The unfolding scandal at Quinn Insurance is not a subject that is at the core of this blog, the real interest in Sean Quinn up to now has been the €500m property empire. However the revelation in the High Court this week that Quinn Insurance might cost the nation an upper limit estimate of €1.65bn firmly grabbed the attention. So there are two follow-up blogposts to yesterday’s “Idiots Guide” to the scandal, this one deals with what may be the most challenging and informed exchange on the subject of Quinn Insurance that we ever get, from the point of view of Sean Quinn.
On 1st August 2012, Vincent Browne interviewed Sean Quinn for the TV3 “Tonight with Vincent Browne” show. Bear in mind that Vincent notified us that the broadcast interview was edited. This section of the interview – from 11:00 onwards in the programme – deals with Quinn Direct and it does seem to an amateur’s eyes and ears at least to be intact, but please bear in mind that it might have some editing. The interview was obviously quite tense and subjects break off mid-sentence, it would ruin the flow of the interview to put omissions in  and to litter it with (sic).
Whilst it is clear that Vincent did his homework before the interview, he seems to have overlooked the fact that at least half the losses at Quinn are apparently attributable to the decline in value of investments, and that there were losses of €706m at Quinn Insurance for 2009 – Sean Quinn’s last full year in charge – and the focus is on Sean Quinn removing funds from the company in 2007/8, the underselling of insurance in the UK, there being no full-time actuaries and Sean Quinn not being an appropriate person to have remained at the helm of an insurance company.
Vincent Browne: Let’s go on to another issue. And that is your complaints about the fact that Quinn Direct was taken over, and you lost control of Quinn Direct at the behest of the Financial Regulator, Matthew Elderfield, that it was false, mistaken and vindictive. Wouldn’t it have been reckless and grossly irresponsible of the Regulator to allow someone to have maintained control of an insurance company that had behaved as you had done, in relation to Quinn Direct by taking out €280m out of the company, out of the cash reserves that was there to pay any claims that your customers might have on their insurance policies. You took that money out in order to make margin calls on contracts for difference. Utterly illegal act, and wouldn’t it have been extraordinary for the Regulator to have allowed somebody who had done that in charge?
Sean Quinn: Maybe I should clarify a few points on that. The money I took out in 2007 and 2008 should not have been taken out, hands up I was wrong, I agree fully. We met with the Regulator, we discussed it, we told him what the position was. It was not an illegal act. It was that I should have got permission to take the money out. I didn’t ask for the loan and I didn’t ask for the loan What they did was sanction me, and sacked me as chairman from Quinn Direct and I have no complaints about that, good bad or indifferent. But the position then is this Vincent. Between then, and the end of 2009, Quinn Direct done particularly well. It increased its cash position by a further €195m, the first quarter of 2010, which was the first quarter that Mr Elderfield was in Ireland, it had a record quarter, it reduced its claims by 2,800 which was a record reduction in claims. It increased its cash by €20m so the problem of 2007 and 2008 was well gone past. Everything was, a new board was in place, and the company was doing particularly well.
VB: Quinn Direct has been a disaster-
VB: Quinn Direct has been a disaster- there’s a huge €1bn hole in the accounts of Quinn Direct, and as a consequence of that, a consequence of your stewardship, people who take out non-life insurance policies are going to have to pay a 2% insurance levy for 15, maybe 30 years
SQ: It’s an absolute scandal. It’s an absolute scandal for a company that makes €70m or €80m in the first quarter of 2010 and a record quarter reducing its claims, I said by 2,800, and increasing its cash from €1.08bn to €1.1bn as well as having €500m of property assets and for that company, that company had €53,000 cash reserves for each and every claim on its books. That was more than double what any one of our competitors in Ireland or the UK had. But they have gone along now and done-
VB: Of course there’s cash on your books because you were selling insurance policies at a very low level and-
SQ: Hold on a minute now-
VB: And because you were doing that the problems have now emerged-
SQ: That’s stupid talk, we had 27,000 claims, we were the second biggest insurance company in Ireland, we had the lowest number of outstanding claims-
VB: Alright, with regard to your Irish business but then there’s what you did in the UK –
SQ: You told me you were going to give me a fair crack of the whip, are you going to let me answer the question. What I am saying is that there were 27,000 claims on our insurance books at the end of March 2010 That was the lowest of any insurance company for the volume of business that we were doing. It was done particularly well during that quarter. We had more than double the number of reserves of any of our competitors. Now they’re adding another €1.5bn, €1.6bn to the reserves. Which is absolute- if you tried to burn the money, you couldn’t get rid of it at that speed. So now they are going to have over GBP 100,000, The number of claims we had at the end of March 2010, they had over GBP 100,000 per claim, The market in the England was 10-15, the market in Ireland was 20-25, so they have four to six times and by the way, we had much more outstanding claims in the UK which had a much lower value. So, the figures that they have in there at the present, the figures they have lost is absolutely scandalous. There is a further point in all this, the new, Matthew Elderfield did say that he thought that the customers, the policy holders were at risk. Fair comment, fine. We know they weren’t, we know there were huge reserves there, €1.1bn, €1.5bn. Within days and weeks, the administrators were in and said “Lookit this is an extremely profitable company and we want to pay the maximum amount, they paid six weeks administrative redundancy payments to 900-odd staff because this company was very profitable” We went along in front of Mr Justice Kearns and they said on three different occasions, the first month, three second month and I think even maybe nine month “Look it Justice, this is a profitable company, there will be no claim” As soon, they wanted €400m, €600m, €800m, €1.2bn, unbelievable stuff And I knew from the first week that they took over, I met the two joint administrators on the Saturday when they went in and they said “Lookit Sean, we don’t know anything about insurance but we do know is that you have 400 staff too many in your claims division” I just looked over at Kevin Runney and said to myself “There’s going to be big problems there” and the problems are [indistinct]
VB: You had no actuaries, you had no full-time actuaries
SQ: We had actuaries. Let me put it this way. If you want to talk to me about actuaries. And I tell you, I didn’t intend saying this but you are pushing me very hard. If you want me to tell you the position now. I have documentation there that shows that the highest inception rate they had for the first two years that they went in there, the highest inception rate they had in their book was the highest loss rate. So the worst loss ratio was the highest inception rate. Now is that – you were saying that we didn’t have no actuaries, I tell you that never happened in Quinn time.
VB: Okay, now you have made a big point about the unfairness on the part of Anglo Irish Bank in not allowing you to continue, your business plan involved no interest payments for eight years and further loans of approximately €670m. Now wouldn’t they have been irresponsible to have agreed to such a proposition for somebody who had acted as you had acted over the years.
SQ: Well I agree that it was totally irresponsible what had happened. Before the administrators – you must remember the administrator has still not proven, it is 29 months now and the administrator (sic) has still not proven that he was legally entitled to put an administrator in, and we have asked them on a number of occasions and we still believe that Matthew Elderfield –
VB: Deal with my question
SQ: What I am saying to you is very simple I am saying that Matthew Elderfield was illegally putting an administrator into Quinn Direct. That’s what I am saying to you.
VB: Your proposition is that he should have allowed you to continue, given what you had done taking money out of the cash reserves of Quinn Direct for your gambling exploits
SQ: You’re very conveniently forgetting part of it, and most of your colleagues in the media do the same thing. In 2007 and 2008, I could have no quibble, you were dead right, we were dead wrong. In 30th March 2010, there was next to €250m in there, the company was extremely profitable, the company was run extremely well. There was a new chairman on board, there were no breaches of regulation, Sean Quinn wasn’t on the board any more and the company was being run extremely well, and Matthew Elderfield, illegally in my view, put in an administrator. Probably the most profitable insurer on the island of Ireland. Now today, he seems to be taking a different attitude, if there’s financial institutions in play[?], then what he will do is send someone in for three, six months to sort them out. Why did he not do that?
What the above boils down to from the point of view of the €1.65bn upper limit of the Quinn Insurance bailout cost, that now confronts us, is the Sean Quinn accusation that it was – from his point of view – the illegally-appointed administrators who know nothing about the insurance business that have caused the losses. The 2009 accounts for Quinn Insurance which showed a €706m loss would seem to partially contradict what Sean Quinn is saying, but the jury is out on the losses that have been realised since the administrators took over.