Académique Documents
Professionnel Documents
Culture Documents
MAY 2013
Table of Contents
THE GUARANTEES AND THE REGULATORS DECISION ................................................................................................. 3 THE FINANCIAL REGULATORS DECISION OF MARCH 2010 ............................................................................................. 3 THE MOORE STEPHENS REPORT ..................................................................................................................................... 5 PWC CORRESPONDENCE WITH FINANCIAL REGULATOR POST ADMINISTRATION ......................................................... 8 THE SALES PROCESS AND THE QUINN RESTRUCTURING ............................................................................................10 THE LIBERTY - ANGLO DEAL .......................................................................................................................................... 10 THE QUINN FAMILY PROPOSAL THE DETAILS ............................................................................................................. 12 DISCUSSIONS ANGLO POST ADMINISTRATION ............................................................................................................. 14 ARGUMENTS AGAINST THE QUINN FAMILY PROPOSAL ............................................................................................... 16 ANGLOS QUINN RESTRUCTURING PROPOSAL ............................................................................................................. 18 QILS RESERVES ..........................................................................................................................................................22 CENTRAL BANK IRISH INSURANCE STATISTICAL REVIEW 2009; .................................................................................... 22 THE EMB REPORT 2010; ................................................................................................................................................ 23 GRANT THORNTONS RESERVE ESTIMATES; ................................................................................................................. 25 QILS MANAGEMENT REPORTS (THE MIS STATS) .......................................................................................................... 27 GRANT THORNTON MISMANAGEMENT OF QIL .........................................................................................................29 FINANCIAL MISMANAGEMENT..................................................................................................................................... 29 OPERATIONAL MISMANAGEMENT ............................................................................................................................... 31 OTHER INFORMATION ...............................................................................................................................................33 THE MICHAEL NOONAN INTERVIEW OF 14 APRIL 2011 ...........................................................................................35 QUESTIONS TO BE ANSWERED REGARDING QUINN INSURANCE ...............................................................................37
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Abbreviations: Quinn Insurance Limited (QIL), Liberty Mutual (Liberty), Anglo Irish Bank (Anglo), The Irish Financial Regulator (the Regulator), Insurance Compensation Fund (ICF)
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PwC, the auditors of the companies for the previous five years, was incorrect. The Regulator essentially decided over this four-day period that the subsidiary companies, worth 448m, were, in fact, worthless to QIL, because of the existence of the contingent guarantees. The basis of his interpretation, or the professional advice, if any, that he relied upon to justify this stance, has never been disclosed. There was never any risk of the guarantees been relied upon, and this was confirmed to the Regulator by not only the Quinn Group, but also by the Lenders representatives, who travelled to Dublin during that four-day period to assure him that they would not be calling on the guarantees and that they were willing to release their guarantees (of which they too were unaware), but would need some time (up to two months) to undertake the legal process of relinquishing the relevant guarantees. However, that was not acceptable to Mr Elderfield, who demanded written confirmation of the release of the guarantees from the Lenders within 24 hours. Such a deadline was extreme to say the least in the prevailing circumstances: the bondholders, who were multinational banks, could not have complied within such a timeframe, given that they would have had to receive both Board and Credit Committee approval to do so that was unrealistic in such a short timeframe, but they were prepared to do it, if given adequate time. The Regulator's interpretation of these guarantees resulted in QIL s having an apparent substantial shortfall in its solvency requirement. It was on this basis that Mr. Elderfield sought to have QIL placed into administration, with catastrophic consequences, not only for QIL, but also for the wider Quinn Group and ultimately for the insurance industry and its customers. At that time, there was a significant amount of legal uncertainty surrounding the existence and enforceability of the guarantees. The Quinn familys unwavering contention is that the contingent guarantees did not affect the solvency of QIL. This is not only the Quinn familys view; it is the opinion of PwC, the auditors of the company for the previous five years, and also the opinion of Moore Stephens LLP, a London based accountancy firm commissioned by Quinn Group to undertake an independent investigation of the matter. In short, Moore Stephens LLP concluded that the Regulator was incorrect, and that the guarantees, even if they had been properly and legally in place (which they were not), did not affect the solvency of QIL. It took them, a leading accountancy firm, months to prepare this detailed report on this issue, however Mr Elderfield was able to categorically decide the opposite in four working days. The Regulator's flawed interpretation of these guarantees is fundamental to what has occurred in QIL since the appointment of the administrators. It is also fundamental to what has happened to the Quinn Group. Since then, as Quinn Groups problems were finally precipitated by the appointment of the Administrators to QIL. Ultimately, that decision is the primary reason that the 1.6bn levy is now required.
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detailed assessment of the financial position of each of the 35 Guarantor companies within the Quinn Group It is clear that no such assessments were conducted by Matthew Elderfield or any of his staff. The Moore Stephens Report (an independent report) could not be clearer. Even after the Event of Default was triggered by the Regulator, in order to assess the potential impact on the solvency position of QIL, if any, a detailed assessment of 35 Group subsidiaries would be required . It is important to note that Mr Elderfield acted within four working days of being notified of the existence of the Guarantees. In the affidavit presented to the High Court, the Regulator stated: First, the guarantees granted by certain of the Insurers subsidiaries have the effect of reducing the Insurers assets, on the basis of calculations provided by Allen & Overy, by approximately 448m. On the basis of currently ava ilable information the Financial Regulator is not in a position to verify the true extent of the impairment of the Insurers assets by reason of the guarantees: The fact that the guarantees have been in place and undisclosed for a significant period of time is a matter of gravest concern. The emergence of the information at this time calls into serious question the administrative and account procedures and internal control mechanisms of the Insurer This statement is in stark contrast to the professional opinion of PwC and Moore Stephens LLP, yet three years after the appointment of the Administrators, and having been given the Moore Stephens Report, Mr Elderfield has still failed to produce the legal and/or professional advice upon which he relied at the time. In the absence of the necessary disclosure, how can the public be satisfied in relation to the basis and the professionalism with which Mr. Elderfield acted in this case? What would have happened if the Guarantees were called in? In order to assess how obscenely rash Mr Elderfields decision was, it is also important to understand what would have happened if the Lenders had called in the subsidiary Guarantees, even though they expressly stated to Mr Elderfield, that they would release them, if given time. The guarantees were contingent guarantees, they were not share pledges. This meant that they could only be called upon in very select circumstances, and upon the breach of agreement or covenants, with the Groups Lenders. In the event that the Group had breached its covenants, and the Lenders had, as a consequence, called in the Guarantees, that would still not necessarily have impacted on the solvency of QIL. As referred to in the Moore Stephens Report, a financial assessment of the Groups finances would have been required to assess what impact, if any, the guarantees had on QILs solvency. The Guarantees ranked pari-pasu with other agreements which meant that all other creditors ranked alongside the Lenders in event of a call. Therefore, all the creditors would have had an equal right with the Lenders to claim. In such a situation, it is likely that Court intervention would have been required. That would have meant that a High Court Judge would have had to decide between the Lenders and the policyholders of QIL, who had an equal right to claim as the Lenders. It is extremely likely that, in any such event, policyholders would have been deemed preferential creditors, thereby eliminating any potential call by the Lenders, even if they had been successful in establishing that the Guarantees were properly in place, which is disputed by the Quinn family. This would however have been a matter for the Courts, if the event had arisen. Therefore, the only way in which the Guarantees could have had an impact on the solvency of QIL was in the extremely unlikely scenario where ALL of the following would have happened: There had been a breach of convents at Group level; that did not occur until after the Regulator placed QIL into administration;
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The guarantees were deemed to be correctly in place, which the Quinn Group board believed they were not; The Lenders were successful in making a call on the subsidiaries, overturning a likely injunction by the boards of the companies and their owner, QIL and Quinn Group; A High Court Judge deemed that the Lenders ranked ahead of the other creditors; namely the policyholders. Even if this process had been followed through, the subsidiaries would then have had an automatic right to counter-claim against the Quinn Group for any loss incurred and to balance any losses throughout the Group. Therefore, when the 1.27bn was spread evenly across all the Quinn Group subsidiaries, the amount claimable from the QIL subsidiaries could only have been a portion of the 448m not all of it. The Regulator deemed this whole amount to be inadmissible, in his calculations of the solvency position. That was the full value of the subsidiaries at that time and the Regulator accepted that number as the level of the impact on QILs solvency. It was clearly a completely false analysis and Mr. Elderfield and/or his staff erred seriously in this matter.
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In that report page 2, paragraph 1, the following comment is included: PwC is of the view that its audit opinions in respect of the years 2005, 2006, 2007 and 2008 were appropriate. They go on at Page 10 to claim: PwC was aware that PwC UK undertook audit work each year on covenant compliance as part of its assessment of the going concern status of Quinn Group. As this work had been successfully completed in each year, PwC had no reason to believe that the existence of cross company guarantees of any type would have any financial impact. (ii) PwC Response dated 26 July 2010 to the Financial Regulators letter dated 5 July 2010. In Paragraph 1.4 (b) the audit firm confirms whether PWC agrees that, in accordance with the valuation Rules contained in Annex III of the Regulations, the assets of the relevant subsidiaries should have been excluded for valuation purposes. They state: In respect of the years ended 31 December 2005-2008 (inclusive) PwC is not aware why an adjustment is requested to the valuation of the net assets of the relevant subsidiaries recorded in Forms 6 at those dates to which the respective forms where drawn up. On the basis of the information currently available to it, PwC does not agree that the application of the valuation rules contained in Annex III of the European Communities *Non-Life Insurance) Framework Regulations 1994 would require the assets of the relevant subsidiaries to have been excluded from QILs calculation of assets admissible as representing technical reserves as at 31 December 2005-2008 (inclusive). In a separate Report on the 29 October 2010 to the Regulator, PwC go further. They state that the Regulator instructed QIL (the Administrators of QIL) to write the assets down to zero thus insuring there 4 was a solvency deficit . This matter arose when PwC submitted a Regulatory return on the 18 June 2010 and the Regulator sought further information on what gave rise to the report. PwC responded stating: On 24 May 2010, PwC received a copy of QILs monthly return to the Financial Regulator for the period ended 30 April 2010. The Valuation of the net assets of the subsidiary companies which had provided guarantees in respect of the liabilities of Quinn Group Limited was written down to zero in the return. On enquiry, PwC was informed that the net assets had been written down to zero in the return for the period ended 31 March 2010 on the instruction of the Financial Regulator, and that the joint administrators of QIL had required that the 30 April 2010 return also be completed in accordance with the instruction. As at 24 May 2010, the joint administrators had not, however, prepared a formal assessment of whether a liability was required to be recorded in respect of the
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PwC Report Quinn Insurance Limited, report to the Financial Regulator, 21 June 2010 PwC Report Quinn Insurance Limited, report to the Financial Regulator, 26 July 2010 4 PwC Report Quinn Insurance Limited, report to the Central Bank of Ireland, 19 October 2010
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guarantees, taking account of all the relevant facts and circumstances, which PwC required for purposes of complying with its responsibilities under Section 35(1). On 14 June 2010, PwC received correspondence from QIL which stated it is currently our view that the existence of the guarantees has a material impact on QILs ability to ensure full value for its investment in subsidiaries. In this context we anticipate that from both an accounting and regulatory perspective that it would be prudent to account for a complete impairment of the investment leading to a nil net book value of the investments as recorded in the books of QIL.
Therefore, on the 18 June 2010, two and half months after the Administration, PwC filed a return writing down the subsidiary assets to nil. The basis of the nil valuation was an instruction from the Regulator to th QILs Administrators. On the 24 May 2010, PwC noted that the Administrators failed to prepare an assessment on whether a liability was required in respect of the guarantees, three weeks later PwC received an instruction from the Administrators in line with the Regulators instruction to write-down the assets to nil.
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In order for the Anglo/Liberty deal to go ahead, 365m was removed from QILs reserves; these were funds and assets that were previously held by QIL to meet claims. Having been removed, they had to be replenished by the ICF, but they should never have been removed from QIL reserves and the ICF should never have had to pick up the tab for this totally unjustified action. The following is a break -down of that 365m: 98m was Capital taken from QILs reserves for Anglos 49% shareholding ; 80m was Cash paid to the Quinn Group as part of the deal to release the guarantees 120m was a Loan note given to the Quinn Group as part of the deal to release the guarantees 67m was an intra-company loan written-off as part of the deal between Anglo and the Quinn Group 5 TOTAL 365m That deal had a number of implications, which have serious ramifications for Irish policy-holders; those aspects have never been explained to the Irish people, by either the parties involved or the media. The following are some of the more crucial aspects, if one wishes to understand the Anglo/Liberty Deal: 1. The only new injection of capital into the business was the 102m from Liberty; that represented only 6.3% of what Irish insurance policy holders, through the ICF, have been asked to fund; 2. Anglo has utilised 98m from the Reserves of QIL to fund their shareholding in the new entity, they invested none of their own money. No other bidder was given the option to access the ICF or the Reserves of QIL to fund their shareholding; 3. In April 2011, Anglo/IBRC valued their stake in QIL at 400m. That was a very telling statement in that it indicates Anglo/IBRC, a state body, was at that time fully aware that Libertys stake was worth 6 more than 400m, even though they had acquired it for 102m . In an interview with Ian Kehoe of th the Sunday Business Post, on the 12 August 2012, Michael McAteer, accepted that Liberty have got a very good deal and could quadruple their investment, as the following exchange indicates: Ian Kehoe: Liberty seem to have got a great deal here. The suggestion is that it could quadruple its investment in a few years. Could the Administrators not have extracted a better deal for the sale of the business?
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Quinn Group, Financial Restructuring Summary Overview, 19th April 2011 Anglo Irish Bank, Presentation on Quinn Group by Anglo Irish Bank Corporation Ltd, to the All-Party Cross-Border Elected Representatives Group, 9th May 2011 Page 10
MMcA: If they quadruple their investment, the Insurance Compensation Fund quadruples its investment too. We have an indirect 25% shareholding, 25 per cent in the company we will benefit 7 too. Comment: The reality is that the ICF (through Irish policy-holders) is being asked to put in 1.6bn compared to Libertys 102m (i.e. the Irish taxpayer pays 15.69 times as much as Liberty, while Liberty gets 51% of the shares and the Irish taxpayer gets 49%). If Liberty quadruples its investment they will make 408m, while the ICF will get a return of 196m (50% of Anglos 49% shareholding) or a 12.2% return compared to Libertys 400% return. However, any potential return to ICF is highly dependable on when Liberty buyout Anglos 49% shareholding, to date there has been no return. Due to the sudden liquidation of Anglo in February 2013, the buyout of Anglos shareholding is more than likely going to be this year, leaving the ICF with little chance of making a return and also leaving the Quinn family being blamed for what was outrageously bad negotiating on the part of Anglo and Department of Finance. 4. As part of the deal, the company was split into two, with Liberty / Anglo taking the Republic of Ireland business, and the UK business being placed into an effective run-off. Liberty and the Administrators will in turn receive a payment from the UK business at the expense of the ICF, to run down the UK book. By winding down the UK business, Liberty/Anglo has no export business, whereas Liberty Insurance has a standalone operation in the UK. 5. Liberty was given complete control over the Joint Venture. . As a result, there is no incentive for Liberty to grow the business until Anglos 49% shareholding is bought out, thus ensuring that a low price is paid, if anything is ever paid for Anglos shareholding. 6. Anglo and Liberty have competing objectives in the Joint Venture. Anglo is purportedly seeking debt recovery over the medium term, 2-3 years. Liberty is seeking to restructure the business, build up a presence in Ireland and eventually grow in the long term at least five years, plus. This is borne out by the fact that Liberty is continuing to shrink the business, with a further 425 redundancies in November 2012. Furthermore, Liberty are still to make a profit. 7. The deal effectively ensured that the Quinn family would litigate against Anglo over Market Abuse Regulations and breaches of Section 60 of the Companies Act to challenge the validity of the 2.3bn advanced by Anglo for share support. This could potentially lead to a significant compensation claim against the State and open the door for other investors and hedge funds who were defrauded by Anglo to take civil action. 8. The deal provided that the Quinn Group received a total return of 267m (200m cash and loan note + 67m loan write off). This directly impacts the Reserves of QIL and in turn the ICF. If the Quinn Groups Lenders believed the Guarantees were legally valid why would they take a 50% haircut? It suited the Joint Administrators and the Government to pay off the guarantees, in an attempt to justify placing QIL into Administration. 9. Anglo nominee Richard Woodhouse was appointed to the board of QIL. Mr Woodhouse has no insurance industry experience and has since left Anglo. 10. The deal promised to secure all jobs in QIL. At that time, QIL had already lost 900 jobs through redundancy, not to mention many others who voluntarily left the Company and were not replaced. Within 12 months of the Court sanctioning the deed of transfer from QIL to Liberty, which effectively transferred all the staff to Liberty, they announced a further 425 redundancies, despite prior assurances to the contrary.
The Daily Business Post Inside the Quinn Clean-up, 12 August 2012; Page 11
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The Quinn family proposal, 19th January 2011; The Quinn family alternative proposal, Conditional offer to the purchase the shares of Quinn Insurance Limited , 5th April 2011 Page 12
These targets with their massive benefits to the Irish taxpayer and the Irish economy compare very favourably with what has already happened, is happening and is likely to happen, under the structures and decisions of the current managers and funders.
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Totally out of the blue, on Thursday 9 December, the Quinn representatives were informed by Anglo that they were submitting a joint bid with an unnamed third party. On the 13 December 2010, representatives of the Quinn shareholders met senior officials of Anglo. At this meeting, Anglo confirmed that they had submitted a joint proposal regarding the acquisition of QIL to the Joint Administrators and that this proposal involved an unnamed third party. At the time the Quinn representatives firmly believed that the unnamed third party was the US based insurer Liberty something which we all know now was indeed the case. At that meeting, despite the previous intensive discussions over the preceding eight months, Anglo told the Quinn representatives that they would have no more involvement in their proposal, and no coherent reasons were given for the change of approach. Anglo also stated that they had concluded that it would no longer be possible for the Quinn family to repay all of the debt due to Anglo under the overall repayment plan. Since this had been a core objective from the start, Anglo had unilaterally ensured, by their last minute u-turn, that any future dealings with the Quinn family would be non-consensual and that there would be no further negotiations and they stated that they were treating all future discussions on this basis. At that meeting, the Anglo representatives would not give the Quinn representatives any details of the proposals for Sean Quinn or the Quinn family. On the 17 December 2010, representatives of the Quinn Group met with the Secretary General of the Department of Finance and had a two hour meeting with him, at which they made a detailed presentation in respect of QIL and the Quinn Group. They demonstrated how the Anglo debt would be repaid over a seven year period, even leaving a surplus over debt of circa 231m. The proposal also highlighted the two theoretical alternatives that had been modelled, in which a third party would take an initial 25% or 50% economic interest respectively in QIL, followed by a complete buyout in seven years time. The alternatives considered, all demonstrated that the return to the taxpayer would only be a fraction of that which would be available under the Quinn family proposal, namely 537m under 25% third party shareholding and 335m under 50% third party shareholding, compared to 2,031m under 100% Quinn family ownership. At the conclusion of the meeting, the Secretary General advised that he would study the proposal in detail himself and also get it examined in detail by persons with the necessary expertise to do so. No response whatsoever was ever received from the Secretary General. On the 5 January 2011, the Quinn Group representatives met with Michael Noonan TD (now Minister Noonan), went through the Quinn proposal in detail, and compared the alternatives. At the end of the meeting Mr Noonan said he would review the proposal himself, in detail and have it examined. No response was ever received. Likewise on the 25 January 2011, the Quinn Group representatives met with the Chief Executive of the NTMA. During this meeting, a detailed submission was made in relation to QIL and the Quinn Group, it was clearly demonstrated that the 2.8bn could be repaid, with no call on the ICF. The Quinn proposal was clearly the only option that maximised debt recovery and protected jobs, it was best proposal for all interested parties.
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(1)
The Financial Regulator Would Not Accept Any Proposal That Involved Sean Quinn Snr, as He Had Previously Been Sanctioned.
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Reference Alan Dukes letter 4 May 2011 to the cross border political representatives. It had become clear 10 that the Financial Regulator would not approve any project in which Sean Quinn would be involved. Comment This is a red herring. Mr Quinn would have had no involvement in the Quinn proposal whatsoever, and this was clearly highlighted in the familys proposal. Furthermore, Mr Quinn has not been involved in QIL since he stood down and was sanctioned by the Regulator in 2008. The proposal sought to appoint a completely independent board of Directors, and all proposed Directors would require the approval of the Regulator. No member of the Quinn family was on the proposed board. The reference by Alan Dukes to the Regulators not approving any proposal with Sean Quinn involved, shows both a complete lack of understanding of the Quinn proposal and also the level of control exerted over the sales process by the Regulator. This raises serious questions about the supposed independence of the sales process. The Administrators are Court appointed, and their role was to report to the Court, not to the Regulator. From the Regulators point of view, the Quinn proposal would have ensured that QIL was fully recapitalised and a new independent board appointed. In December 2010, Mr Michael McAteer was recorded during a conference call with senior management and members of the employee committees. During this call, Mr McAteer stated that the Quinn family would never be involved in the running of QIL again, he states that he had advised the participants on the call of that 6 months ago, which predated the commencement of the sales process. This calls into the question the whole 11 independence and bona fides of the sales and administration process . The following are extracts of the recording: 9.26 Declan: Sorry then, if the Quinn and Anglo relationship has broken down altogether, is that Quinn out of it altogether per say? 9.32 Michael McAteer: He was never in it. Thats what I told you that months ago. He has not been in the process for the past six months. I told you that, I told this call over six months ago but certain people wouldnt believe me. 9.40 Attendee: No, but if he was involved with Anglo, you would believe there was something. 9.44 Michael McAteer: No, I told you six months ago he was gone. And again, after Derek speaking metaphorically about putting out a fire, Michael adds the following contribution: 15.11 Michael McAteer: Part of what the fire is Derek, I know its not, I know its not this committees function or job but all I can say is that for your, you know, lemme, let me, let me be as categoric even though Declan has asked the question again. The Quinn family are gone. They will never have an involvement whatsoever in this
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Letter from Anglo Irish Bank Chairman Mr Alan Dukes to TD Caoimhghin OCaolian, 4 th May 2011 Michael McAteer, Conference Call Recording, December 2010; Page 16
insurance company ever ever ever again. Now Ive been saying it for months but, but you know, I know theyve been at various games in the background to try and manipulate things. That is the facts of the matter. We cant put that in an email. But people are coming and theyre, and theyre asking you questions and you can wonder where maybe they, you know, what, what, what games, what games been played. That is the game they played. I cant be, I cant put it in writing, but thats what whats going on. (2) The Quinn Proposal Required Anglo to Lend a Further 750m . Comment: This is not true. The proposal could have been implemented with an investment of 250m depending on the structure. The current deal between Anglo and Liberty required Liberty to invest only 102m of fresh capital while the ICF is required to fund 1.6bn. The funds required to recapitalise QIL could also have come from another financial institution. But it made sense for the funds to come from Anglo as it would have ensured that they had full security and were part of a wider restructuring plan. Furthermore, any new funds introduced would have been given a payment preference Even if the deal did require the amount of 750m, this is still less than half of the funds required under the plan ultimately implemented by Anglo, which impacts the ICF to the tune of 1.6bn. Furthermore, the deal ensured that there was no conceivable way for the family to repay the 2.8bn, thus ensuring the write-off of well over 2bn in loans.
(3) The Quinn Proposal Would Not Work. Comment: The repayment plan sought to have all revenue streams and assets from the Quinn family focusing on the repayment of debt, including any new capital introduced. The proposal was conservatively estimated and Anglo had, during the 8 month discussion period, agreed with the proposed repayment plan. At the end of the seven year period Anglo would have access to the: - International Property Portfolio: including seven years rental income as well the capital value of the assets, which should significantly appreciate in value. The proposal used the market values at that time, which were depressed. QIL: 100% of all profits over a seven year period, then an option to either sell the company or issue an IPO. Admiral Insurance in the UK has a similar business model to QIL, and has a P/E ratio of 14.5. Even using a discounted P/E of 10, QIL would have a forecasted valuation of 1.7bn after the 7 years. (average forecasted PBT for three years x 10) Quinn Group: Any equity within the Group after seven years would have been available to Anglo.
The family and their advisors, BDO, firmly believe if given the opportunity, the proposal would have succeeded. The proposal implemented by Anglo bears no comparison, as their proposal ensured that there would be 1.6bn call on the fund and well over 2bn of loan losses, crystallising a 3.0bn to 3.6bn loss immediately and leaving the bank completely open to litigation.
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Since the decision of the House of Lords in Trevor v Whitworth (1887) 12 App Cas 409, it has been clear that a company must not finance the purchase of its own shares. In some circumstances, the courts will not lend their aid to the enforcement of an illegal contract
Justice Charleton goes on to state that the banks action to appoint the Share Receiver compounded the illegality, he claimed that: Anglo do not now seek to avoid a share sale but rather to compound an alleged wrong by continuing and following through on the appointment of a share receiver in respect of debts incurred through illegality
Not only was the bank aware that the security was illegal, but the Department of Finance was put on notice in January 2009, by their own legal advisors Arthur Cox, that the Bank had advanced funds to meet margin calls.
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Eversheds Letter to McCann Fitzgerald, 7th March 2011 J Charelton Judgement, Record No. 2011/4336P, 29 February 2011 Page 18
Furthermore, the Bank and the Department of Finance were fully aware that the ODCE was investigating Anglo at this time for breaches of S60 of the Companies Act. Three former executives of Anglo have since been charged with criminal offences over these same breaches. This alone is an extraordinary stance for the IBRC to maintain, on one hand the DPP has charged three former Directors for breach of S60 of the Companies Act, believing the loans to be illegal, and on the other hand they are trying to rely upon the loans and its underlying security, in their claims against the Quinn family. This seems like some form of orchestrated conspiracy, which appears reminiscent of totalitarian regimes of the past. Incredibly, despite all of this, Anglo went ahead and relied upon the disputed security in appointing a Share th Receiver over the Quinn familys companies on the 14 April 2011. The Quinn family issued proceedings within a month seeking to challenge that action. Due to the variety of challenges brought by Anglo, and the pending criminal proceedings against former executives of the Bank, the Quinn familys case is unlikely to be heard until 2015. That is unjust, since justice delayed is justice denied. SUMMARY OF ANGLOS PLAN Anglos restructuring actions on the 14 April 2011 focused entirely on three areas, as follows: the Quinn Group (i.e. the manufacturing businesses); QIL; and the International Property Portfolio. Anglo forecast that their strategy would recoup 1.070bn from these sources . Their proposal however, was fundamentally flawed, misleading and untrue - Anglo knew that prior to its adoption and implementation of the plan. The proposal was presented to political representatives on the 19 May 2011. Furthermore, on the 20 April 2011, Alan Dukes told journalists that the bank expected to recover less than half of the 2.8bn purportedly 15 owned by Quinn companies . The following table indicates what they expected to realise: ESTIMATED RECOVERY The Quinn Group (Manufacturing businesses) 270m QIL 200m* The Property Portfolio 600m TOTAL 1,070m *Anglos 49% stake valued at 400m, 200m for Anglo & 200m for the ICF The following paragraphs provide some insights into the performances and likely values of the three categories of asset quantified in the foregoing table. 1)
2)
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ASSET
The Quinn Group was previously a very successful group of businesses, employing almost 7,000 people. It 16 generated profits of over 1.4bn between 2005 and 2008, on turnover of 7.3bn , as the following table quantifies: Trading Summary Gross Sales Underlying Profit* Year End 31 Dec 05 m 1328 224 Year End 31 Dec 06 m 1640 285 Year End 31 Dec 07 m 2116 442 Year End 31 Dec 08 m 2264 453
Underlying profit represents profit before tax, loan provision, foreign exchange and investment gains/(losses)
Anglo Irish Bank, Presentation on Quinn Group by Anglo Irish Bank Corporation Ltd, to the All-Party Cross-Border Elected Representatives Group, 9th May 2011 Irishliquidations.ie, Anglo could recover up to half of Quinn debt, 29th April 2011, 16 Quinn Group Limited, Annual report and consolidated financial statements for the year end 31 st December 2008. Page 2
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When QIL, a subsidiary of the Quinn Group, was placed into Administration, the Quinn Group was effectively insolvent. The Lenders to the Quinn Group (a consortium of banks and bondholders, which did not include Anglo) were owed 1.27bn. As the Lenders had contingent, contractual guarantees, rather than Share Security, that meant that if the Group defaulted on its obligations, the Lenders could seek to enforce their loans through the Courts and the Group could seek Examinership. This would not have suited the Lenders. Consequently, Anglo, relying on their very questionable share security, agreed a deal with the Lenders. From the details of the restructuring, it appears that the Lenders had clearly worked Anglo and obtained an extremely generous deal. In summary, Anglo agreed with the banks and bondholders that: the annual interest payment due to the Lenders should increase from 30m to over 90; That the Lenders would take no write down whatsoever on their debt. Instead the debt was split, with 37% been held on the manufacturing businesses and 63% assigned to the Holding company accruing interest at 8.55% p.a.; The Lenders would be paid 200m from the reserves of QIL for the release of the cross guarantees, despite the clear legal uncertainty surrounding the validity of same. Furthermore, QIL would write off a 67m loan due from a Quinn Group company, both of these transactions resulted in a direct hit to the ICF; Anglo gave the Lenders 75% of the equity and voting rights of the Quinn Group. This in itself was an incredible concession, because, firstly, Anglo enforced knowingly questionable security, only to give away full control, as well as 75% of any potential recovery, to the Lenders, for absolutely nothing in return. As part of this restructuring, Anglo, in the guise of the Minister for Finance, Michael Noonan, and the th Department of Finance, stated that they would recover 270m from the Quinn Group on the 14 April 2011, when they knew full well that they had no chance of recovering a single cent. The current CEO of the Quinn Group, Mr Paul OBrien, released a media statement on the 6 November 2011, stating: The beneficial owners of the Manufacturing Group are a number of Banks and Bondholders; IBRC have a minority shareholding in the Group on which they have little or no prospect of ever getting a 17 return. . Therefore, seven months after Anglo appointed a Share Receiver to recover 270m from the Quinn Group, the Group, under the Lenders control, and facilitated by Anglo, were stating that Anglo will not recover a th single cent. Anglos recovery prospects were clear for all to see on the 14 April 2011, however that went completely unreported. The Quinn family believe that Anglo sought to effectively give the Group away to its Lenders, in order to wrest control of the Group from the family. This would ensure that the family would have no access to the Quinn companies records, files, staff or financial resources, which would greatly assist the family in progressing litigation against the bank. This is further evident from the move by Anglos appointed Share Receiver to remove from the Quinn Group all the Directors and executives who were familiar with the CfD transactions. In effect, Anglo perpetrated a cover-up and used its media contacts to disguise what it was doing and the evil underlying its behaviour. Interestingly, as part of the restructuring agreement between Anglo and the Quinn Group Lenders, Anglo sought a condition that the Quinn Group would agree to release known and unknown claims against 18 Anglo .
th
17 18
Paul OBrien, Quinn Group, Statement Business Disruption 5th November 2012 Quinn Group, Financial Restructuring Summary Overview, 19th April 2011 Page 20
2. Quinn Insurance Limited The main issues related to this component of the restructuring are detailed throughout this document. Clearly, Anglo never had any realistic prospect of recovering the amount indicated in the table above, the information they provided to the Minister at the time of the restructuring was totally misleading. 3. International Property Portfolio The fight over the international property has been well aired in the Courts. Currently, Anglo has absolute control over Quinn property assets in five countries , pending the outcome of the Quinn familys main proceedings. Those are assets to which the Bank lent some money too. In relation to the remaining disputed assets, which Anglo loaned no money towards, Anglo has agreed a deal with A1, or the Alpha Group, a Russian conglomerate, to recover the assets on their behalf. Should A1 be successful, they will retain 40% of the recovery proceeds, plus their costs. By any standards, that is an extraordinary situation, where Anglo has failed to prove that the alleged security is legally sound, yet is agreeing to give away 40% of the value of the foreign assets. In addition, they are spending huge sums of money on legal and professional fees. Even if the family had not tried to protect their rights in relation to part of the property group, the banks takeover was always going to lead to substantial losses, when com pared to the familys proposal. The family had sought to work constructively with the bank to ensure there would be no call on the ICF and that all of the 2.8bn would be paid. The banks best deal was to ensure that there was 1.6bn call on the fund, as well as over 2bn of loan losses, crystallising a 3.0bn to 3.6bn loss immediately and leaving the bank completely open to litigation. This approach makes absolutely no sense. It bears all the hallmarks of megalomania on the part of some small group, who believes themselves, to be above normal commercial and legal processes, something unprecedented in Irish commercial business.
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QILs RESERVES
The level of reserves/provisions calculated by QIL. in respect of potential future claims by insured persons has been a major bone of contention throughout the process since the appointment of the administrators to that business. This section deals with the issues relating to this aspect of what has happened in recent years.
No. of Claims Outstanding Gross Estimated Liability for Outstanding Reported Claims at End of Year ('000's Euro) Gross Estimated Liability of Outstanding IBNR at End of Year ('000's Euro) Gross Estimated Liability Total for all Outstanding Claims at End of Year ('000's Euro) Average Liability per claim
Industry Average incl. QIL 9.39 Industry Average excl. QIL Ratio of QIL Reserves to Industry Avg 1.70 Ratio of QIL Reserves to Industry Avg *Extract from 'Central Bank Insurance Statistical Review, 2009, Page 13, Table A.'
8.83 1.80
19
Central Bank Insurance Statistical Review 2009, Page 13, Motor Insurance Advisory Board [MIAB] Recommendations, Table A, Extract data from 2009 Statutory Insurance Annual Returns in Motor Claims Settlement Analysis in respect of 2009 Accident Year [Form 8]. Page 22
20
EMB Report, Quinn Insurance Limited (under administration) Actuarial Review as at 30th June 2010, 1st November 2010 Page 23
Page 24
REQUIREMENT
Original Funding Requirements Increase in claims provisions Adverse Deviation Provision
Ms
775 208 300
NOTES
Purported shortfall prior to July 2012 Purported increase in provision/reserves for claims As per the Administrators report to the Court, this called ' safety net' for the Administrators, it is not assigned to anything in particular, just provided for in the accounts of QIL. In the Administrators report to the Court it states: "we (the administrators) have been unable to implement a hedging instrument to protect against adverse sterling fluctuations, in the absence of a hedging strategy we have based our reserves on a conservative Euro/Sterling exchange rate of .70" and "A contingency reserve of 215m against currency fluctuations as it is not possible to put a hedging strategy in place" (21). This reserve is due to the Administrators failure to hedge against currency exchange risks. The provision is grossly overestimated, on the basis that the provision assumes a sterling rate at .7 to the euro, while the current rate is .84.
215
21
Grant Thornton, Quinn Insurance Limited (Under Administration), Tenth Report of the Joint Administrators, 30 July 2012. Page 25
152 1,650
This requirement is due to the write down of asset values, including the write off of the share capital provided to Anglo for funding their shareholding, this was originally taken from QILs reserves.
Source: Grant Thornton, Quinn Insurance Limited (Under Administration), Tenth Report of the Joint Administrators, 30 July 2012 (21).
From this report and the annual accounts of QIL signed off by the Administrators of QIL over the past number of years, circa 1,362m of this proposed ICF funding is down to the mismanagement of both the company and the sales process. This can be clearly demonstrated by the table below.
REQUIREMENT
Payment to the QIL bondholders Write off loans due from other Quinn companies QIL's Reserves for Anglo's Shareholding Reduction in asset values and miscellaneous adjustments Adverse Deviation Reserve Failure to Hedge the Sterling Redundancy Administration Costs Loss Recognised on the sale of business Losses in 2010 & 2011 TOTAL
Ms
200.0 87.1 98.0 152.0 300.0 208.0 9.9 18.3 10.4 278.0 1,361.7
NOTES
Payment to secure the release of contingent guarantees, which have yet to be determined to be valid QIL loan write offs, 67m due from Barlo Financial Services Limited, 9.36 due from Mantlin Limited and 10.7m due from Quinn Group. Funds taken form QIL's reserves to fund Anglo's 49% shareholding as per table above as per table above as per table above Redundancy payments for 2010. (figures likely to increase when the Redundancy payments in 2011, 2012 and 2013 are taken into account) 6.8m in 2010 and 11.5m in 2011 (this will increase when the costs for 2012 & beyond are included) Assets in excess of liabilities transferred to Liberty, plus carrying value adjustments, as per QILs accounts. Libertys reported losses of 160m in 2010 and 118m in 2011
This table does not include losses for either 2012 or 2013. The Administrators had informed the Court the business they wrote in 2010 and 2011, was profitable, this has been proven to be false, by the accounts filed by Liberty, which recorded a loss for both years. Therefore, upon their appointment the Administrators wrote unprofitable business, exacerbating the call on the ICF.
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(i) Grant Thorntons Allegation That QIL was Not Settling Old Claims On the 13 March 2009, there were 57 open claims for the loss years 1996 to 2001, 43.9% of these claims th 22 23 were closed within one year, leaving just 32 open on the 13 March 2010. Pre Administration, only 6% of the claims were over 4 years old (claims prior to 2006), this has increased under the Administrators to 8.6% in 2011 (claims prior to 2007), and to 15.2% in 2011 (claims prior to 2008). Conclusion: Claims were being settled by the previous management much faster than they are under the administrators management.
Table A. 13 March 2010 - Pre Administration 2010 Year 1996-2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Total No Open Open % Closed Claims Claims 2009 32 31 85 176 417 859 2,012 4,213 11,710 8,616 28,151 57 54 128 320 666 1,404 3,175 8,549 6,293 20,646 43.9% 42.6% 33.6% 45.0% 37.4% 38.8% 36.6% 50.7% Table B. Table C. 12 March 2011 - One Year Post Administration 10 March 2012 - Two Years Post Adminisration 2011 2012 Year 1996-2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total No Open Open % Closed Claims Claims 2010 33 46 94 221 465 1,121 2,392 4,318 9,847 4,534 23,071 63 85 176 417 859 2,012 4,213 11,710 8,616 28,151 47.6% 45.9% 46.6% 47.0% 45.9% 44.3% 43.2% 63.1% Year 1996-2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total No Open Open % Closed Claims Claims 2011 46 62 139 314 637 1,441 2,550 3,914 5,069 3,162 17,334 79 94 221 465 1,121 2,392 4,318 9,847 4,534 23,071 41.8% 34.0% 37.1% 32.5% 43.2% 39.8% 40.9% 60.3%
th
Source: Table A. MIS Stats 13 March 2010, Table B. MIS Stats 12 March 2011, Table C. MIS Stats 13 March 2012
(ii)
Table A. March 2010 - Loss Ratios Table B. March 2011 - Loss Ratios Developed Open Developed Loss 2010 Loss Ratio 2011 Claims Cost Claims Claims Cost Ratio 1996-2002 458,661,318 73.98% 63 1996-2002 462,979,150 74.68% Source: Table A. MIS Stats 13 March 2010 [22], Table B. MIS Stats 12 March 2011 [23]
Open Claims 33
Review of historic claims from 1996 to 2002 Pre-Administration, QIL had 63 open claims for the loss years between 1996 and 2002 and a loss ratio for this period of 73.98% (Premium income less developed claim costs). Between March 2010 and March 2011 (during Administration) QIL settled 30 of these claims, the Loss Ratio for the years between 1996 and 2002, increased by only 0.70% to 74.68%, with 33 claims left to settle Furthermore, the increase of 0.7% also includes any reserve increases on the 33 outstanding open claims. (Note. The statute of limitations is six years for commercial claims).
22 23
Quinn Insurance Limited, MIS Stats 13th March 2010; Quinn Insurance Limited, MIS Stats 12th March 2011; Page 27
The Premium income during these years would have been 620m (i.e. Developed claim cost 2011 by the Loss Ratio, 463m x 74.68% = 620m). Therefore, the Underwriting profit during this period was 157m (Premium income less developed claims cost 620m - 463) On that basis, in order for QIL to have made underwriting losses during these years, each of the 33 1996 2002 claims still open at March 2011 would have had to settle for an average of 4.8m per claim above the reserve on the claim. Based on historical settlement statistics, even during the period of Administration, there should have been 27 of these 33 claims settled within the past two years. These claims would have settled in line with the reserves, but even if they didnt there is no doubt they wouldnt require anywhere near the 4.8m per claim. Note that the 30 claims settled between March 2010 and March 2011 settled for an average of 144k each (Developed Claim Cost in 2011 - Developed claim cost in 2010, divided by the 30 claims settled). Review of historic claims from 2004 and 2008 Similarly, in order for QIL to make an underwriting loss for the period 2004 to 2008, the 2,593 claims would have had to settle for an average of 317k above the March 2011 reserve assigned to the claim. There should be approximately 1,800 of these claims settled within the past two years. These claims should have settled in line with the reserves, without using any of the additional 317k per claim..
Table A. March 2012 - Loss Ratios Developed Claims 2012 Cost 1996-2003 2004-2008 608,058,192 2,482,286,052
Summary 2004-2008 Premuim Income [2.48bn / 75.09%] 2004 - 2008 Developed Claims Cost 2004-2008 Underwriting Profit [3.3bn - 2.48bn]
Conclusion: The Grant Thornton allegation in this respect is, therefore arrant nonsense, and can easily be disproved by simple arithmetical analysis.
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FINANCIAL MISMANAGEMENT
Under this category, there are number of issues, which should clearly have been addressed by anyone with a financial background, who understood the business: Failure to Secure Investment Returns Within months of their appointment, the Administrators requested that all equities and bonds be sold, thus removing the possibility of making any return on assets. (See email from a former asset / Financial 24 Planning Manager) . Failure to Hedge the Sterling / Euro Exchange Rate The disposal of UK bonds and equities and the subsequent sale to Liberty, left the Company exposed to adverse movements in the Sterling-Euro exchange rate. Prior to the Joint Administrators appointment, the UK business represented 50% of QILs business; therefore, there was a natural Sterling/Euro hedge. The company was taking in significant sterling premium and paying sterling claims, and similarly in Ireland, there was euro premium to pay the euro claims. Furthermore, QILs reserves were also currency matched, thereby ensuring that the exchange risk was minimised, as well as gaining a return on deposits, bonds and assets. When the Administrators stopped writing UK business, and even when it was subsequently reopened, albeit at a much lower level, there was no longer a natural hedge. Furthermore, by disposing of the bonds and equities, they added to the exchange risk. Therefore, it was painfully obvious, that as QIL had to continue to pay sterling to UK claimants, there was a need to hedge the exchange risk. This failure was compounded when they moved all the cash reserves to Liberty as part of the Liberty / Anglo sale. In an interview with the Sunday Business Post on 12 August 2012, Michael McAteer admitted that after they had transferred all the assets to Liberty, they had no cash to hedge the sterling, and the Department 25 of Finance or the NTMA would not assist them . The following is an excerpt from that interview: MMcA: we also had issues in relation to currency fluctuations. Under the deal with Liberty, we were left with the UK claims book, which needs to be paid out in sterling. At the time of the estimated 775 million call on the fund, sterling was trading at approximately 0.83. Obviously, this has changed since then. Ian Kehoe: Could you not have hedged the currency exposure? MMCA: As early as last September, when we did the ICF transfer, our note to the court said we were unhedged because we had no assets left. We said we would investigate hedging as a matter of urgency. Our liabilities were in sterling and our funding from the ICF was in euro. We sought the Department of finances assistance in relation to hedging the sterling exposure. From its viewpoint, it could not provide assistance to a third-party financial institution that was acceptable. The department also sought the assistance of the NTMA which was not in a position to assist. Without some
th
24 25
Email from the Former Financial Planning Manager, dated 16th August 2012 The Daily Business Post Inside the Quinn Clean-up, 12th August 2012; Page 29
form of state guarantee, which is not available, there is nothing we can do except make a 208 million provision, which represent sterling at 0.7 against the euro. Its a prudent view. In Grant Thorntons July 2012 update to High Court, they reported that 208m of the 1.6bn call related directly to the sterling Movement. That is 13.4% of the total expected call on the fund, due to the Company s 26 failure to hedge their exchange risk . Furthermore, the Administrators seem to be blatantly over-estimating this reserve, as the currency rate they have used is Stg0.70 to the Euro, whereas in recent times, that rate has been consistently above 0.80. It is obvious that the Administrators have overestimated this reserve to ensure the call on the ICF is greater than required. Have the Administrators applied this overestimating methodology to other reserves? Obviously these practices provide a buffer for the Administrators to continue to mismanage the business without having to go back looking for more money. On the other hand, if they reduce the estimated shortfall in years to come, it will appear as if they are doing a great job in reducing the call on ICF, when it was grossly overestimated in the first place. Excessive Fees There is no doubt the Administration process has been extremely lucrative for Grant Thornton. When the joint Administrators were appointed, Grant Thornton had fee income of 56m in 2009; this has 27 accelerated to over 82m in 2012, a 46% increase in turnover .The average monthly fees charged by Grant Thornton equate to 550,000 which is equivalent to 3,279 per hour. Lack of control over operational Costs Despite writing significantly less business in 2010, the net operating expenses still increased by 5.6%, to almost 23% of turnover. This includes 9.9m for the cost of the redundancy scheme and 6.8m for the cost of the Administration. The following table provides the historic pattern of Operating Costs as a percentage of Premium Income
Operating Income as % of Premium Year Gross Written Premium [GWP] Net Written Premium [NWP] Net operating expenses Operating expenses as % of GWP Operating expenses as % of NWP
2008 2007 1,092,652 1,092,663 1,021,393 1,013,069 145,981 145,052 13.4% 13.3% 14.3% 14.3%
Source: QIL Consolidated P&L, Year end 2008, 2009, 2010 and 2011
26Grant 27
Thornton, Quinn Insurance Limited (Under Administration), Tenth Report of the Joint Administrators, 30 July 2012. Finance Dublin.com, Accountancy returns to growth for first time since 2008, with 3.3 p.c. rise in total fees Page 30
OPERATIONAL MISMANAGEMENT
A number of actions taken by the Administrators have had significantly negative impacts on both the performance of the insurance business and these also have huge implications for any call on the ICF. They should be investigated by the Court before any allocations of funding are disbursed from the ICF and raised from the premium holders. They should also have been identified by Mr. Elderfield in his role as Regulator and, by extension, as protector of the interests of policy holders. Those failures need to be investigated by an independent and competent specialist. The following paragraphs provide the details. The Redundancy Program Within two months of their appointment, the Administrators implemented a redundancy scheme, which involved one of the most generous redundancy packages given in recent years and three times the legal requirement. While no one would begrudge any member of staff their redundancy package, it is clear that the administrators made major mistakes in letting far too many staff go. In order to cover up this costly mistake, they had to hire agency staff at a much higher cost. The redundancy scheme was so badly managed that the Administrators ended up paying the remaining staff a 'loyalty bonus', just for them not to leave the company. Why was this allowed by the Financial Regulator and if he was not aware of it, why was he not aware of it? It was his responsibility to ensure that premium-holders funds were not being wasted recklessly. Failure to Understand the Claims Model The Administrators completely failed to understand the QIL claims model, which was the cornerstone of the Companys success. QIL historically employed more staff in its claims department than any of its competitors, in order to manage claims proactively. This dramatically reduced claims costs - in particular the associated legal fees. The redundancy scheme removed hundreds of staff from the claims department; that had a massively detrimental impact on the efficiency of the business and its operating model. The failure to understand this model is supported by the increase in the average claims cost of 66% between 2010 (7,071) and 2012 (11,765).
Average Settlement Cost Average Year Cost 2010 7,071 2011 8,283 2012 11,765 Increase since Administration
Source: MIS Stats 13 March 2010 [22], MIS Stats 12 March 2011 [23], MIS Stats 13 March 2012 [24]
Elimination of Any Incentive to Keep Claims Costs Low The increase in claims costs can be attributed to the fact that Liberty, which controls the business in the Republic of Ireland and which is running the UK business on behalf of the Administrators, has absolutely no incentive to settle claims cheaply. Liberty effectively purchased the Republic of Ireland business with no risk. If they require further funds over the next three years, it will be provided to them by QIL (through the ICF). Under contingent liabilities in QILs annual accounts for 2011, the item relating to the Sale of the Republic of Ireland General Insurance Business states: the revised structure included in the final terms of the sales agreement gives LIL (Liberty Insurance Limited) the opportunity to re-visit the completion reserves on a quarterly basis over a 36 month period from completion. Any increase in completion reserves in that period will be funded by QIL with additional cash. This structure means that the need for LIL to significantly over-estimate the upfront buffer is reduced as it will have multiple opportunities during the 36 month period to adjust the reserves if required. In November 2014, a full trueup will be carried out which will result in QIL or LIL receiving a refund or making a payment to the other party to meet the agreed completion reserves. After the end of the 36 month
Quinn Insurance Limited Page 31
period, there will be no future obligations on the parties to each other regarding the 28 reserves. That is some (indirect) indictment of Grant Thorntons ability to control the costs of running the business efficiently in the Republic of Ireland.
28
Quinn Insurance Limited consolidated Financial Statements for the year ended 31 December 2009. Page 32
OTHER INFORMATION
The Administrators Announcement of Their Intention to Sue PwC In February 2012, the Administrators announced that they would be taking legal proceedings against PwC for failing to adequately report the Guarantees. PwC are standing over the treatment of the Guarantees and their audits of QIL. Since the Administrators announced the commencement of these proceedings, there has been no further update, though they have been consulting with some relevant parties. It is understood that the Administrators have not filed a single affidavit in the case, to date. If Mr Elderfield is right in his assertion, then clearly the Administrators have a claim against PwC. If however, PwC were correct and the guarantees 29 were treated appropriately in the accounts, where does this leave Mr Elderfield? Could that by why he recently resigned? Misleading Information Given to the Court th On the 6 May 2011, the Administrators informed the High Court that they had made a profit of 14 m for the 30 first Quarter of 2011 . That has since been contradicted by QILs 2011 annual accounts, in which 31 Administrators, Michael McAteer and Paul McCann, signed off on a 118m loss for 2011 . How could they have reported a profit to the Court, in such circumstances, or what does this imply about their internal information, accounting and management control systems? Substantial Decrease In Business Within one year of the Administration, new business policies and premium income had declined by an incredible 64%. As yet, comparative figures for 2012 are not available publicly. However, judging by 32 comments made by Liberty CEO, Mr Patrick O'Brien, in the Irish Times in November 2012 , he stated that the business in Ireland was writing 200m and the UK business was writing 100m. This represents a decline of 63.5% in premium (turnover) from the pre-administration levels. It also suggests a crass inability to manage the business.
Comparison of Gross Written Premuim [GWP] and Active Policy Holders from March 2010 to March 2011 As at 13 March 2010 GWP Rolling Actie Policies 52 Weeks 391,276,581 351,174 428,359,938 447,891 819,636,519 799,065 As at 12 March 2011 GWP Rolling Actie Policies 52 Weeks 141,708,061 125,602 321,953,540 392,654 463,661,601 518,256
Decrease year on year 43.4% 35.1% Source: QIL MIS Stats 13 March 2010 [22] and QIL MIS Stats 12 March 2011 [23]
The Insurance (Amendment) Act 2011 th On the 13 September 2011, Minister Noonan brought in the Insurance (Amendment) Act 2011, days before the transaction to transfer QILs business to the Anglo/Liberty Joint Venture . This legislation confirmed that the liability for UK claims, including those for professional indemnity, would be met by the Irish Compensation Fund. Prior to this point, the fund had no obligation to pay these claims. But when a British company failed in Ireland, no similar commitment was made. The First Quarter of 2010 The first quarter of 2010, was one of the best quarters in QILs history. QIL increased its cash balance by over 20m as well as significantly reducing its open claims. At year-end 2009, the open claims stood at th 28,128, which peaked at week 3 2010, at 30,262. On the 27 March 2010, three days prior to the appointment of the Administrators, the open clams count had reduced to 27,428, a decrease of 2,834 claims
The Irish Times, Quinn Insurance undertaking 'forensic' inquiry for PwC case, 15th December 2012 The Irish Independent Administrators note lack of an actuary at Quinn Insurance,6th May 2011, 31 The Independent Quinn Insurance pre-tax losses at 118m before sale, 12th January 2013, 32 The Irish Times, 16th November 2012, "Liberty Insurance to cut one job in five"
29 30
Page 33
from the peak, with an increase in the cash position over the same period. That performance has never been repeated since the appointment of the Administrators. Regulators Action There are many who believe that the Regulator should have taken a more reasonable approach to alleviating his concerns over the guarantees, or any other concerns he may have had in relation to how the business was being managed, the level of solvency and/or the profitability of the UK market. There were a number of alternative approaches, which he could have chosen, instead of the nuclear approach. For example, the Regulator could have: sought to reduce the UK business; appointed a Director to the Board to oversee the operations; sought the preparation of a business plan for its profitability; sought to close the Healthcare business, thus freeing up additional solvency for the General Insurance business; or requested that QIL seek a quota share arrangement with an international reinsurer, such as Swiss RE or Munich RE. Interestingly, when Quinn Healthcare was disposed of by the Administrators and Quinn Group, (for no consideration despite its generating profits of 6-8m per year) the management team linked up with Swiss RE to acquire the business under a quota share arrangement. Mr Elderfield made no attempt to find any other solution instead of hitting the nuclear button and ultimately costing Irish policy-holders a levy on their premia for many years into the future. That is a very poor legacy from a man who is now deserting the mess he has contributed to creating.
Page 34
33 34
Michael Noonan Interview, 14th April 2011, http://www.youtube.com/watch?v=xn5HxsEkMTI Anglo Irish Bank, Presentation on Quinn Group by Anglo Irish Bank Corporation Ltd, to the All-Party Cross-Border Elected Representatives Group, 9th May 2011 Page 35
Minister Noonan: There is no suggestion that Anglo is going to recover all the money they are owed, then again there was never any suggestion of that, we are all familiar with the Anglo Story. Comment: The Quinn proposal would have secured the repayment of the 2.8bn. If this failed, all assets would have been made available to Anglo to offset the Anglo debt. It is misleading to say that there was never any suggestion of this particular debt being paid back; the Quinn family executives had worked with Anglo for 9 months and agreed a proposal to ensure all the debt would be repaid. In response question about the security of the jobs: Minister Noonan What we have been insured on Liberty coming as an insurance Company that is prepared to trade in the market and expand if possible. The only jobs they have signalled that will go are 24 jobs in Manchester, the unit in Navan will not remain, but the workers are guaranteed their jobs, about half will be going to Cavan which is commute of about 40 miles, the other half or so will go down to Blanchardstown which is a commute of about 20 miles. I would think from the very detailed working out that Liberty have done with Anglo, that they are absolutely genuine about continuing with the insurance business. They also on the briefing documents, said that the natural wastage across the Company is about two week and that they will not be replacing the two week, obviously that is where they get their margins. They have gone into great detail on that. Comment: This was clearly a misleading signal given by Anglo and/or Liberty, as within 12 months of Liberty gaining control they have announced a further 425 job losses, that equates to 1 in 4 members of staff. On question in relation to concerns from local businesses: Minister Noonan The businesses in area to a very large extent depend on the wages and salaries earned by workings within the Quinn Group, they shop in the local supermarket, they go to the local restaurants, they buy their petrol in local garage, the fact that all the jobs are protected, the same spend will be going on through the community up there, so I can see why they were concerned up until now, but that action has been taken and the Government have pushed the action and consented to the action, I think its a good news story for the workers. Guarantee people their jobs, if you are thinking about losing you job you wont spend a bob, n ow that they know their jobs are secure, normal life apart from the Quinn family recommences across the border counties. Comment: Noonan was given further false assurances on jobs, considering that he said his Government pushed the action, will he now take any responsibility for the disastrous deal agreed under his remit? Despite what the government may like to portray, there is huge uncertainty in relation to jobs in both Liberty and in Quinn Group, and it would be difficult to find any local employer or employee in the area who does not see the disaster that is staring them in the face.
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8. Did the Regulator have any discussions regarding QIL with Liberty between his appointment in January 2010 and the 14th April, 2011, when the sale was confirmed? 9. It has been suggested that the Regulator was receiving a number of calls from the UK concerning QIL; were these calls from Mr Elderfields former colleagues in the FSA or from QILs competitors? And, did these calls influence Mr Elderfields decision to place QIL into Administration? 10. Is it appropriate that Liberty should transfer all profitable commercial business with premia in excess of 50,000, from QIL to Liberty in the IFSC, Libertys stand-alone operation, at a direct cost to the ICF and the Irish taxpayer? 11. While employees shouldnt be begrudged a fair redundancy package. Considering the Administrators purport to claim that QIL requires 1.6bn from the ICF, is it right that QIL is paying the most generous redundancy scheme in recent years, at three times the legal requirement? 12. Very little detail has been provided on the agreement between Liberty/Anglo and the Administrators on how the older claims are managed, and what incentive(s), if any, are involved. From an Irish policyholders perspective, the Administrators have to ensure the minimum amount is paid, thus saving the ICF. We understand that should Liberty require additional money it will be provided by the ICF. If they save money they will share a proportion of the benefit. Due to the fact the ICF is required to fund QIL to the tune of 1.6bn, should such an important agreement that may save hundreds of millions, not be public knowledge? 13. It appears that Quinn Healthcare was disposed for no consideration under a management buyout; how does this benefit the taxpayer or the ICF, when the Company was making 6-8m profit a year? 14. Why was IBRC/Anglo allowed to take reserves from QIL to fund their shareholding in the joint venture with Liberty? Did this not give Anglo a competitive advantage during the sales process? How could the sales process stack up, if one Company is allowed access to the reserves to fund their shareholding? And did this not create the potential for further demands on the ICF? 15. Given that the Special Liquidators of IBRC are now mandated by Minister Noonan to sell all IBRCs assets, this would include Anglos/IBRCs 49% shareholding of QIL. Does this mean there will be a fire sale of IBRCs 49% shareholding, further eroding any possible return to the taxpayer? What is the Department of Finances stance on this? 16. On what basis did Anglo/IBRC claim that they would recover 270m from the manufacturing businesses? Considering that six months after Alan Dukes stated this, the current CEO Mr Paul OBrien stated that the bank would not receive any return? Who will be held accountable for providing such misleading information to the public? 17. The US based Liberty obtained a great deal in acquiring QIL for 102m and the international banks and bondholders of the Quinn Group clearly worked Anglo in restructuring of Quinn manufacturing. Does this show that the administrators and Anglo, under the nose of Department of Finance, were allowed to take the Irish taxpayer for a ride? 18. At the time QIL was placed into Administration, it had cash reserves of 1.1bn and assets of 448m, yet the Administrators have sought access to an additional 1.6bn from the ICF, which would equate to a total of 3.1bn of assets under the control of the Administrators. This is an extraordinary amount of money, considering that prior to the Administration QIL had been very profitable and had a very low level of open claims (28,000 in March 2010). This needs to be coupled with the numerous times that the Administrators have misled the Court, including: a. stating there would be no call on the fund throughout 2010; b. more than doubling the ICF call from 775m to 1.6bn after the sale was completed;
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c. stating that QIL made a profit in 2010 and 2011 and that all business written since their appointment was profitable, only for the filed accounts to prove this was untrue and misleading. On this basis, what independent analysis has the Department of Finance undertaken prior to providing the Administrators with an apparent unlimited access to the ICF? 19. Considering Justice Charletons comments on the illegality of a company financing the purchase of its own shares and it now transpires that the Department of Finance had received their own legal advice in January 2009, stating that Anglo had indeed lent money for margin calls to support their own share price. Given the criminal nature of this action, along with all of the other unsavoury details that were emerging about Anglo, what due diligence did the Department of Finance and Central Bank do, prior to allowing Anglo restructure the Quinn companies, knowing the loans and purported security were disputed? 20. The Department of Finance was advised of Anglos share support lending, by their legal advisors Arthur Cox in January 2009, surely as chief legal advisor to the Government the Attorney General would have been advised of this at that time. Is it right that the then Attorney General, now in private practice, represents Anglo as Senior Counsel, in trying to enforce the very same loans? 21. If it is proven in time that a number of actions taking by various parties over the past three years against the Quinn family were intended to cover-up and conceal the truth. Who will be held responsible? And is it a greater offensive to cover up a crime than to commit one? 22. Recent media reports suggest that McCann Fitzgerald solicitors received a significant payment from the 35 IBRC that was outstanding prior to its liquidation, thus superseding other unsecured creditors . Some sources suggest that this figure was close to 8m (which is only a fraction of what McCanns have earned from the IBRC over the past three years), an extraordinary sum, considering NAMA paid their 36 whole legal panel 21.7m in 2012 . McCann Fitzgerald represented the Regulator, the Joint Administrators, QIL and IBRC/Anglo during the administration and sales process of QIL. Was this not a conflict of interest? Who is monitoring these fees and the advisors ultimate objective? And how is it correct that McCann Fitzgerald is treated as preferential creditor in liquidation of the IBRC? 23. In July 2012, Minister Noonan stated in a letter to the Administrators "as highly remunerated professional administrators with the support of highly remunerated actuaries and auditors... could they not have had 37 greater insight into the total increased cost at an earlier stage . He also said that he was concerned by the manner in which the Government had been misled by incomplete information and estimation. Minister Noonan has not provided any clarity on how exactly he or his Department were misled. And he has provided no clarify on the involvement of the Department of Finance in the sales process. This is not the first time the Minister has been misled. Further examples include: a) Anglo claimed they would recover 270m from Quinn manufacturing, only to be contradicted within 6 months by its current CEO Paul OBrien, claiming Anglo will not recover a single cent; b) Anglo claimed they would recover 400m (200 for Anglo & 200 for the ICF), to date no funds have been repatriated and the Special Liquidator is now mandated to sell Anglo/IBRCs 49% shareholding; c) Anglo and Liberty claimed that all jobs would be secure prior to the takeover of QIL, only to make a further 425 redundant within 12 months; d) Mr Noonan was informed that the Quinn Group banks and bondholders had taken a 50% writedown on their debt, this was proven to be completely false, as level of debt remained the same; e) Anglo assured that the restructure of the Quinn manufacturing would secure the jobs, only for the Group to conduct a redundancy program within a matter of months of the restructure;
The Irish Independent, Liquidator for Anglo settles part of bills to law firm, 2nd May 2013 The Irish Examiner, Nama pays one Dublin law firm more than 2m in fees, 19th April 2013 37 The Irish Independent, Noonan vents fury at administrators as Quinn 'black hole' doubles to 1.6bn, 8th August 2012
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What other lies have been told about the Quinn / Anglo relationship? Anglo has spent a huge amount of money on PR to cover up their gross failings and outright fraudulent behaviour, even their former CEO Mike 38 Aynsley referred to the banks behaviour as obscene and disgusting . When will the Government say enough is enough, and investigate this whole debacle that has unnecessarily cost the State billions?
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Business & Finance, Mike Aynsley interview: Anglo was obscene and disgusting, 3rd April 2010 Page 40