The Quinns have been unfairly blamed for massive losses at the family's insurance firm, writes Colette Quinn, daughter of Sean
'THE QUINN Insurance company was started in 1996 by my father from a small office in Cavan town and initially it employed five local people.
"Over the subsequent years, the company enjoyed tremendous growth to become the second largest insurer in the country, employing over 2,500 staff, predominately based in Ireland. This growth was not premised on castles made of sand, as some commentators wrongly suggest, but on a simple, effective claims model that placed an emphasis on settling claims faster than anyone else in the market and without unnecessary legal fees, which allowed us to price our policies more competitively.
"In recent years, 95 per cent of all claims reported in Quinn Insurance (QIL) were settled within 12 months of notification. This is an astonishing statistic and is testament to the effectiveness of the claims model.
"In the majority of cases, claims were settled within seven working days, with our customers back on the road, or back in business, without delay and without the costly prospect of litigation hanging over them.
"The suggestion that the company had a backlog of old festering claims or were under-reserving claims is an absolute untruth. The Central Bank Insurance Statistical Review illustrates that QIL's claims were reserved at twice the industry average, and both the current and historic management reports of QIL prove the effectiveness of the claims model. Furthermore, the company's accounts and reserves were audited on an annual basis by the best accounting and actuarial firms in the UK and Ireland.
"The whole administration saga began on March 24, 2010, when the Financial Regulator, Matthew Elderfield, was advised by QIL of the existence of contingent (conditional) guarantees, that some of the subsidiary companies of QIL had purportedly given to the lenders of the Quinn Group in 2005.
"The reason that the company was placed into administration was due to the Regulator's interpretation of the impact these guarantees had on the solvency of QIL, not because of the recent suggestion that the Regulator suspected there was a 'black hole' in the balance sheet.
'All my family are more than willing to comply with any independent investigation by any reputable body, such as the PAC...'
"So, the first question which needs to be considered is: was the Financial Regulator's interpretation of the guarantees correct?
"At that time, QIL had liquid assets (cash, bonds and equities) of €1.1bn. QIL also owned a number of companies which held income-generating assets such as a wind farm and a number of hotels, valued at approximately €448m, which meant that if the cash reserves fell, these assets could be converted into cash and used to pay claims. This essentially meant that QIL had assets in excess of €1.548bn to meet its claims.
"The contingent guarantees were fully disclosed and treated correctly in the audited accounts of QIL since 2005. Mr Elderfield, however, adopted a conflicting stance, and over the course of a three-day period, decided that the opinion held for five years by the auditors, PwC, one the most eminent accounting firms in Ireland, was wrong. The Regulator essentially decided over this three-day period that these companies, worth €448m, were, in fact, worthless to QIL, because of the existence of the guarantees. The basis of his interpretation, or the professional advice he received, if any, to justify his stance has never been disclosed.
"At that time, there was a significant amount of legal uncertainty surrounding the existence and enforceability of the guarantees.
"More importantly, however, there was never any risk of the guarantees being relied upon; this was confirmed to the Regulator by both the lenders' representatives and the Quinn Group.
"However, this was not adequate to satisfy Mr Elderfield, who demanded written confirmation of the release of the guarantees from the lenders within 24 hours.
"The deadline was extreme to say the least and could not be complied with in circumstances where the bondholders, who were multinational banks, could not receive board and credit committee approval to do so in such a short timeframe.
"The Regulator's interpretation of these guarantees resulted in QIL having a substantial shortfall in its solvency requirement; and it was on this basis he sought to have QIL placed into administration, with catastrophic consequences.
"Our unwavering contention is that the contingent guarantees did not affect the solvency of QIL.
"This is not only our view -- this is the opinion of the auditors of the company for the previous five years. In addition, we commissioned Moore Stephens LLP in London (one of the world's most experienced firms in insurance solvency, and a major accounting network with 301 independent firms and 636 offices in 100 countries) to independently investigate the matter.
"Moore Stephens LLP concluded that the Financial Regulator was incorrect and that the guarantees, even if they were properly and legally in place, did not affect the solvency of QIL.
"It took Moore Stephens LLP over three months to prepare this detailed report. Critically, Mr Elderfield was able to make his decision in three working days when it took one of the leading accounting firms in the world some three months to categorically state the opposite.
"The nuclear approach taken by Mr Elderfield makes absolutely no sense to us to this day, and illustrates both the panic that was pervasive throughout the Irish financial system at the time, and how the Government was providing no leadership.
"The Regulator's flawed interpretation of the impact of these guarantees is fundamental in what has occurred over the past 28 months, and why the €1.6bn levy is now required.
"Essential to any investigation into QIL is the public disclosure of the advice, if any, that Mr Elderfield relied upon to support his opinion of the impact that the guarantees had on the solvency of QIL. To date, the Irish public has yet to be furnished with a single shred of documentation to justify his decision.
"Throughout this whole process, the lack of information provided by both the Regulator and the administrators has been completely inadequate, considering that they are now seeking €1.65bn from Irish insurance consumers.
"What we do know from the scant information provided is that:
1. The administrators paid the bondholders of the Quinn Group €200m to remove the guarantees without any apparent legal appraisal of the liability. Considering the legal uncertainty which surrounded these guarantees, why did the Regulator not first test their legality before paying the bondholders?
"Furthermore, if the administrators are able to negotiate over a 50 per cent reduction with bondholders, then they should be doing all negotiations with bondholders for the country, as the Department of Finance, the banks and the NTMA are unable to achieve results like this.
2. A company was created to take over the Irish business of QIL, this company is owned jointly by Liberty Mutual and Anglo. For Anglo's 49 per cent shareholding, they took €98m from the reserves of QIL.
"This transaction raises a number of important questions. Firstly, as Anglo is not owed any money from QIL, why are insurance customers paying for Anglo to establish a new business?
"Secondly, the Insurance (Amendment) Act 2011 was brought in by Minister Noonan days before this transaction. This legislation confirmed that the liability for UK claims, including those for professional indemnity, would be met by the Irish Compensation Fund. Prior to this point, the fund had no obligation to pay these claims. Why was this done?
"Thirdly, what safeguards are in place to ensure that Liberty settle the UK claims as cost effectively as possible? And, what safeguards are in place to ensure that if the claims acquired by Liberty are grossly over-reserved and that they, Liberty, do not walk away with hundreds of millions of profit in the years to come?
3. The administrators made a fundamental error by failing to protect QIL from a basic currency risk. They informed the court last month that €215m of the projected €1.6bn is for a potential currency loss.
"Pre-administration, QIL was writing considerable business in the UK, meaning it had significant sterling income every week and was paying out sterling claims, offsetting a potential currency risk; it was a natural hedge. On March 30, 2010, QIL stopped writing UK business, and therefore the steady stream of sterling income stopped. The administrators then requested that QIL dispose of its UK bonds and equities, and, as part of the sale to Liberty, almost all of the cash reserves of QIL were given to Liberty, compounding this currency risk.
"As the compensation fund will be drawn down in euro; and QIL still has UK claims obligations, there is an obvious currency risk. The administrators completely failed to protect QIL from adverse movements of the euro against the Sterling.
"In an interview in February 2011, one of the administrators admitted that when he was appointed to QIL, he knew 'nothing' about insurance. This is evident from decisions they have made throughout the process, which have proved very costly.
"For example, within two months of their appointment, they implemented a redundancy scheme, which was one of the most generous redundancy packages given in recent years and three times the legal requirement.
"I certainly don't begrudge any member of staff their redundancy package; however, what I do object to is the administrators mistakenly letting far too many staff go.
"In order to try and cover up this costly mistake, they began hiring agency staff at a much higher cost. The redundancy scheme was so badly managed that they ended up paying the remaining staff a 'loyalty bonus', just for them not to leave the company.
"QIL historically employed more staff in its claims department than its competitors, so it could actively manage claims. This saved dramatically on claims costs and was the cornerstone of the business model. Hundreds of staff were removed from the claims department through the redundancy scheme, which had a detrimental impact on the efficiency of the model.
"QIL's success was based on its proactive claims model. By dealing directly with claimants, we were able to make massive savings.
"For example, in Ireland the average claim cost in the fast-track model was approximately €3,000 in Ireland and £2,000 in the UK. Once a solicitor for the claimant became involved, the average cost in Ireland increased to €24,000 and to £8,000 in the UK. You can see how even the slightest mismanagement or inefficiencies can have very costly consequences.
"Whilst I do not wish to engage in a media debate on this issue, I can confirm that all of my family are more than willing to comply with any independent investigation, by any reputable body, such as the Public Accounts Committee on the matter.
"I believe that history will ultimately demonstrate that the deal between Anglo and Liberty will result in the worst possible outcome for the State.
"I firmly believe my family has been unfairly criticised, while others who have been complicit in the complete destruction of QIL are holding back information that should be made public. After all, the public are paying the price."
'THE QUINN Insurance company was started in 1996 by my father from a small office in Cavan town and initially it employed five local people.
"Over the subsequent years, the company enjoyed tremendous growth to become the second largest insurer in the country, employing over 2,500 staff, predominately based in Ireland. This growth was not premised on castles made of sand, as some commentators wrongly suggest, but on a simple, effective claims model that placed an emphasis on settling claims faster than anyone else in the market and without unnecessary legal fees, which allowed us to price our policies more competitively.
"In recent years, 95 per cent of all claims reported in Quinn Insurance (QIL) were settled within 12 months of notification. This is an astonishing statistic and is testament to the effectiveness of the claims model.
"In the majority of cases, claims were settled within seven working days, with our customers back on the road, or back in business, without delay and without the costly prospect of litigation hanging over them.
"The suggestion that the company had a backlog of old festering claims or were under-reserving claims is an absolute untruth. The Central Bank Insurance Statistical Review illustrates that QIL's claims were reserved at twice the industry average, and both the current and historic management reports of QIL prove the effectiveness of the claims model. Furthermore, the company's accounts and reserves were audited on an annual basis by the best accounting and actuarial firms in the UK and Ireland.
"The whole administration saga began on March 24, 2010, when the Financial Regulator, Matthew Elderfield, was advised by QIL of the existence of contingent (conditional) guarantees, that some of the subsidiary companies of QIL had purportedly given to the lenders of the Quinn Group in 2005.
"The reason that the company was placed into administration was due to the Regulator's interpretation of the impact these guarantees had on the solvency of QIL, not because of the recent suggestion that the Regulator suspected there was a 'black hole' in the balance sheet.
'All my family are more than willing to comply with any independent investigation by any reputable body, such as the PAC...'
"So, the first question which needs to be considered is: was the Financial Regulator's interpretation of the guarantees correct?
"At that time, QIL had liquid assets (cash, bonds and equities) of €1.1bn. QIL also owned a number of companies which held income-generating assets such as a wind farm and a number of hotels, valued at approximately €448m, which meant that if the cash reserves fell, these assets could be converted into cash and used to pay claims. This essentially meant that QIL had assets in excess of €1.548bn to meet its claims.
"The contingent guarantees were fully disclosed and treated correctly in the audited accounts of QIL since 2005. Mr Elderfield, however, adopted a conflicting stance, and over the course of a three-day period, decided that the opinion held for five years by the auditors, PwC, one the most eminent accounting firms in Ireland, was wrong. The Regulator essentially decided over this three-day period that these companies, worth €448m, were, in fact, worthless to QIL, because of the existence of the guarantees. The basis of his interpretation, or the professional advice he received, if any, to justify his stance has never been disclosed.
"At that time, there was a significant amount of legal uncertainty surrounding the existence and enforceability of the guarantees.
"More importantly, however, there was never any risk of the guarantees being relied upon; this was confirmed to the Regulator by both the lenders' representatives and the Quinn Group.
"However, this was not adequate to satisfy Mr Elderfield, who demanded written confirmation of the release of the guarantees from the lenders within 24 hours.
"The deadline was extreme to say the least and could not be complied with in circumstances where the bondholders, who were multinational banks, could not receive board and credit committee approval to do so in such a short timeframe.
"The Regulator's interpretation of these guarantees resulted in QIL having a substantial shortfall in its solvency requirement; and it was on this basis he sought to have QIL placed into administration, with catastrophic consequences.
"Our unwavering contention is that the contingent guarantees did not affect the solvency of QIL.
"This is not only our view -- this is the opinion of the auditors of the company for the previous five years. In addition, we commissioned Moore Stephens LLP in London (one of the world's most experienced firms in insurance solvency, and a major accounting network with 301 independent firms and 636 offices in 100 countries) to independently investigate the matter.
"Moore Stephens LLP concluded that the Financial Regulator was incorrect and that the guarantees, even if they were properly and legally in place, did not affect the solvency of QIL.
"It took Moore Stephens LLP over three months to prepare this detailed report. Critically, Mr Elderfield was able to make his decision in three working days when it took one of the leading accounting firms in the world some three months to categorically state the opposite.
"The nuclear approach taken by Mr Elderfield makes absolutely no sense to us to this day, and illustrates both the panic that was pervasive throughout the Irish financial system at the time, and how the Government was providing no leadership.
"The Regulator's flawed interpretation of the impact of these guarantees is fundamental in what has occurred over the past 28 months, and why the €1.6bn levy is now required.
"Essential to any investigation into QIL is the public disclosure of the advice, if any, that Mr Elderfield relied upon to support his opinion of the impact that the guarantees had on the solvency of QIL. To date, the Irish public has yet to be furnished with a single shred of documentation to justify his decision.
"Throughout this whole process, the lack of information provided by both the Regulator and the administrators has been completely inadequate, considering that they are now seeking €1.65bn from Irish insurance consumers.
"What we do know from the scant information provided is that:
1. The administrators paid the bondholders of the Quinn Group €200m to remove the guarantees without any apparent legal appraisal of the liability. Considering the legal uncertainty which surrounded these guarantees, why did the Regulator not first test their legality before paying the bondholders?
"Furthermore, if the administrators are able to negotiate over a 50 per cent reduction with bondholders, then they should be doing all negotiations with bondholders for the country, as the Department of Finance, the banks and the NTMA are unable to achieve results like this.
2. A company was created to take over the Irish business of QIL, this company is owned jointly by Liberty Mutual and Anglo. For Anglo's 49 per cent shareholding, they took €98m from the reserves of QIL.
"This transaction raises a number of important questions. Firstly, as Anglo is not owed any money from QIL, why are insurance customers paying for Anglo to establish a new business?
"Secondly, the Insurance (Amendment) Act 2011 was brought in by Minister Noonan days before this transaction. This legislation confirmed that the liability for UK claims, including those for professional indemnity, would be met by the Irish Compensation Fund. Prior to this point, the fund had no obligation to pay these claims. Why was this done?
"Thirdly, what safeguards are in place to ensure that Liberty settle the UK claims as cost effectively as possible? And, what safeguards are in place to ensure that if the claims acquired by Liberty are grossly over-reserved and that they, Liberty, do not walk away with hundreds of millions of profit in the years to come?
3. The administrators made a fundamental error by failing to protect QIL from a basic currency risk. They informed the court last month that €215m of the projected €1.6bn is for a potential currency loss.
"Pre-administration, QIL was writing considerable business in the UK, meaning it had significant sterling income every week and was paying out sterling claims, offsetting a potential currency risk; it was a natural hedge. On March 30, 2010, QIL stopped writing UK business, and therefore the steady stream of sterling income stopped. The administrators then requested that QIL dispose of its UK bonds and equities, and, as part of the sale to Liberty, almost all of the cash reserves of QIL were given to Liberty, compounding this currency risk.
"As the compensation fund will be drawn down in euro; and QIL still has UK claims obligations, there is an obvious currency risk. The administrators completely failed to protect QIL from adverse movements of the euro against the Sterling.
"In an interview in February 2011, one of the administrators admitted that when he was appointed to QIL, he knew 'nothing' about insurance. This is evident from decisions they have made throughout the process, which have proved very costly.
"For example, within two months of their appointment, they implemented a redundancy scheme, which was one of the most generous redundancy packages given in recent years and three times the legal requirement.
"I certainly don't begrudge any member of staff their redundancy package; however, what I do object to is the administrators mistakenly letting far too many staff go.
"In order to try and cover up this costly mistake, they began hiring agency staff at a much higher cost. The redundancy scheme was so badly managed that they ended up paying the remaining staff a 'loyalty bonus', just for them not to leave the company.
"QIL historically employed more staff in its claims department than its competitors, so it could actively manage claims. This saved dramatically on claims costs and was the cornerstone of the business model. Hundreds of staff were removed from the claims department through the redundancy scheme, which had a detrimental impact on the efficiency of the model.
"QIL's success was based on its proactive claims model. By dealing directly with claimants, we were able to make massive savings.
"For example, in Ireland the average claim cost in the fast-track model was approximately €3,000 in Ireland and £2,000 in the UK. Once a solicitor for the claimant became involved, the average cost in Ireland increased to €24,000 and to £8,000 in the UK. You can see how even the slightest mismanagement or inefficiencies can have very costly consequences.
"Whilst I do not wish to engage in a media debate on this issue, I can confirm that all of my family are more than willing to comply with any independent investigation, by any reputable body, such as the Public Accounts Committee on the matter.
"I believe that history will ultimately demonstrate that the deal between Anglo and Liberty will result in the worst possible outcome for the State.
"I firmly believe my family has been unfairly criticised, while others who have been complicit in the complete destruction of QIL are holding back information that should be made public. After all, the public are paying the price."
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