The Quinn files

It is hard to imagine the thoughts running through Sean Quinn’s head as he made a trip to London one month before the Irish Financial Regulator hauled his company through the courts.

But it must have been a lonely journey. Once known as the wealthiest man in Ireland, with a place on the Sunday Times Rich List, Quinn had come a long way from his first business venture – selling stone from a quarry on his family farm in Fermanagh at the age of 15. But an ill-fated gamble on the stock exchange wiped millions from his personal fortune in 2008 and now – after months of speculation about the financial standing of Quinn Insurance – the regulator was baying for blood. There was only one gamble left.

According to leading brokers, Quinn had been forced to come to London to make a final attempt to persuade them to do business before Quinn Insurance went into freefall. The trip came to nothing, however, as industry chiefs baulked at dealing with an insurer without a credit rating and a history of controversy. This left Quinn with little to do but return to Ireland and wait for the regulator to make its move.

The crunch point came at 9am on 30 March, when the regulator, Matthew Elderfield, placed a ban on the insurer writing any new UK business to “protect its policyholders”, claiming the company was overstated by €450m (£387.7m) after it made extended guarantees of €448m within the Quinn Group. Two hours later, the Irish High Court placed the company under the joint administration of Paul MacAteer and Paul McCann of accountancy firm Grant Thornton. Elderfield has since also given voice to what many UK market players have long suspected, telling a public accounts committee that Quinn’s pricing in the UK was too low to meet financial claims.

This, however, has failed to wash with the thousands of Quinn employees who have taken to the streets in protest when it was revealed that 1,500 jobs were at risk and 900 earmarked for redundancy. In a statement sent to Insurance Times by Quinn senior manager and workers’ spokesman Matthew Baker, workers condemned the regulator’s actions as unnecessarily draconian. They argue that Elderfield swooped in before giving the company enough time to get its books in order.

“We genuinely believe that the regulator’s decision to implement a Northern Ireland and UK ban on Quinn Insurance trading was fundamentally wrong, particularly with regard to the manner in which it was implemented immediately prior to him going to the High Court to request they place the firm in provisional administration,” it said.

Although Quinn has been given the green light to begin trading again in a limited capacity in the UK, workers believe the insurer has been treated unfairly and are demanding a full-scale return to the UK without any pricing restrictions. More recently, administrators for Quinn Insurance have submitted a new business plan to the regulator, asking to re-open its commercial insurance lines in the UK, and are hopeful the regulator will allow Quinn to resume new lines of business in the next two weeks.

If the workers and the administrators get their way, the big question is whether Quinn can salvage its fortunes, becoming a plausible player in the UK market once again. Or has too much damage been done?

Background

Since Quinn set up its first UK office in 2003, it has been blighted by controversy. In 2004, the Department of Work and Pensions investigated allegations that Quinn was selling policies in breach of the Employer’s Liability Act 1969, forcing it to change its wordings. Three years later, Quinn was sued for pressurising a claimant, Galway-based Murray Timber Products, to settle early and low on a £54m claim in a case that was later settled out of court.

In the meantime, Quinn antagonised leading UK market players, who claimed its cut-throat pricing was preventing the emergence of a hard market. Aviva’s intermediary and partnerships director, Janice Deakin, points out that this prompted leading industry players to voice their concerns to the FSA that non-UK insurers were not subject to sufficient regulation. “We have certainly questioned the way in which the passporting system works in allowing such companies to come into the UK that don’t then have the same level of regulatory attention that UK-based insurers would have. The fact that they don’t get the same sort of attention means there is a risk associated with them, and we and other insurers have expressed that concern.”

In October 2008, Quinn’s first bust-up with the regulator came when it fined the Irish insurer €3.25m after discovering it had lent other Quinn group companies €229m to buy shares in Anglo-Irish Bank. Sean Quinn was personally fined €200,000 and forced to step down from the group’s board. The next blow came when the insurer’s rating was downgraded from positive to stable, prompting the insurer to refuse to return to a credit rating agency until it was assured of an A rating.

Today, it is hard to find brokers to admit to trading with Quinn. Many began to shy away from the new entrant as questions about its stability began to mount. Bluefin chief executive Stuart Reid told Insurance Times: “Two years ago we took the decision to wind down the account because we were concerned about their stability and the way they did things.”

But undoubtedly many continued to trade with Quinn, attracted by its low pricing that kept customers happy. In particular, the insurer became a dominant player in the solicitors’ professional indemnity market, while elsewhere major players Giles and Kerry London were known to have had substantial books of business with Quinn. Both have since refused to comment on the insurer’s current predicament.

What went wrong?

By November 2009, rumour was rife that Quinn was about to stop writing business in the UK, forcing chief executive Colin Morgan to launch a charm offensive in the UK and hold emergency talks with nervous brokers. In an exclusive interview with Insurance Times, he dismissed the rumours as rivals stirring up trouble. “Someone was trying to attack us and did us some damage, but they ran out of steam pretty quickly,” he said.

But it had seemed nothing could stop the slide in company fortunes when, in May 2009, Quinn posted a pre-tax loss of €58m, compared with a €245m profit in 2007. In a letter to UK brokers, Morgan defended the company’s results, arguing they “represent a very creditable performance against the backdrop of difficult economic conditions”. But despite this fighting talk, by July 2009 the insurer was red-lining – refusing to write business – in deprived areas in Ireland with high claims frequency. It emerged that Quinn’s stock market gamble on the Anglo-Irish shares had wiped €425m from the company and nearly €1bn from Sean Quinn’s personal fortune.

What the workers say

When the regulator’s axe finally fell, Quinn was defiant, claiming the company continued to trade profitably and in excess of €20m per month. It has rejected Elderfield’s claims that the insurer needed €700m to plug the hole in its solvency, arguing the figure is closer to €150m. To the anger of Quinn’s 5,500 employees, the Irish government has refused to bail the insurer out, leaving its fate firmly in the hands of the regulator.

Furthermore, they accuse Elderfield of taking away the company’s only chance to return to a sound financial footing by placing restrictions on trading in the UK and wreaking irreparable long-term damage to the insurer’s reputation.

“What the regulator should have done as a correct and responsible procedure would have been to allow the administrators to analyse the business and let them make an informed decision on the Northern Ireland and UK market,” the statement said.

“If after this review by the administrators, it was felt warranted to remove Quinn Insurance Ltd from trading in some parts of the market or increase prices in some areas, then fine, do this after their review, but why impose a ban on all lines, severely damage our reputation, and then reopen the business just a few weeks later?”

In their case for Quinn returning to full-scale operations in the UK, workers point out that Elderfield never made a visit to the company and based his decision on the basis of one poor trading year instead of its entire five-year cycle.

What’s more, they argue that the insurer’s solvency position of €230m exceeded EU requirements of €206m, pointing out that the Irish requirement of €310m is the highest in Europe. Sean Quinn has since revealed to a local Irish radio station that the company has been losing €1.5m per day after being placed into administration.

What now?

The insurer has backtracked from its more open approach of last year – refusing all interviews save occasional statements to local Irish media – while the once pugnacious Morgan seems to have disappeared from the limelight. Insurance

Times has learnt from a source close to the administrators that a rehaul of senior management is planned, with many expected to take voluntary redundancy. Meanwhile, Sean Quinn has stepped down from the company board to ensure a smooth sale.

The workers’ preferred option is a takeover by the now nationalised Anglo-Irish Bank (AIB), which is still owed £2.8bn by the Quinn family. It hopes to partner with a foreign insurer to help run the company in order to overcome the financial regulator’s concerns.

Other interested parties are believed to include AXA, Allianz, RSA and Irish firm FBD, while construction giant Laing O’Rourke is reported to be interested in buying certain businesses within Quinn Group.

When approached by Insurance Times, the administrators confirmed they had received “four dozen expressions of interest” from both national and non-national banks, insurance and private equity companies. All interested parties are due to receive a detailed memorandum from the administrators by early June.

Despite much speculation about a proposed sale to AIB, the administrators say that no deal is on the table yet. “The administrators haven’t been asked to consider a deal. The AIB deal would be one that would be negotiated by the shareholders, which is the Quinn Group. But then it would have to be approved by the Financial Regulator, and the administrator would have to adjudicate on that once they have seen a deal. But they haven’t seen the deal yet or met with anybody from AIB,” a spokesman says. He also confirmed that redundancy talks would be held for senior management by the end of next week. “The deadline for the acceptance of voluntary redundancy is next Monday, so after that the administrators plan to sit down with senior management and evaluate senior management needs.” Job losses were unlikely to go beyond the 900 announced redundancies, he added.

While the administrators declined to be drawn on Elderfield’s comments about Quinn writing too low to meet future claims, they confirmed their focus would be on ensuring that future business in the UK would remain profitable. “The administrators only want to operate profitable lines, so if the question is do we want pricing restrictions to be lifted in order to write at a loss leader, then the answer is no. Business will not be written as a loss leader.

“The case for writing UK business is very simple; the company will open up profitable lines. Once the regulator is happy those lines are profitable, he will approve those lines.” But what respectable UK broker will ever deal with Quinn again?

The administrators’ line seems to be that rebuilding healthy relationships with UK brokers will be a gradual process, but not impossible. “Obviously the insurer has had good relationships with UK brokers previously, but it will depend on which lines of business it opens up. If it is an incremental process, it will be easier to rebuild those relationships because it will be an incremental expanding of certain lines,” the spokesman says.

It remains to be seen if this optimistic outlook becomes reality or just wishful thinking. IT