Michael Noonan (Limerick City, Fine Gael)

I will deal with the 65% question first and then the 70% one. The purpose of an insurance compensation fund in a liquidation situation is to provide a certain minimum level of protection to policyholders. There is a need to strike a balance between what policyholders will receive in compensation and what the cost of such payments will be, as ultimately funding for such compensation will be paid for by other policyholders through the levy system, as we have discussed. The rate in the existing legislation is 65% and we saw no reason to change the level at this time. It should be noted, however, that there is a proposal to introduce an insurance compensation directive at EU level which would require a minimum set of harmonised standards to apply to every EU country. It is likely that under these rules the level of protection will increase for policyholders. While this is expected to be published in late 2012, agreement between the member states is not expected for a number of years thereafter.

As regards the 70% question, at the outset it should be noted that the Central Bank will continue to have the option of placing any firm in administration if it deems it appropriate. There will, however, be restrictions on the availability of funding for new administrations, as funding for day-to-day business will be confined to firms which conduct over 70% of their business in the Irish market. The reason for restrictions is that, unlike liquidation, there is no link between the funding available for administration and the levy process. The role of an administration is to carry on the business of an insurance company on an ongoing basis and meet policy obligations as they arise. Therefore if a company is put into administration and funding is required, it is not possible to distinguish between insured risk in the State and foreign risk, because all obligations must be met as they arise since in many cases the company is still conducting business in the open market. Consequently, since only insured risk in the State can be levied to pay for the administration, it is important that the company in question conducts the bulk of its business in the Irish market, as otherwise there would be a disproportionate benefit for foreign policyholders at the expense of Irish policyholders who would be paying for the funding.

The 70% share will be averaged over the previous three years. The reason the 70% figure was chosen is that we believe it covers all the large domestic firms in the Irish market. It should be noted that Irish policyholders or firms that are not eligible for funding while in administration are protected should the company be unable to meet its obligations to them and it has to go into liquidation.

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