Inside the world of business
PwC and Milliman under scrutiny over Quinn roles
THE RISING cost of Quinn Insurance to the State and in turn to every motor and home insurance policyholder in the country has turned the spotlight on the company’s former auditors, PricewaterhouseCoopers, and “signing actuaries” Milliman over their failure to get a true picture of the losses.
The High Court was told this week that the two professional firms gave estimates to the administrators of the insurer shortly after they were appointed in March 2010 showing no major hole in its balance sheet.
The call on the Insurance Compensation Fund has since risen to a potential €1.65 billion, which is being met by what should now be known as “the Quinn levy”, a 2 per cent surcharge on all non-life Irish policies, to cover the black hole.
Minister for Finance Michael Noonan noted in a letter to the administrators in June that they were “exploring where there is a right of legal action for professional negligence against QIL’s former auditors PwC and the company’s signing actuaries Milliman”. He asked for his officials be “kept fully updated on this”.
Milliman were “signing actuaries” as Quinn didn’t employ any actuaries and used an external firm to sign off on actuarial opinions on reserves each year.
This is embarrassing for PwC, the last government’s chosen firm tasked with surveying the size of the black hole in the loan books of the banks and carrying out wider due diligence.
For this task they have been paid fees running to millions.
And it didn’t exactly cover itself in glory in this task. PwC reported to the Government in November 2008 that, even in a stress-case scenario, the banks would remain above their regulatory capital levels up to 2011.
The cost of the banks to the State has since risen to €64 billion. PwC will do well to remember the fate of rival accountants Ernst Whinney (now known as Ernst Young), which carried out due diligence for AIB on the bank’s takeover of ill-fated insurer Insurance Corporation of Ireland.
The State stepped in to save AIB by taking over loss-making ICI in 1985 and its then unknown liabilities, and the administrators of ICI later sued Ernst Whinney, which settled for about €49 million without any admission of liability.
Coincidentally, ICI’s administrators were PricewaterhouseCoopers and included former managing partner Donal O’Connor, who went on to become chairman of Anglo Irish Bank after he stood down from the accountancy firm.
Dublin hotels show slight recovery
ACCORDING TO figures released by Deloitte yesterday, Dublin hotel prices are on the rise. Occupancy levels were up 2.1 per cent on the same period last year, the average daily rate was up 7.8 per cent to € 81.32, and revenue per available room – a key indicator for the sector – rose by 10 per cent to €55.92 in the first half of this year.
Is this is a sign an industry at the coalface of the recession is beginning to recover?
Certainly it looks good internationally.
Earlier this week, Intercontinental Hotels Group announced a plan to return $1 billion to shareholders through a dividend and share buyback. Its business, which accounts for about half of revenue, saw revenue per available room grow by 7.1 per cent.
Back in Ireland, the picture is not so rosy.
While the Dublin market is showing some signs of recovery, much of it is being driven by business and “event” tourism, with events such as the Dublin City of Science festival and venues such as the O2 and the Aviva Stadium pushing up demand. Elsewhere around the country, hoteliers are still having a difficult time, with many quietly concerned about the performance of the sector in July.
The sale of two hotel properties in the UK formerly owned by the family of Seán Quinn in recent weeks – the Belfry for an estimated £90 million and the Crowne Plaza for £38 million – serves to highlight the continued stagnancy of the market here in Ireland.
Apart from the notable exception of the Morrison Hotel, sold last year to a Russian businesswoman for an estimated €22 million, the Irish hotel market remains weak. Continuing to suffer from oversupply and constrained demand, it remains to be seen how and when the market will fully recover.
DCC tops up its tank by buying BP liquid petroleum gas business
DCC IS continuing to strengthen its position in the oil and gas distribution market in Britain. Yesterday it announced that it has agreed to buy BP’s liquid petroleum gas distribution business in September for €51.3 million.
The Irish group is now the market leader and is using a change of tack by the oil majors to enhance its position.
Majors such as BP want to focus on production and get out of the messier business of delivering it to customers. Cue DCC, which has built up expertise in precisely this area and is happy to step into the gap.
The deal illustrates another advantage to the strategy. The BP unit complements DCC’s existing Flogas operation, with which it will be merged, creating a business that delivers 277,000 tonnes of fuel a year.
Energy is DCC’s biggest division by far, last year accounting for about three-quarters of its €10.7 billion revenues. The BP acquisition will strengthen this further, as will the deal to purchase Total’s former distribution operation in Britain, which the country’s Competition Commission cleared last month.
Much of the division is focused on heating, which makes the business weather-dependent, to a certain extent. The largely mild 2011/2012 winter helped to knock almost 40 per cent off its operating profits, which came in at €85.5 million for the 12 months ended March 31st. This followed two exceptionally cold winters, which boosted sales and profits. Weather tends to be unpredictable over the medium term.
DCC acknowledged this in its results briefing in May, and made the point that broadening its fuels business into areas that are less weather-dependent, such as transport or motoring, would help offset or level out those risks.
The BP business has only a minimal transport component, although the former Total assets do include motor fuels. Given what the group said in May, it would be no surprise to see it taking over an operation with a greater focus on transport in the near future.
Today
Kerry Group interim results out. Don’t expect any surprises from the consistently solid performer.
Quote of the day
My biggest regret in all of this is not challenging the provisional appointment of the administrators
– Seán Quinn on the administration cost of Quinn Insurance
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