Michael McGrath (Cork South Central, Fianna Fail)
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4. To ask the Minister for Finance if he is concerned by the significant issues that have been identified at an insurance company (details supplied); the reason the problem does not appear to have been identified in the first instance by the regulatory authorities in Ireland; the actions that can be taken to prevent similar events in the wider insurance sector; and if he will make a statement on the matter. [49473/13]

Michael McGrath (Cork South Central, Fianna Fail)
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The company to which I refer is not named in the question, but it is RSA Insurance Group. As the Minister knows, on 8 November the UK company issued a statement confirming that three senior executives in the Irish operation were being suspended as a result of some issues identified in the claims and finance functions in Ireland. Ultimately, this resulted in an injection of approximately €100 million from the UK group into the Irish company. I am very concerned because this is the second time in a number of years that under-provisioning for future claims by insurance companies in Ireland has been identified. It appears this particular issue was identified by the company through its internal audit function, rather than by the Financial Regulator or the Central Bank. I am interested in hearing what the Minister has to say about this.

Michael Noonan (Limerick City, Fine Gael)
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In my role as Minister for Finance I have responsibility for the development of the legal framework governing financial regulation, including insurance. Day-to-day responsibility for the supervision of financial institutions is a matter for the Central Bank, which is statutorily independent in the exercise of its regulatory functions. The Central Bank of Ireland has had an ongoing programme of engagement with RSA Insurance Ireland, RSAII, since the implementation of the bank’s probability risk and impact system, PRISM, as it does with all high-impact companies. As part of the framework, the Central Bank of Ireland engages with firms at a level that corresponds to their impact category; the higher the impact, the higher the level of engagement. Engagement involves reviews, inspections and meetings, and the frequency and level of engagement is associated with a firm's impactrating.I am satisfied that this improved regulatory framework provides for enhanced supervision of the industry and protection of the Irish consumer. With regard to RSA, this programme included eight on-site inspections over a two-year period and ongoing meetings with key role holders such as the chief executive officer, chief finance officer and chief risk officer.

The Central Bank carried out an on-site review of claims cases in RSAII in August 2013 and at this point identified an issue with regard to delays in increasing case reserves for large claims in a timely manner. The identification of this issue by the Central Bank informed the terms of an internal audit that RSAII had scheduled in the same area.

The Central Bank has advised me that it has not had to take direct supervisory measures in relation to recent issues at RSAII, owing to the swift and prompt action by RSA Insurance plc and its ongoing engagement with the Central Bank. The Central Bank will continue to liaise with RSAII and other stakeholders to ensure all matters identified are resolved to the Central Bank's satisfaction.

Separate from the current matters arising in RSAII, the Central Bank published a consultation document in September on requirements for reserving and pricing for non-life insurers. The Central Bank proposes to introduce new measures to strengthen its supervisory framework, including requirements in respect of actuarial opinions, internal audit and the governance of reserving.

In addition to increased staffing levels and the new risk-based supervision framework, PRISM, the Central Bank (Supervision and Enforcement) Act 2013, passed on 11 July, enhances the power of the Central Bank to regulate, supervise and take action against financial service providers. The enhanced powers include whistleblower protection and powers of inspection, investigation and information gathering for Central Bank authorised officers.

At EU level a directive known as Solvency I places requirements on the amount of regulatory capital insurance companies must hold against unforeseen events. Furthermore, on 1 January 2016 Solvency II will commence. The Solvency II EU directive will require new, stronger EU-wide requirements on capital adequacy and risk management for insurers, with the key aim of increasing policyholder protection. This will ensure a modern, risk-based system for the regulation and supervision of European insurance and reinsurance undertakings. Negotiations on the directive reached political agreement on 13 November and preparations are already under way for its implementation in Ireland.

While I am concerned about the issues identified by the Central Bank in the case referred to, I am confident that the improved powers of the Central Bank and the improved regulatory framework, as described, will ensure a safe and solid insurance sector that can provide sustainable insurance products and support the real economy through long-term investments and additional stability.

Michael McGrath (Cork South Central, Fianna Fail)
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The bottom line is that as a result of the issues identified, an injection of €100 million had to be made into the Irish company. Thankfully, RSA is part of a UK group; therefore, the State and Irish policyholders were not on the hook for the additional money. If it had involved an Irish company only, potentially we were looking at another call on the insurance compensation fund and a possible increase in the 2% levy people pay for the losses at the Quinn Insurance group which could potentially amount to €1.6 billion.

I checked again this morning and can find no statement whatsoever on the Central Bank's website on RSA. Is the Minister satisfied the issues the company brought into the public domain were originally identified by the Central Bank and not by the company? The company has made the unchallenged claim these issues were identified during a routine internal audit through its own internal function. It does not in any way state this was informed by earlier findings by the Central Bank. This is a very important question we need to have answered. Did the Central Bank identify these issues in the first place or was it the company which brought them to its attention?

Michael Noonan (Limerick City, Fine Gael)
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The information I have to brief me in replying to the question comes from the Central Bank; therefore, what I have stated is its view. According to the first point, RSA brought the findings of the internal audit report to the attention of the Central Bank as soon as they became known on 1 November 2013. The RSA group then took action and last week injected €100 million in capital after discussions with the Central Bank. The additional capital was taken with solvency capital requirements of 228% and is in excess of the 200% level required by the Central Bank. The RSA group has assured the Central Bank it will provide any further capital required, should it be necessary to do so at the end of the current investigation.

On 9 November RSA suspended three senior executives, namely, the chief executive, Mr. Philip Smyth; the chief financial officer, Mr. Rory O'Connor, and the claims director, Mr. Peter Burke, pending an investigation into issues involving its Irish claims and finance functions. RSA appointed the chief executive of its UK and western European division as acting head of the Irish business. Another gentleman, Mr. Rash, the group chief accountant, has taken over as acting chief financial officer, while Mr. Pitt, claims director for the UK and western Europe, is taking over operational leadership of the Irish claims function. RSA acted very expeditiously when this issue came to notice.

Michael McGrath (Cork South Central, Fianna Fail)
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What the Minister has stated confirms that on 1 November RSA brought the findings of the internal audit report to the attention of the Central Bank. Earlier in his first response he referred to findings the Central Bank had made, perhaps as far back as June, which it claimed had forms the basis of the internal audit work RSA subsequently undertook. It is important to get to the bottom of this issue because it is the second time in a number of years when significant market players in the Irish insurance sector have been aggressively building market share on the back of attractive premium claims while clearly under-provisioning for future losses in respect of future claims. I want to know whether the Central Bank has a good handle on the sector. In his first response the Minister referred to findings made in June which the Central Bank claimed had formed the basis of RSA's internal audit work.

Michael Noonan (Limerick City, Fine Gael)
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According to the reply, with regard to RSA, the programme of inspection included eight on-site inspections over a two year period and ongoing meetings with the key role holders. The reply also states the Central Bank carried out an on-site review of claims cases in RSA in August 2013 and at this point identified an issue with delays in increasing case reserves for large claims in a timely manner. The audit results then came in from RSA in early November and immediate action was taken by RSA in consultation with the Central Bank. The Central Bank is happy it has a full handle on the issue and it has committed that if there are other discrepancies, the obligation to fund will be with RSA's parent company in the United Kingdom, not with the Irish Government or any Irish fund of any sort.