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.