Joint Committee on Finance, Public Expenditure and Reform
Wednesday 9th July 2014
Matters relating to the collapse of Setanta Insurance
Opening remarks
I wish to thank the Joint Committee for the invitation to brief it on the collapse
of Setanta Insurance and, in particular, to provide you with information on the
role and the operation of the Insurance Compensation Fund and how this Fund
may be used to assist those policyholders affected by the closure of Setanta.
I am accompanied by my colleagues Antoine MacDonncha, Bríd Kemple and
Aideen Morrissey from the Department.
I propose to address the four specific matters which you have raised in your
letter.
Insurance Compensation Fund
The Fund was established under the Insurance Act, 1964 ('the 1964 Act') to
make arrangements to meet certain liabilities of insolvent insurers, to provide
for the Minister to make advances to the Fund and to provide for contributions
to the Fund by insurers.
The Fund is maintained and administered under the control of the President of
the High Court. Amounts are paid from the Fund, with the approval of the
High Court, to a person in relation to an insurer in liquidation or
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administration, in respect of claims under policies issued by the insolvent
insurer in circumstances where it is unlikely that the claims can be met
otherwise than from the fund.
The Accountant of the High Court ('the Accountant') provides annual accounts
of the Fund to the Department of Finance and the Central Bank and these are
laid before the Houses of the Oireachtas.
In the period since the early 1980s, the Fund has advanced monies to Primor
plc (formerly PMPA Insurance Company) and Icarom plc (formerly Insurance
Corporation of Ireland) and since 2011, QIL (Quinn Insurance Limited.
Currently, there is a balance of €48m in the Fund.
Funding by the State
In accordance with section 5 of the 1964 Act, in the event that the Fund does
not have sufficient funds to meet a payment approved by the High Court, the
Minister for Finance may, on the recommendation of the Central Bank,
advance Central Fund monies to the Fund to enable payments out of the Fund
to be made promptly, and on the terms and conditions that he decides to be
appropriate.
Contribution to the Fund by insurers
The Fund is, ultimately, funded by contributions from insurers. Prior to 2011,
the act provided for charges to be levied on insurers in respect of policies
issued regardless of the location of the insured risks. Following advice from
the Attorney General, that charges could not be levied on insurance companies
in respect of risks outside the State, an amendment was made to the 1964 Act
through the Insurance (Amendment) Act 2011 ('the amendment Act'). The
amendment Act
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
provides that the Fund shall be funded by contributions from insurers
who issue policies in respect of risks in the State, whether the insurers
are based in Ireland or in another member State, and

changed the scope of the Fund, from one that covers the risks of
policyholders of Irish authorised insurance companies, to one which
covers all insured risk in the State, except for specific excluded risks.
Under the Act, the Central Bank has responsibility for determining whether the
Fund requires financial support and the level of contribution to be paid to the
Fund by insurers. The contribution may not exceed 2 per cent of aggregate of
the gross premiums paid to each insurer for policies issued in respect of risks in
the State.
A levy in accordance with Section 6 of the Act (as substituted by Section 7 of
the Insurance (Amendment) Act 2011) came into effect on 1 January
2012. The Central Bank set the levy at the maximum 2% of aggregate of the
gross premiums paid. The Department of Finance estimates that the levy will
generate approximately €65 million per annum. (In 2013 the levy generated
€64.6m.) The levy is payable quarterly in arrears to the Revenue
Commissioners, who have responsibility for its collection, and they transfer the
proceeds of the levy to the ICF account.
Liquidation of an insurance company
The Committee will be aware that the liquidation of an insurance company is a
legally complex and time-consuming process. In general terms, under the
Statute of Limitations, claimants are given two years following an accident to
make an initial claim. However, it could take several years for a particular case
to be settled. Protracted legal challenges also add years, and often additional
costs, to the claims process. These are factors that the Liquidator is currently
examining in order to get an estimate of the cost of claims in the Setanta
liquidation.
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Committee members will be aware that the liquidation of Setanta insurance is
still at an early stage. The Liquidator has advised us that claims and "Incurred
But Not Reported" amounts (IBNR) are likely to be considerably greater than in
the Statement of Affairs as prepared by the Directors at the time of
liquidation. The Liquidator has appointed Towers Watson to conduct an
assessment of the adequacy of the claims reserves quoted in the Statement of
Affairs. To date he has only received preliminary information from Towers
Watson on claims and INBR reserve amounts as part of a detailed examination
of the insurance claims against the company. The Liquidator has emphasised
that any information on claims is subject to change as more information is
received and that this may have a material impact on the overall estimate of
the likely maximum dividend that will be payable from the liquidation.
How claims may be paid out
The main factors in relation to the ICF payments of claims as set out in the ICF
legislation is as follows;

A payment may only be made if it appears unlikely that the
claim can be met otherwise than from the Fund. This means that
it is necessary to clarify,
o how much is available from the Liquidator to go towards the claim
o whether or not MIBI is in a position to pay the claim or a portion
of the claim

The ICF only pays out on claims where an individual is involved. The
Act provides that claims by bodies' corporate or unincorporated bodies
are not covered by the Fund except where there is a liability to or by an
individual. While the Liquidator has informed us that Setanta had a
significant number of "commercial" policies, he is not in a position to
clarify the exact amount at this stage. He has indicated that 'It doesn't
necessarily follow that most claims would not be covered by the Fund.
While we have not detailed breakdowns, we expect that the majority of
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claims will relate to liability to individuals and would therefore be
covered'.

In a liquidation situation, the ICF only pays out 65% of the total claim
or €825,000, whichever is the lesser.

The ICF does not refund unearned premiums.
The Motor Insurance Bureau of Ireland
The Motor Insurance Bureau of Ireland (MIBI) is a non-profit-making
organisation registered in Ireland, which was established by Agreement
between the Government and those companies underwriting motor insurance
in Ireland, in accordance with EU Motor Insurance Directives.
All insurance companies underwriting motor insurance in this country must, by
law, be members of MIBI and contribute to funding claims in proportion to
their market share. The principal role of MIBI is to compensate innocent
victims of accidents caused by uninsured and unidentified vehicles. This is
regulated under the terms of a 2009 Agreement between MIBI and the
Minister for Transport, Tourism and Sport.
MIBI does not operate a fund. Claims are received and issued to one of four
major insurers which handle the claims on behalf of MIBI. When claims are
settled, MIBI member motor insurance companies are levied to make up the
amount due. This means that MIBI is funded entirely by premiums paid by
insured policyholders and it has a responsibility to ensure that all its payments
are appropriate and fair.
The arrangements put in place by MIBI for dealing with the Setanta claims is a
matter for MIBI itself under the terms of the Agreement and as such it falls
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outside the remit of the Minister for Finance to issue instructions to MIBI. The
situation of Setanta Insurance, where an insurance company has gone into
liquidation, is believed to be unprecedented. Given this fact and its potential
impact, MIBI is taking legal advice as regards its role and responsibilities. The
MIBI board will be meeting in the coming days after which further clarifications
are expected.
The question of the Liquidator accessing the ICF.
The question as to how the ICF can assist those policyholders affected by the
Setanta closure, the role of the MIBI and the work of the liquidator continues
to be examined by the Department. The process to be followed and the formal
procedures for making applications will be set out once clarification is reached
on a number of issues.
It goes without saying that payments made by the relevant parties must be
entirely in compliance with laws and agreements under which they operate. In
the case of Setanta, it is necessary for all the parties to obtain clarity on the
legal position. Furthermore, for the Liquidator, each case is subject the terms
of the individual insurance policy itself.
According to Section 3B of the 1964 act, as amended, where a person who
performs the functions of a Liquidator has been appointed to an insolvent
insurer in another Member State, then the Accountant to the High Court may
apply to the High Court for approval for amounts due to claimants subject to
the limitations set out in the legislation.
The Office of the High Court Accountant will liaise with the Central Bank of
Ireland and Department of Finance on the state of the ICF and its ability to
meet claims. The ICF is expected to be adequately funded to meet all claims
but the Minister for Finance may advance monies to the ICF to meet any
shortfall if necessary.
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Closing remarks
Committee members will be aware of the Ministers strong desire that matters
relating to the liquidation of Setanta be progressed and concluded in an
orderly fashion. This is important for the claimants as well as former policyholders of Setanta Insurance. It is also important for the insurance sector as a
whole.
In summary then, Setanta claimants should continue to contact the Liquidator
in relation to their claims until otherwise advised. The Liquidator is continuing
his work on providing clarity to the extent he can on the full extent of claims
and the likely dividend from the liquidation. Once further information
becomes available, and the outcome of MIBI's consideration of its legal advice
has been taken into account, the Department will further examine how the ICF
can assist those policyholders affected by the Setanta closure.
The Department and the Central Bank continue to work with the Liquidator to
assist in that regard.
I am happy to take any questions or clarifications to assist the Committee.
Thank you
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