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.