Brendan Smith (Cavan-Monaghan, Fianna Fail)
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Question 50: To ask the Minister for Finance his views on the current operation of the insurance compensation fund; his views on whether it is adequately capitalised to meet its needs; and if he will make a statement on the matter. [19291/12]

Michael Noonan (Limerick City, Fine Gael)
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The Insurance Compensation Fund (ICF) operates under the Insurance Act 1964. Its purpose is to protect policy holders in the event of their insurer becoming insolvent. It is an industry financed fund. However because the scheme is not pre-funded, the Act provides for the Exchequer to advance monies on the recommendation of the Central Bank in circumstances where insufficient funds have been generated by an industry levy to cover a large demand.

Under the Insurance Act 1964 the responsibility for deciding whether the ICF has sufficient funds available to it to at any particular time is a matter for the Central Bank. Where in the Bank's opinion the state of the Fund is such that financial support should be provided for it, it determines an appropriate contribution to be paid to it by each insurer calculated as a percentage, not exceeding 2% of the aggregate of the gross premiums paid to that insurer in respect of policies issued in respect of risks in the State. On the basis of its assessment of the Fund late last year the Central Bank concluded that a levy should be applied to industry with effect from 1 January 2012 under section 6 of the Insurance Act 1964. It is expected that this levy will raise in the region of 65m euro a year.

Where there is likely to be a shortfall in the ICF, the Bank has the power to recommend to me that I advance monies to the Fund to enable payments out of it to be made expeditiously. Any advance made by me will be recouped over time from the Fund.

In the case of Quinn Insurance Ltd the Central Bank made such a recommendation, and as a consequence 696m euro has been advanced by me to the Fund. A further 33m euro will be advanced at the beginning of June.

It is expected that the ICF will start repaying the Exchequer in 2014 when the levy begins to accumulate. This will continue until the Exchequer advance has been repaid. It should be noted that a commercial rate of interest applies to the Exchequer advances.