THE CENTRAL Bank official who argued for the appointment of administrators to Quinn Insurance in 2010 will attend the High Court today to help explain why the cost of covering the firm’s losses to the State’s Insurance Compensation Fund could rise to €1.65 billion.
Domhnall Cullinan, the head of the general insurance division at the Central Bank, will attend the court hearing for the purpose of assisting Mr Justice Nicholas Kearns in questioning why the call on the fund has risen significantly.
Mr Cullinan, who has supervised the insurer since 2006, swore the affidavit to the court in March 2010 raising concerns about Quinn Insurance’s solvency.
He asked the court at that time to appoint administrators Michael McAteer and Paul McCann of Grant Thornton after the discovery of guarantees provided by Quinn Insurance subsidiaries covering loans to the Quinn Group.
He told the court that the effect of the guarantees was to reduce the value of the insurer’s assets by about €448 million and this negatively affected the solvency of the State’s second largest insurance company which had more than one million policyholders.
President of the High Court Mr Justice Nicholas Kearns said last week it was “truly shocking” that €1.65 billion may be required from the compensation fund to meet claims and costs arising from the administration of the insurer. He sought the “clearest of explanations” to be provided to understand the reasons for these costs at the hearing today. During last week’s hearing he said it would be helpful if somebody from the Central Bank also attended the court.
As a supervisor of Quinn Insurance and head of the general insurance division at the Central Bank, Mr Cullinan is regarded as the most knowledgeable person at the regulator to explain the financial position of the insurer.
The judge noted last week that the court was originally told that no funds would be required from the State fund and then last October was told money would be required from the fund.
The cost of the administration was put at about €738 million and this rose to €775 million. The amount being sought from the fund “had more than doubled” in the space of a few months, he said.
Lawyers for the administrators told the court that the €1.65 billion was “an absolute ceiling” and based on a worst-case situation, while the actual level of draw-down was expected to be between €1.1 billion and €1.3 billion.
The cost of the claims at Quinn Insurance is being met by a 2 per cent levy on all non-life insurance policies such as motor and home insurance. The Government said last year that this levy was expected to last for up to 12 years.
Mr Justice Kearns noted last week that this levy could now be place “in perpetuity” as a result of the increased cost of the claims.
The worst-case scenario cost of €1.65 billion includes a potential €215 million charge if the euro crisis continues to deteriorate due to possible currency fluctuations as the majority of the claims relate to losses on UK policies in sterling that the company funded in euro.
