Michael Noonan (Limerick City, Fine Gael)
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Setanta Insurance Company Limited is a Maltese authorised company subject to prudential supervision by the Malta Financial Services Authority (MFSA). Under EU passporting rules, any insurer which has been authorised in an other EU Member State may trade in Ireland on a freedom of services basis. While Setanta's financial position was not supervised by the Central Bank of Ireland, the firm was supervised by the Central Bank for conduct of business rules, i.e. consumer protection obligations.  The Central Bank had been in discussions with the MFSA in relation to Setanta since November 2013 when it identified issues during a consumer protection themed inspection and it immediately referred the matter to the MFSA for further investigation.

The current legal and regulatory framework for the provision of insurance in the European Economic Area, and the supervision of that activity, is prescribed by European Union Law in the Life and Non-Life Insurance Directives. Following negotiations that were completed at European level in November 2013, a new regime known as Solvency II will commence on 1 January 2016.  The Solvency II EU Directive sets out new stronger EU-wide requirements on capital adequacy and risk management for insurers with the key aim of increasing policyholder protection.  The most essential features of the Solvency II Directive are the introduction of an economic/risk based approach to the measurement of assets and liabilities and a much greater focus on qualitative issues such as governance and the role of the supervisor. The new regime will also ensure greater cooperation between Member State national supervisors. 

The Insurance Compensation Fund provides for payments to meet the liabilities of insolvent non-life insurers in certain cases where it is unlikely that claims can be met otherwise than from the ICF.  Its fundamental purpose is to provide a certain minimum level of protection for policyholders when an insurance company goes into liquidation.  Under the Insurance Act 1964, in a liquidation all ICF payments are subject to a limit of 65% of the amount due or €825,000, whichever is the lesser. In addition, claims by bodies corporate or unincorporated bodies are not covered by the ICF, except where there is a liability to or by an individual.  A consideration in determining the limits to apply to ICF payments would include the fact that the ICF is funded by the insurance industry through a levy which is currently set at 2% on certain non-life insurance premia.  This is ultimately reflected in higher insurance costs.  It should also be noted that policyholders receive a distribution at the end of a liquidation process. 

Current estimates indicate that the shortfall for most Setanta claimants will be relatively small once they have received the 65% compensation available from the ICF as well as their distribution from the Liquidation, a process which may take some time. I understand that there is a very small number of large claims where the maximum ICF payment of €825,000 will apply. 

I appreciate that uncertainty regarding the timing and level of compensation payments is causing difficulty for the former customers of Setanta Insurance.  Following the completion by the Accountant of the Courts of Justice of the ICF compensation process for Setanta policies, my Department will be conducting a review of the Insurance Compensation Fund mechanism in order to assess whether any changes are necessary to strengthen the framework.