Brian Lenihan Jnr (Dublin West, Fianna Fail)

Following an application by the Financial Regulator yesterday, Mr. Justice John Cooke in the High Court appointed Mr. Michael McAteer and Mr. Paul McCann from Grant Thornton to act as the two joint provisional administrators to Quinn Insurance Limited, under the Insurance (No 2) Act 1983. They have already begun their work and have an on-site presence in the company. They will oversee its actions and work with the new management.

The appointment was made after the court was informed that the Financial Regulator had a number of concerns, including that the company had significantly breached its solvency ratios, its subsidiaries had entered a series of guarantee agreements which had reduced its assets by some €448 million and it had failed to deliver a financial recovery plan that met the Financial Regulator's requirements aimed at restoring financial health to the company. In other words, the Financial Regulator had concerns about the way the company was conducting its affairs and concerns that it was not meeting the regulatory requirements. In particular the company was unable to comply with the requirements of the Insurance (No 2) Act 1983 in that it had failed to make adequate provisions for its debts, including contingent and prospective liabilities. In that context, it is not suggested that it is not in a position to pay its debts as they fall due. The ground referred to is that it is unable to make adequate provisions for its debts, including contingent and prospective liabilities.

I understand the company's ability to comply with the solvency requirements was called into question on 24 March when the company's chairman, Mr. Jim Quigley, informed the Financial Regulator that certain subsidiaries of Quinn Insurance Limited had entered guarantees in connection with facilities made available to the Quinn Group. This arose as the Financial Regulator was in discussions with the company about its financial recovery plan for the restoration of the insurer to a sound financial footing. It was in the course of these meetings that the Financial Regulator was informed for the first time about the existence of the guarantees from the subsidiaries of advances to the Quinn Group generally.

I understand that the facility agreements which incorporate the guarantees from four subsidiaries of Quinn Insurance Limited were entered into in 2005. Three tranches of loan notes were entered into in October 2005, April 2006 and April 2007. I also understand that four additional subsidiaries of the company entered into the guarantees in 2008. The total guaranteed sum was €1.2 billion. I emphasise that this is the total guaranteed sum and not necessarily the quantum of the guarantees. I am informed that, following a meeting between the Financial Regulator and the company, it was revealed that the effect of the guarantees had reduced the insurer's assets by some €448 million and thus wiped out the company's solvency cushion. It has gone from having a surplus of assets over liabilities of €200 million to a current position where it has an excess of liabilities over assets of €200 million. The fact that these guarantees had been in place and not disclosed for some time was a matter of the gravest concern to the Financial Regulator. This raised serious governance and accountability questions about the internal control mechanisms as well as the accounting and administration procedures and practices within the company.

The Financial Regulator has commenced an investigation into these matters within Quinn Insurance Limited that have very recently come to light and we must await the outcome of this investigation. I recognise that the Financial Regulator has taken the action to seek the appointment of the two joint provisional administrators in the best interests of the firm's policy holders and that the appointment will better protect policy holders. It will allow the firm to remain open for business and to continue to be run as a going concern under different management, with a view to placing it on an ongoing sound commercial and financial footing. This will assist in the maintenance in the public interest of the proper and orderly regulation and conduct of the business.

The Financial Regulator has directed Quinn Insurance Limited to cease writing new business in the UK and that existing UK policy holders will not be affected by this decision as existing policies will remain valid. The effect of this action is to prevent Quinn Insurance Limited suffering further financial losses from its currently unprofitable UK business. I welcome the fact that Irish policy holders of Quinn Insurance Limited can continue to renew policies, carry out new business and make claims in the normal way. Quinn Life business, which is a separate entity, is not affected by these measures.

It is important to note that at this stage there is no requirement for additional funds from the Insurance Compensation Fund as the administration is only of a provisional nature. If the administration is confirmed on 12 April and should the administrator subsequently need additional funds to help him with the business, there is the facility of the Insurance Compensation Fund, established under the Insurance Act 1964. This fund was used in previous insurance company administrations in 1983 and 1985. This fund can be financed by a small levy on non-life insurance premium income in circumstances where the Central Bank is of the view that the state of the fund is such that financial support should be provided for. This would arise in circumstances where, for instance, the administrator has made a claim and the Exchequer has been required to advance funds. The maximum contribution from insurers is 2% of the aggregate income of the insurers in that year.

In regard to the implications of this on employment, this Government takes this issue very seriously. We remain acutely conscious that, while economic activity continues to remain weak, it is imperative that we do nothing to further erode private sector employment. I am conscious of the contribution of the financial services sector to employment in this country and it is the Government's intention that this sector emerges from the current downturn strong, competitive and able to withstand any future downturns.

With regard to the question raised by Deputy Bruton on the measures being initiated by the Government to correct any weaknesses in existing regulatory legislation, the Central Bank Reform Bill published yesterday is the first of a three-stage legislative programme to create a fully integrated structure for financial regulation, enhance the powers and functions of the Central Bank and consolidate existing legislation. However, it should be said that as soon as the matters were drawn to the Financial Regulator's attention, he took appropriate action and ample legislative machinery was at his disposal to take such action. The first Bill puts in place the new structure of the Central Bank. The second Bill will enhance and extend the regulatory powers of the new Central Bank. Should similar legislative changes be required to protect consumers of financial products provided by the insurance industry, these will be provided for in further legislation.

I fully support the action of the regulator and I commend him on the promptness with which he has dealt with this matter. It is essential that policyholders be reassured about the insurance company in question.

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