Minister for Finance Michael Noonan may not be Father of the Dail – that’s Enda Kenny’s badge – but Michael is the most politically experienced by reference to the roles he has held over the decades. And back in 1982-1986, Michael was the justice minister during the time when the first two insurance bailouts in the State took place, that of the PMPA in 1984, and that of the Insurance Corporation of Ireland in 1985, so the present scandal unfolding in Quinn Insurance – or Quinn Direct as the public generally know it – shouldn’t be brand new ground for the veteran Minister Noonan.
Unlike insurance company collapses in other jurisdictions which generally seem to be the result of an unexpected event leading to claims exceeding the premiums paid, our insurance company collapses are down to poor regulation. In other words, there hasn’t been an exceptional spate of road traffic accidents, house fires or burglaries or seemingly, claims against professional indemnity insurance.
And given that it is insurance company customers that will be paying for this present mess at Quinn Insurance – which has an upper estimate of €1.65bn but a central forecast of between €1.1-1.3bn – maybe as a nation, we need to start getting litigious.
As a country we guarantee to make good insurance company losses but in return we regulate the hell out of them – or we should – and we get insurance companies to hand over 3% of their premiums in the form of stamp duty. Some of the regulation comes from the State through the Financial Regulator, the Department of Finance and Minister for Finance and some oversight comes from the private sector in the guise of auditors and actuaries.
Why didn’t the canny Michael come before the Oireachtas on 25th June 2012 and make a statement on the burgeoning cost of Quinn Insurance. The letter read out in the High Court on Tuesday this week, makes it clear that he was displeased with the fact that the cost had climbed from zero in 2010 to €738m in 2011 to an upper limit of €1.65bn today. He knew about it, he knew this cost would fall upon most households in the country that are users of non-life cover. And yet, he said nothing. He has also in the recent past waved away suggestions that he should examine the role of auditors and other professionals in the banking collapse, even though NAMA has uncovered nearly €500m of losses at the banks from poor loan documentation, something that you might have expected to have been uncovered in an audit, the Minister seems reluctant to put pressure on those professionals to account for their role in the banking/property crisis.
But if the Minister changes his mind, he might consider examining the potential to make claims against the following:
(1) The auditors – PricewaterhouseCoopers (PwC), are already being sued, apparently for failing to uncover “intercompany guarantees” at Quinn Insurance. Mark Paul at the Sunday Times reported the story in February 2012, though it doesn’t seem to have stayed on the national agenda. The story is behind a paywall.
In addition to PwC’s role in auditing the intercompany guarantees, there is a question as to whether there should be an examination of PwC’s role in validating the value of investments shown in the Quinn accounts, and what role PwC had in validating the actuarial valuations in Quinn. Remember that once upon a time, there was a global audit firm called Arthur Andersen which one day came a cropper in the wake of the Enron collapse, so it is not without precedent that giants are brought to their knees when they cock up. Whilst it is not the role of auditors to forecast the future, it is their role to validate the present, and it seems that in the case of Quinn Insurance, there is at least merit in examining if PwC has a case to answer. Of course PwC is the darling of the Irish public sector, where it provides a wide-ranging array of services, and should it be judged to have failed in respect of Quinn, the Quinn-specific sanctions may be dwarfed by ramifications elsewhere.
(2) The actuaries – Milliman, you mightn’t have heard of them before now, but they’re huge – here’s a little more about them. It was revealed this week that Milliman is indeed in the cross-hairs, presumably for failures over “reserve provisioning” or in everyday language, for failing to forecast the scale of losses on insurance policies at Quinn.
(3) The administrators – they are referred to as “joint administrators” but they’re both from the same company, Grant Thornton. The two administrators are Paul McCann and Michael McAteer, and according to Sean Quinn last week, “the administrators” conceded to him when they took over at Quinn that they didn’t know anything about the insurance business. That claim may seem incredible, but the fact remains that it was under their stewardship of the company that claim losses ballooned particularly in the UK, and there was an apparent failure to insure – or “hedge” – the liabilities in sterling. According to Minister Noonan in a letter on 25th June 2012, these are highly-remunerated professionals and “the Government has been mislead (sic) by incomplete information and under estimation”, something apparently disputed by the administrators. These two individuals and their firm also get A LOT of work from NAMA, and if indeed they have a case to answer at Quinn, then in addition to Quinn-specific legal action, might they be exposed to sanction elsewhere in the public sector?
(4) The directors – surprisingly perhaps, directors can be held personally liable for some activities of the limited liability company they direct, and in fact there is a class of insurance that directors can buy to help protect themselves against such claims. What role, if any, did the directors have in the investments made by Quinn and the creation of “inter-company guarantees” and the strategy of apparently underselling insurance in the UK. Some of these directors, like Liam McCaffrey, have walked away from this mess with enormous payoffs Is it time to examine their role in the scandal? In 2008/9 the Quinn directors and non-executive directors included Liam McCaffrey, Kevin Lunney, Shane Morrisson, Richard Stafford, Colin Morgan, Sean Quinn junior, Brendan Moran and non-executive directors, James Quilgley, Patrick Mullarkey, Vincent Clancy, Tony McCusker.
(5) The Financial Regulator – Patrick Neary held the post between 2006- 9th January, 2009. Mary O’Dea held the role on an acting basis between January 2009 – December 2009 and from January 2010, Matthew Elderfield has held the role. The usual sanction when a state employee cocks up is to dismiss the employee with a termination package, but I think many people will look at the trail of financial destruction that Patrick Neary has apparently left in his wake, and question if there should be -exceptionally – an examination to see if legal action can or should be taken against the former Financial Regulator who enjoys a gold-plated retirement, courtesy of the state and its citizens who are shouldering losses apparently attributable to his time in office.
Two further points, it seems that Sean Quinn himself was at the helm when much of the losses, particularly on investments, occurred but unfortunately Sean Quinn is a bankrupt though he may, ironically, have personal indemnity insurance for his actions which might be pursued. And secondly, wags have this week suggested that if we do sue the auditors or others, we might find that their professional indemnity insurance is underwritten by none other than…. Quinn Insurance, so we would only be suing ourselves. Surely however, there is some bar on obtaining insurance from a company to which you are providing services, in reference to which you might be sued…
It is to be hoped that the upper limit of €1.65bn mentioned in the High Court on Tuesday as the estimate of the final cost of bailing out Quinn Insurance, is just that – “the upper limit” – and doesn’t rise further and that the actual cost turns out to be the central estimate of €1.1-1.3bn, but we do not have to take this loss lying down.