So then, why is Quinn Insurance too big to fail?

hatrickpatrick

http://www.irishexaminer.com/ireland/25-years-of-levies-to-pay-for-quinn-losses-203452.html

Insurance customers could be paying levies to cover Quinn’s losses for 25 years as the size of the firm’s financial black hole doubled and the Government expressed anger at being "misled" on the scale of the crisis.
The news emerged after the president of the High Court was told a call on the insurance compensation fund due to losses at Quinn in the UK could go above €1.65bn.

Looks like yet another case in which a private financial institution (not entirely sure if an insurance company accurately falls into this umbrella, if not please correct me) has gone bust, and people who are not customers of this institution and may never have had any dealings with it whatsoever are having to fork out to cover its losses.

In the case of Anglo and similar shenanigans, people who defended this cited a "systemic risk to the banking system", although what exactly this was and whether or not it would have adversely affected consumers was never (in my view) explained.

What exactly is the deal in this case? Quinn goes down, how do people who had nothing to do with investing in it lose out? Ok, I can accept the idea that people who actually had insurance with them have basically now lost all the premiums they've been paying, but how does that in any way justify asking people who were 100% not involved with Quinn, to pay for losses incurred by Quinn?

Is this another case of the 1% playing pass the parcel with the bills for their own screwups, or is there some kind of legitimate excuse for this one?

Chips Lovell

Presumably the cost of letting it fail has been deemed higher than the cost of bailing it out through the fund.

gimli2112

Calls on the insurance compensation fund are to protect policyholders and not shareholders, which is fair enough imo. It's a different situation to the banks, I think where we are bailing out investors.

antoobrien

hatrickpatrick wrote: »

http://www.irishexaminer.com/ireland/25-years-of-levies-to-pay-for-quinn-losses-203452.html



Looks like yet another case in which a private financial institution (not entirely sure if an insurance company accurately falls into this umbrella, if not please correct me)

Yes it does, "regulated" by the same shower of incompetents that failed to regulate Anglo et al.

hatrickpatrick wrote: »

has gone bust, and people who are not customers of this institution and may never have had any dealings with it whatsoever are having to fork out to cover its losses.

You seem to be missing the fact that:
(a) This is protecting customers of Quinn insurance not the shareholders (i.e the Quinns)
(b) This is (or perhaps should be) standard practice across customer facing industries e.g. the ITAA have a similar scheme to protect cusomters of travel agencies that go under

hatrickpatrick wrote: »

What exactly is the deal in this case? Quinn goes down, how do people who had nothing to do with investing in it lose out? Ok, I can accept the idea that people who actually had insurance with them have basically now lost all the premiums they've been paying, but how does that in any way justify asking people who were 100% not involved with Quinn, to pay for losses incurred by Quinn?

Nothing to do with investments, its protecting customers who in good faith bought policies off the Quinn Group. Since insurance is mandatory in a number of areas (e.g. Car Insurance, Home Insurance if one has a mortgage) these policies simply can not be allowed to fail.

hatrickpatrick wrote: »

Is this another case of the 1% playing pass the parcel with the bills for their own screwups, or is there some kind of legitimate excuse for this one?

No this is the 100% bailing themselves out.

Perhaps one should think about what would happen if the company that one have a policy with goes under. Would one want them to honor their obligations (as this fund is doing)?

I won't answer for you, but I wouldn't want to be left holding the bag for an insurance claim if anything went wrong.

golfwallah

hatrickpatrick wrote: »

What exactly is the deal in this case? Quinn goes down, how do people who had nothing to do with investing in it lose out? Ok, I can accept the idea that people who actually had insurance with them have basically now lost all the premiums they've been paying, but how does that in any way justify asking people who were 100% not involved with Quinn, to pay for losses incurred by Quinn?

Is this another case of the 1% playing pass the parcel with the bills for their own screwups, or is there some kind of legitimate excuse for this one?

There is a link on the Central Bank website explaining all these issues:

The Insurance Compensation Fund (the “Fund”)
Introduction
The Fund was established under the Insurance Act 1964 (the “Act”) which has been amended by the Insurance (Amendment) Act 2011 (the “Amendment Act”). It is maintained and administered under the control of the President of the High Court acting through the Accountant of the High Court.
The Fund is primarily designed to facilitate payments to policyholders in relation to risks in the State where an Irish authorised or an EU authorised non-life insurer goes into liquidation and the approval of the High Court has been obtained for such payments. In such circumstances not all policyholder liabilities are covered and exclusions include health, dental and life policies. The Fund can also be availed of in circumstances where an administrator has been appointed under the Insurance Act (No.2) 1983 and the approval of the High Court has been obtained.

Quinn insurance is not the first Irish insurer to get into financial trouble. We had previous experience with Insurance Corporation of Ireland that nearly caused the collapse of Allied Irish Banks and resulted in levies on all insurance policies. Earlier on we experienced the collapse of Joe Moore’s PMPA, which mainly dealt with motor insurance.

What is most disappointing is that despite these lessons, we still ended up with an insurance regulatory authority that wasn’t up to the job of ensuring that our insurers played by the rules in making adequate provision for future claims by policy holders.

View

hatrickpatrick wrote: »

Is this another case of the 1% playing pass the parcel with the bills for their own screwups, or is there some kind of legitimate excuse for this one?

Answer are: a) Yes, and b) electoral considerations.

Dannyboy83

golfwallah wrote: »

What is most disappointing is that despite these lessons, we still ended up with an insurance regulatory authority that wasn’t up to the job of ensuring that our insurers played by the rules in making adequate provision for future claims by policy holders.

Absolutely.



I was a customer of Quinn Health - Now Laya Healthcare
and Quinn Car Insurance - Now Liberty Insurance

Do these companies not inherit the liabilities of Quinn?

antoobrien

Dannyboy83 wrote: »

Absolutely.



I was a customer of Quinn Health - Now Laya Healthcare
and Quinn Car Insurance - Now Liberty Insurance

Do these companies not inherit the liabilities of Quinn?

The major part of the problem is supposedly with the subsidiaries trading in Britain, so the buyouts of the Irish subsidiaries wouldn't have as much as an impact as might be imagined.

On top of their losses, there was no allowance made for exchange rates - which have swing between €1=£0.9037 and €1=£0.7765 over the past two years.

If there was an estimated £400m hole two years ago @ 0.9 that would have cost about €445m. Today that would be (0.7887) €507m.

Throw in appearance that the auditors are still finding problems I won't be in the least surprised to see this figure (€1.65 bn including hedging for worse exchange rates) go up.

Laminations

Like has been said, it is protecting customers. Why should a non-customer of Quinn protect a customer, or be forced to do so by a levy?

Because it is about more than protecting specific customers. It is about protecting public trust in insurance. Once again, we have a private entity fail and we have the state enforcing protecting by essentially spreading losses in order to maintain a confidence in the entire system. The idea that giving someone money for an important thing like saving or insurance and knowing that your money is safe needs to be protected. Just a pity it couldn't have been protected by better regulatory practices in the first place

Regardless of whether regulations were enforced, the regulations were there. and the consequences for Quinn and Quinn management should be serious. This criminal negligence is the white collar equivalent of a ships captain taking passengers on a cruise with not enough life vests on board.

rodento

What I can't get my head around is why the Irish taxpayer is bailing out an English insurance operation

antoobrien

rodento wrote: »

What I can't get my head around is why the Irish taxpayer is bailing out an English insurance operation

For the same reason that the British government is bailing out an Irish banking operation - Ulsterbank is part of the RBS group and subject to the bailout they received.

Chazz Michael Michaels

gimli2112 wrote: »

It's a different situation to the banks, I think where we are bailing out investors.

If banks fail, everyone loses their savings. Including the little people.

Cookie_Monster

antoobrien wrote: »

You seem to be missing the fact that:
(a) This is protecting customers of Quinn insurance not the shareholders (i.e the Quinns)

Ok so it is protecting customers, so why not tell current customers they cannot renew with Quinn once current policy expires at the end of the current year and wind it down. You'll still have to guarantee some claims but it can be relatively quickly killed off rather than dragged out forever more. then let the current company and it's liabilities collapse on itself once every customer has has moved on...

antoobrien

Cookie_Monster wrote: »

Ok so it is protecting customers, so why not tell current customers they cannot renew with Quinn once current policy expires at the end of the current year and wind it down. You'll still have to guarantee some claims but it can be relatively quickly killed off rather than dragged out forever more. then let the current company and it's liabilities collapse on itself once every customer has has moved on...

It's more complex than that and it wouldn't solve the problems of claims within the system.

I don't understand it all but it's been reported (not in the Irish papers mind) there's some kind of problem with the underwriting they did for a number of years in the UK - I don't know what it may have been and speculation is likely to be on thin legal ground - as well as the problem of the Quinn Group not leaving sufficient cash reserves for what they thought they had to cover in the UK.

As a result of the underwriting issues it's possible that some of their customers will not get cover from other insurers, so they would likely be entitled to sue Quinn for one or more of faulty advice, mis-selling of products and negligence.

There a decent summary of the financial problems Quinn hid in Tuesday's times, as well as an analysis bit in yesterdays.

Insurance is a tricky business. Companies sell policies today but won’t know whether they make money on them until they assess claims over a span of years. This is the “long-tail” nature of insurance and why actuaries are hired to assess the risks and whether companies have to put enough aside to cover future claims.

For anyone wondering why Liberty were able to buy the Irish part but not the UK part, it appears that the reserve financing issue was only with the UK business

While the insurer had a 12-year history in the Republic of Ireland where there was a track record of reserving for claims, the firm’s UK business was a “very new book” and the foundations for reserving to cover claims were set wrong, McAteer explained to the court.

Michael McAteer (Grant Thornton) is one of the joint administrators appointed to Quinn.

gimli2112

Chazz Michael Michaels wrote: »

If banks fail, everyone loses their savings. Including the little people.

Sorry, ok I was thinking more or long the lines of Anglo but I see y'er point. I wouldn't like to be relying on the government's €100K guarantee in the event my bank went to the wall

Laminations

gimli2112 wrote: »

Sorry, ok I was thinking more or long the lines of Anglo but I see y'er point. I wouldn't like to be relying on the government's €100K guarantee in the event my bank went to the wall

Well it's better than no guarantee. Guarantees act as assurance, they are only tested when things go wrong, but they are there to maintain a confidence which prevents things going wrong

Chazz Michael Michaels

Laminations wrote: »

Well it's better than no guarantee. Guarantees act as assurance, they are only tested when things go wrong, but they are there to maintain a confidence which prevents things going wrong

True, but I think he may have meant that he has little confidence in such insurance if everything failed at once.

Laminations

antoobrien wrote: »

It's more complex than that and it wouldn't solve the problems of claims within the system.

Yep. People are failing to appreciate that claims take time to mature or process. Current policies can = future liabilities.

Quinn did not have sufficient liquid reserves in place to cover claims. He tied his money up in heavily depreciating assets and did not hedge the exchange rate.

It baffles me why he and family (who owed Quinn Group) aren't up on numerous criminal charges. I can understand the public apathy related to government charges etc but the relative silence outside of the media amongst the public (compared to his supporters) is outrageous. I really don't think it's sunk in with people that this family who are squirrelling away millions in assets have cost us billions.

Laminations

Chazz Michael Michaels wrote: »

True, but I think he may have meant that he has little confidence in such insurance if everything failed at once.

Yep if everything failed at once it'd be useless, like a smoke alarm if your house exploded. But the entire financial system and insurance industry is built on confidence and trust so I'd rather have the guarantee than not.

EDIT:I shouldve said fire extinguisher. A smoke alarm is more analogous to a working regulatory system.

antoobrien

Laminations wrote: »

It baffles me why he and family (who owed Quinn Group) aren't up on numerous criminal charges. I can understand the public apathy related to government charges etc but the relative silence outside of the media amongst the public (compared to his supporters) is outrageous. I really don't think it's sunk in with people that this family who are squirrelling away millions in assets have cost us billions.

I'd love to know what people think the Quinns guilty of wrt running the company so we can see if there might be laws broken.

Incompetence isn't illegal and I don't think under Irish law (unlike the US) management can be held accountable for actions of underlings that they're not aware of (try proving that they are aware).

At best I can see this being a Sarbanes-Oxley moment for Ireland - where we put laws in place to prevent things like this from this happening again - rather than an Enron/Worldcom/Tyco where people were found guilty of breaking actual laws.

Laminations

antoobrien wrote: »

I'd love to know what people think the Quinns guilty of wrt running the company so we can see if there might be laws broken.

Incompetence isn't illegal and I don't think under Irish law (unlike the US) management can be held accountable for actions of underlings that they're not aware of (try proving that they are aware).

At best I can see this being a Sarbanes-Oxley moment for Ireland - where we put laws in place to prevent things like this from this happening again - rather than an Enron/Worldcom/Tyco where people were found guilty of breaking actual laws.

Oh no doubt our legal system hasn't caught up. Criminal negligence perhaps?

3.06 According to Charleton, the State punishes people for negligence because negligence, contrary to the opinion of subjectivists, is a state of mind.
“It involves a failure to take proper precautions for a task or failing to prevent a result through not exercising proper care. That may include neglecting to pay heed while doing something, or failing to prepare adequately for an undertaking, or failing to act in all the circumstances where a duty to act is clearly imposed. In any of these cases blame attaches to the accused because he either has not applied his mind to the task or has not taken such ordinary care as any responsible person would have felt compelled to take in the circumstances. The accused is held accountable because by the application of concentration the death of the victim could have been avoided.”

Although that's related to non-voluntary manslaughter
http://www.lawreform.ie/_fileupload/consultation%20papers/cpInvoluntaryManslaughter.pdf

Haven't got the time or expertise To go through the legislation related to insurance

http://www.centralbank.ie/regulation/industry-sectors/insurance-companies/non-life-insurance-companies/Pages/legislation.aspx

Dannyboy83

antoobrien wrote: »

At best I can see this being a Sarbanes-Oxley moment for Ireland - where we put laws in place to prevent things like this from this happening again - rather than an Enron/Worldcom/Tyco where people were found guilty of breaking actual laws.

No one will be found guilty, because that would presumably apportion blame to the government also.
How could Quinn be found guilty, but the regulator be found innocent?

Even if Quinn could plead innocence, presumably the regulator(s) should still be found guilty of gross negligence?

The problem is I don't know enough about the specifics here:
i) Did Quinn become illiquid as a result of exchange rate fluctuations and the dramatic conditions?
ii) Or was there genuinely a gaping hole in the business model even before this 'stress test' scenario came into play?



As regards S-O, I am sceptical as to wheter we will see the legislative advancements required as a result of this; it's nearly 5 years on from the crisis now, which is nearly as long as the Celtic Pyramid itself ('01-08)

I figured we should have already seen the new legislation several times, but it looks to me like the government are keeping it in their back pocket or something.
It's like a card they are waiting to play.

Does finding a regulator guilty of negligence set a precedent and open up a pandora's box of litigation?

Anyway, when the criminal investigation in Anglo concludes and the litigation begins, I believe the settlement figures will dwarf what we are seeing here.

antoobrien

Dannyboy83 wrote: »

No one will be found guilty, because that would presumably apportion blame to the government also.
How could Quinn be found guilty, but the regulator be found innocent?

Even if Quinn could plead innocence, presumably the regulator(s) should still be found guilty of gross negligence?

The problem is I don't know enough about the specifics here:
i) Did Quinn become illiquid as a result of exchange rate fluctuations and the dramatic conditions?
ii) Or was there genuinely a gaping hole in the business model even before this 'stress test' scenario came into play?



As regards S-O, I am sceptical as to wheter we will see the legislative advancements required as a result of this; it's nearly 5 years on from the crisis now, which is nearly as long as the Celtic Pyramid itself ('01-08)

I figured we should have already seen the new legislation several times, but it looks to me like the government are keeping it in their back pocket or something.
It's like a card they are waiting to play.

Does finding a regulator guilty of negligence set a precedent and open up a pandora's box of litigation?

Anyway, when the criminal investigation in Anglo concludes and the litigation begins, I believe the settlement figures will dwarf what we are seeing here.

I'm not an accountant (and I know at least 3 people that will try to hang me for saying this) but the auditors should be held partially responsible for not uncovering any shady accounting - which it appears to have happened in a number of places.

Laminations

While I think the regulator was grossly negligent and should be held accountable too, I think we need to move to make the regulations (or a subset of the more important ones) more like laws.

If I go speeding and kill someone I can't blame the gardai for not catching me before the tragic event or regulating my speed properly. I also can't claim ignorance of the law. When running these systematic companies regulations should be down to the business people to abide by. If they feck up regardless of whether they are flagged by the regulator and caught in time, it should be solely on their heads. They have the responsibility to run their company appropriately. While the gardai have a responsibility to police the streets that doesn't absolve me of my responsibility to abide by the law. QUINN should not be allowed blame the regulator, that's where the law should change

BornToKill

Chazz Michael Michaels wrote: »

If banks fail, everyone loses their savings. Including the little people.

More accurately, savers lose their savings. The net result of keeping the banks open was a transfer of wealth from those who have little or no savings (e.g. borrowers) to those who have over €100,000 in savings per covered institution. That was explicitly acknowledged in reciting reasons why it was not possible to discount senior bondholders by virtue of those bondholders ranking equally with depositors.

pedroeibar1

When the news broke recently on the need for further cash for Quinn Insurance one news report stated that a deal had been done with ‘some senior executives’ on a no-prosecution basis to enable McAteer & team quantify the mess. Other than that report I have neither heard nor read about that deal anywhere. Anybody know about this or able to add some light?
Tnx.

Laminations

Heard the same news report and was wondering the same thing at the time. Thanks for reminding me

SBP
Administrators had to offer amnesty at Quinn Insurance
02:58, 5 August 2012 by Ian Kehoe           The administrators of Quinn Insurance were forced to offer an amnesty to senior managers at the insurer, after it emerged that claims handlers were suppressing the potential payouts for large claims.
While a large number availed of the amnesty, disciplinary action was taken against several senior staff at the troubled company after they refused to come clean about the potential exposure of large claims they were managing.
Based on the new information, Quinn Insurance was forced to increased its reserves on the claims by more than €100 million. The review was completed in advance of the sale of the company’s Irish insurance book toUSinsurer Liberty Mutual.
Under the regime of founder Sean Quinn, claims handlers were financially incentivised to settle claims at or below reserve levels. According to the administrators, this resulted in a general reluctance within the group to “adequately reserve for large cases”.
The issue came to light after the administrators noticed “unusual and significant reserve movements” at the company.
This is one of a number of reasons why the cost of rescuing the insurer has ballooned. The High Court was told last week that the cost could potentially be as high as €1.6 billion, although the administrators said it was more likely to be between €1.1 billion and €1.3 billion.
Quinn Insurance was taken over by the state in early 2010, following action by the Financial Regulator. Even after this, a large number of staff refused to increase provisions for large claims, despite repeated requests from the administrators.
See ‘Inside the €1.6 billion hole at Quinn Insurance’ in our News Focus section

pedroeibar1

Thanks Lam, I knew I was not losing it! (I'll read the other article when I get time)
With the poor level of financial journalism in this country I’m not surprised that it went unnoticed. It is a real can of worms and is much smellier than first appears. Unless that article was edited down significantly, journalist Kehoe has absolutely no idea of what was happening and, like the Vincent Brown’s interview of SQ did not have the right questions and through ignorance accepted the wrong answers.

The worst bits:-

The administrators of Quinn Insurance were forced to offer an amnesty to senior managers at the insurer, after it emerged that claims handlers were suppressing the potential payouts for large claims.

I’m not sure that the Administrators could (or would) do this on their own. The Regulator surely would have to approve this and also should/would involve the ODCE? Senior managers are in Regulatory ‘approved’ positions, are required ‘to act with probity’ so there is a clear breach of the rules. Those guys should have been fired – there are enough good insurance people in the jobs market to replace them.

Under the regime of founder Sean Quinn, claims handlers were financially incentivised to settle claims at or below reserve levels. According to the administrators, this resulted in a general reluctance within the group to “adequately reserve for large cases”.

In a properly run insurer any trained claims handler will minimize the payout where and when possible - it’s their job - but will not delay payment unnecessarilyHowever, for staff to succeed in obtaining an ‘incentive’ it is much easier when the claims reserve is set at the correct level (an easier bar to come in under) so it can be inferred that the senior managers corruptly under-provisioned to make the target more difficult for juniors to obtain their ‘incentive’ That is against the tenets of any insurance, banking or actuarial body, against the Regulatory rules and is tantamount to fraud. It is at least a disciplinary offense – will we see any action?

With such a low level of journalism it is no wonder that the local idiots think Quinn is a great guy and not the crook he is (as stated by the judiciary.)

Stabshauptmann

hatrickpatrick wrote: »

people who are not customers of this institution and may never have had any dealings with it whatsoever are having to fork out to cover its losses.

how do people who had nothing to do with investing in it lose out?

If I hit you with my car, the state would pay the cost as my insurer cant.
I didnt gamble or invest in Quinn, I bought insurance.