of the company?
Pearse Doherty (Donegal South West, Sinn Fein)
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Setanta continued to sell after January 2014. I wrote to the financial regulator in Malta last year and I am thankful that I received a response. It stated very clearly that the Maltese financial regulator at the time directed Setanta to cease with immediate effect in carrying out any new or renewal of contracts of insurance, as of close of business of 24 January 2014. Following inquiry with the company as to the number of live policies in its book and expiry dates of these policies, it transpired that a number of live policies from Setanta extended to March 2014. This, in effect, means the company continued to renew insurance policies after 24 January 2014. Is there any possibility that those policyholders will be able to claim under the liquidation process?
Liam Twomey (Wexford, Fine Gael)
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If members wish to submit more questions to the witnesses, would the witnesses answer them and return to the secretariat?
Liam Twomey (Wexford, Fine Gael)
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Unfortunately, we must suspend the session as there is a vote in the Dáil.
Pearse Doherty (Donegal South West, Sinn Fein)
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I have a final question on the MIBI. Under the conditions it has entered into with the 2009 agreement with the Department, anyone paid by the MIBI would have the potential for the MIBI to reclaim the amount from a future insurance policy. If the individual mentioned by Mr. Mercieca were paid €1 million as a third-party claimant, the MIBI could recover that amount by a levy on a new policy. Are the witnesses aware of this or concerned by it? The policyholders who may be paid by the MIBI, depending on the court judgment, could see all the payments recovered by the MIBI.
Mr. Ronan Hession:
I am not familiar with the clause referred to by the Deputy. My understanding was that there might be a payment on third-party claims.
For example, if people do not hold insurance then they are not insured and they hit somebody else, a claim may be paid to the third party and the party may be entitled to pursue the uninsured first party to recover costs. That was my understanding of the way one might pursue somebody. In response to what has been described by the Deputy, I was unaware of that interpretation but we will reflect on the matter. If the committee has a question on the matter we are happy to consult the Department of Transport, Tourism and Sport and provide whatever clarification we can.
Liam Twomey (Wexford, Fine Gael)
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We must suspend the meeting due to a vote. On behalf of the joint committee, I thank all of the witnesses for attending here today, particularly Mr. Mercieca who travelled all the way from Malta. We appreciate and thank him for his forthright answers. The same applies to the officials from the Department of Finance and the Courts Service.