QUINN INSURANCE LIMITED

Report on the Administration of Quinn Insurance Limited

MAY 2013

Table of Contents

THE GUARANTEES AND THE REGULATOR’S DECISION ................................................................................................. 3 THE FINANCIAL REGULATOR’S 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 ANGLO’S QUINN RESTRUCTURING PROPOSAL ............................................................................................................. 18 QIL’S RESERVES ..........................................................................................................................................................22 CENTRAL BANK IRISH INSURANCE STATISTICAL REVIEW 2009; .................................................................................... 22 THE EMB REPORT 2010; ................................................................................................................................................ 23 GRANT THORNTON’S RESERVE ESTIMATES; ................................................................................................................. 25 QIL’S 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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THE GUARANTEES AND THE REGULATOR’S DECISION
Mr. Matthew Elderfield was appointed as Irish Financial Regulator in October 2009. He took up that position in January 2010. Previously, Mr Elderfield had been Chief Executive of the Bermuda Monetary Authority; prior to that he had spent eight years with the UK Financial Services Authority (the “FSA”). During his time with the FSA, Mr Elderfield was responsible for Retail Banking. That role specifically included responsibility for Northern Rock in the months before its collapse; poor oversight was seen as one factor in the collapse of that bank. Northern Rock sought liquidity support from the UK Government in September 2007 - two months after Mr Elderfield had resigned.

THE FINANCIAL REGULATOR’S DECISION OF MARCH 2010
In order to assess the validity, or otherwise, of the Regulator’s action in making an ex parte application to the th Irish High Court on 30 March 2010, to have QIL placed into Administration, only three months after his appointment, it is important to understand the nature and history of the contingent guarantees upon which the Regulator claims his application was grounded. In December 2009, FTI Consulting (“FTI”), a UK financial consultancy firm was appointed by the Quinn Group’s funders, a consortium of banks and bondholders (the “Lenders”), to arrange the refinancing of the Groups €1.27bn debt, the first tranche of which was due to mature in October 2010.The appointment of FTI was entirely consistent with standard practice in any such financing arrangement. Following FTI’s ‘due diligence’ process, which resulted in a positive assessment of the businesses involved, they requested that the guarantees, granted by certain QIL subsidiaries in favour of the Lenders, should be continued under the proposed refinancing scheme, as per the original agreement in 2005. The QIL subsidiaries in question held approximately €448m worth of income generating property assets; those assets - mainly properties - together with the company’s liquid resources (cash and liquid investments – bonds and shares) made up the reserves of QIL. This request caused confusion at board level within Quinn Group, as the Directors were not aware and had never approved the granting of such QIL subsidiary Guarantees On investigation, it transpired that Quinn Group’s legal advisors, A&L Goodbody, had included the QIL subsidiaries in the original financing package in 2005, and even though those assets had not formed any part of the financing prospectus agreed with the Lenders. Unwittingly, the guarantees, including those over these specific subsidiaries, were subsequently executed by the Group’s directors, in error. Clearly, Goodbodys should never have included these assets in the guarantee package, and the directors should never have signed them. PwC’s view of the existence of these guarantees was that they did not have any impact on the solvency position of QIL throughout 2005 to 2008, a position that they have continued to maintain to the present day. Nevertheless, in March 2010, while the refinancing process was still on-going, it was decided by the Quinn Group to bring the existence of the guarantees to attention of the Regulator – even though the Quinn Group Directors did not consider them to be valid. At that time, QIL had liquid assets (cash, bonds and equities) of €1.1bn, as well as ownership of the subsidiary companies, which held income-generating assets and were valued at €448m . This meant that if the cash reserves fell, the assets could be converted into cash to pay claims, and that QIL had assets in excess of €1.548bn to meet its claims. The Regulator was advised of the existence of the guarantees on 24 March 2010. At that time, PwC and Quinn Group believed that the guarantees (even though they were signed in error) had been disclosed and treated correctly in the audited accounts of QIL, from 2005 onwards. Mr Elderfield, however, adopted a conflicting stance, and over the course of the following four-day period, decided that the opinion held by
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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 family’s unwavering contention is that the contingent guarantees did not affect the solvency of QIL. This is not only the Quinn family’s 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 Group’s 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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THE MOORE STEPHENS REPORT
Moore Stephens LLP is one of the world’s largest accounting and consulting networks, with 301 independent offices operating in over 100 countries. After QIL was placed into Administration, executives of Quinn Group commissioned Moore Stephens LLP to review the regulatory and statutory returns of QIL and to assess the impact of the subsidiary Guarantees on QIL’s solvency, on a rigorous and impartial basis. The Moore Stephens Report categorically stated that the existence of the Guarantees did not have a negative impact on QIL’s solvency; that is absolutely contrary to Mr Elderfield ’s contention and his reasoning 1 behind placing QIL into Administration . Unfortunately, that Report was obtained too late, to save QIL. The Quinn Group consented to the appointment of the Joint Administrators, on the basis that the issues could and would be resolved, with the company then being taken out of administration. However, shortly afterwards, the Quinn family effectively lost control of the Quinn Group board to a nominee of the Lenders, Mr Murdoch McKillop of THM Consultants. Had the Quinn family had the benefit of this professional report immediately after the Administration, they certainly would have vigorously contested the ex parte application. Moore Stephens LLP were asked to respond to a number of issues and questions, as follows: (i) “State (your) view of the impact of the existence of the guarantees in calculating the Solvency ratios of QIL as a matter of proper account” At paragraph 8.2.23 of their report they conclude that: “Under FRS 12 a liability in respect of a guarantee should only be recognised if it is considered more likely than not that it will crystallise. Therefore QIL’s solvency is only impacted if it is considered more likely than not that the Guarantees will crystallise and result in a payment by the QIL Guarantors. The mere existence of the Guarantees does not impact QILs solvency. ” And at paragraph 8.2.34, they added: “The impact on QIL’s solvency requirements is driven by the treatment of the Guarantees with in the audited financial statements of QIL and the QIL Guarantors. On the assumption that the probability of the Guarantees giving rise to economic outflow was less than 50% then the audited financial statements of QIL and the QIL Guarantors for each of the years ended 31 December 2005, 2006, 2007, 2008 did not need to recognise a liability in respect of the Guarantees.” Regarding QIL’s 2009 returns, the report states that the calculation would be more difficult to assess as an Event of Default had occurred. Moore Stephens LLP stated that the Event of Default that had occurred was the Regulator’s decision to place QIL into Administration, not the existence of Guarantees. At paragraph 8.2.28, they make the comment: “An Event of Default has occurred because QIL was placed into administration on 30 March 2010 upon petition by the Financial Regulator.” Notwithstanding the fact that the Regulator had triggered an Event of Default with the Groups’ Lenders, the report goes further, and states that an Event of Default does not automatically result in a contingent liability, At paragraph 8.2.28, they state “To determine whether this (Event of Default) impacts QIL’s solvency requirement it is necessary to assess the liability that would be required in the QIL Guarantors financial statements. This requires a
1 Moore Stephens Report. “The Quinn Group, Accountants Report”, dated 19th January 2011, Moore Stephens LLP Quinn Insurance Limited Page 5

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 Insurer’s subsidiaries have the effect of reducing the Insurer’s 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 Insurer’s 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 Elderfield’s 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 QIL’s 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 QIL’s solvency. It was clearly a completely false analysis and Mr. Elderfield and/or his staff erred seriously in this matter.

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PWC CORRESPONDENCE WITH FINANCIAL REGULATOR POST ADMINISTRATION
Correspondence between PwC and the Regulator, after the Administration was in line with the Moore Stephens LLP Report, in that PwC believed that the Guarantees did not impact on the solvency of QIL. In two reports to the Regulator, PwC maintained their view that their accountancy treatment of the guarantees, and their audit opinions were appropriate. (i) PwC Report to the Financial Regulator, 21 June 2010
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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 QIL’s 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 QIL’s 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 QIL’s 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 QIL’s 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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THE SALES PROCESS AND THE QUINN RESTRUCTURING
The Irish public deserves to be made aware of how the sale of QIL was negotiated and of the implications for both the Irish Exchequer and those who currently pay insurance premia and will be doing so for many years to come. This deal was accepted by Ireland’s Department of Finance and its Minister of Finance. It is a travesty, imposed on the Irish people, by those whose job it was to protect those people.

THE LIBERTY - ANGLO DEAL
The following table provides a summary of the final deal agreed between Anglo/IBRC and Liberty Insurance for QIL Shareholding 51% 49% Required Capital €102m €98m Source of Capital Liberty Mutual The Reserves of QIL Economic Benefit Liberty 24.5% to the ICF 24.5% to Anglo

In order for the Anglo/Liberty deal to go ahead, €365m was removed from QIL’s 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 QIL’s reserves for Anglo’s 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 Liberty’s 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

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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 Liberty’s €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 Anglo’s 49% shareholding) or a 12.2% return compared to Liberty’s 400% return. However, any potential return to ICF is highly dependable on when Liberty buyout Anglo’s 49% shareholding, to date there has been no return. Due to the sudden liquidation of Anglo in February 2013, the buyout of Anglo’s 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 Anglo’s 49% shareholding is bought out, thus ensuring that a low price is paid, if anything is ever paid for Anglo’s 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 Group’s 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.

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The Daily Business Post “Inside the Quinn Clean-up”, 12 August 2012; Page 11

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THE QUINN FAMILY PROPOSAL – THE DETAILS
After QIL was placed into Administration the former owners of QIL, the Quinn family presented an alternative proposal for the future of QIL. Its main components were as follows: 1. New independent board would be appointed, no member of the Quinn family was on the proposed board; 2. 100% of the economic benefit of QIL would be retained for the benefit of Anglo; 3. Very conservatively estimated profits were projected going forward; the estimates from 2010 to 2013 were based on the Joint Administrators’ forecasts in the Information Memorandum prepared for the sale of QIL. For the subsequent years, the forecasts were reviewed by Anglo’s advisors, Deutsche 8 Bank, as well as the Quinn family’s advisors , BDO . The proposal forecast that, by 2017, QIL would be generating profits of circa €192m, which is more than 30% less than what QIL achieved at its peak - between 2006 to 2008 QIL’s annual Profits After Tax averaged €232m; 4. The proposal was conservative on many fronts, with the following represented the main ones: a. It anticipated no return from the Quinn Group Manufacturing businesses; b. It used the depressed current market values when valuing the international property portfolio in seven years’ time, and; c. The proposal also included an option of developing the international property portfolio using the rental income they generated to achieve an enhanced rent roll and greater market value in seven years, thus leading to maximum debt recovery; 5. The capital injection required varied depending on the structure, the deal was originally considered to require between €450m to €650m, this was assuming the guarantees were valid. It transpires that the deal between Anglo/Liberty only required €102m of new capital; however it dissipated the QIL reserves (and the ICF) by €365m. A similar deal between Anglo and QIL could have been done for €102m or as per the alternative proposal submitted to Administrators for a cost of €250m that would 9 have maintained both the UK and Irish business , that plan would have facilitated the repayment of €2.8bn to the Irish exchequer, plus any fresh capital introduced and there would have been no call on the ICF; 6. The proposal was part of the overall debt restructuring between Quinn and Anglo, it was the only way the €2.8bn would have been repaid and not disputed in Court. The proposal would have made all available revenue streams from all Quinn assets and businesses (QIL, International Property Portfolio and the Quinn Group) used to pay down debt within agreed parameters; 7. As well as promising to repay the €2.8bn of debt, the proposal included a number of additional benefits for the taxpayer: o All jobs in QIL and the Group would be retained, as well an additional 1,000 created over a three-year period. This compares to the voluntary redundancy programmes since offered in both QIL and the Quinn Group. These redundancy programmes have already had a direct impact on the state through statuary redundancy payments, additional social welfare payments and lack of income tax and universal social charge contributions; o QIL and the Quinn Group’s Irish operations would have generated circa €850m in tax revenue over that seven-year period.

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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

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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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DISCUSSIONS ANGLO POST ADMINISTRATION
After QIL was placed into Administration, representatives for the Quinn family (Kevin Lunney, Dara O’Reilly and David Mackey), along with an advisor from BDO, met with Anglo executives Richard Woodhouse and John Bowe, among others, on a regular basis, sometimes as often as two or three times per week, between April and December 2010. During the course of these meetings, the Quinn representatives and Anglo jointly developed a plan to recapitalise QIL, and, in turn, ensure that all of the value in the Company went to Anglo in order to pay down the disputed and undisputed Quinn family debt. The QIL proposal formed part of a wider plan submitted to the Anglo Board by BDO on behalf of the Quinn th Group on the 30 August 2010, which dealt comprehensively with the entire Quinn debt repayment over seven years. The Quinn representatives were informed by Mr Woodhouse and Mr Bowe of Anglo, subsequent to that submission, that this proposal had been reviewed by the Anglo Board and was “broadly acceptable to them”. All concerned continued to concentrate on the remainin g due diligence effort in order to make the necessary final submission to the joint administrators in December 2010. In September 2010, Mr Woodhouse confirmed to David Mackey that the proposal was moving forward and that they were very hopeful that it would be acceptable to the Joint Administrators as it represented the most effective return for the taxpayer and the best opportunity to retain jobs. At the end of that meeting, Mr Woodhouse stated that, later on in the process, Anglo would require the support and influence of the Quinn Group to assist in ensuring that all Government agencies supported the proposal. Throughout this period, the Quinn Group representatives met with and had numerous conference calls with Deutsche Bank and Tower’s Watson (Anglo’s advisors) , where the financials of the proposal were developed and they understood the business and its profit model. The projections up to 2013 were those included in the Information Memorandum prepared by MacQuarrie Capital. Subsequently, Quinn Group used a very conservative annual increase in turnover to 2017 which was in line with the projections produced by Deutsche Bank. The representatives of Quinn Group and Mr Woodhouse discussed in some detail the make-up of the proposed new independent Board for QIL. At some considerable cost, Anglo even appointed a recruitment agent to headhunt the proposed senior level management team and the proposed Chairman. The representatives of Quinn Group met with the leading candidate for the role of Chairman, who was also met by the recruitment consultant in relation to the position on a number of occasions. He was very interested in taking the role, if offered it. The Quinn Group representatives were also advised that the Chairman and/or the CEO of Anglo met with a number of potential candidates as part of the recruitment process. The plan envisaged that QIL remained whole and would have been able to maintain and grow its domestic and export markets in order to maximise value for Anglo and ultimately, the Irish taxpayer. Until the first week in December 2010, Anglo had assured the Quinn representatives that they were working on the same basis as their preliminary bid. In other words, they would work with the Quinn representatives to secure the Company’s future. This assurance went so far as to refute press speculation which named th Liberty in a potential joint bid. In fact, on the 7 December 2010, Anglo explained to the Quinn representatives that they had not received the necessary sign off from the National Treasury Management Agency or the Department of Finance but were still very comfortable that they would be able to put forward a letter to the Joint Administrators that would give them additional time to get the necessary sign off from the National Treasury Management Agency. The Quinn representatives had been led to believe that the overall plan had the support of the Government and, if the business case stood up, it would be approved. It had been confirmed by Anglo on numerous occasions that the business case did, in fact, stack up in its own right, disregarding the significant employment, social and related positive considerations that the plan represented in the local Cavan / Fermanagh area.
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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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ARGUMENTS AGAINST THE QUINN FAMILY PROPOSAL
The arguments below were advanced against the Quinn Family proposal; they are set out with the responses of the Quinn Family and their advisors, who had been involved in the negotiations, before they were aborted by Anglo and the Department.

(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 family’s 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 Regulator’s 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 Regulator’s 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. That’s 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 wouldn’t 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 it’s not, I know it’s 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
10 11

Letter from Anglo Irish Bank Chairman Mr Alan Dukes to TD Caoimhghin O’Caolian, 4 th May 2011 Michael McAteer, Conference Call Recording, December 2010; Page 16

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insurance company ever ever ever again. Now I’ve been saying it for months but, but you know, I know they’ve been at various games in the background to try and manipulate things. That is the facts of the matter. We can’t put that in an email. But people are coming and they’re, and they’re 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 can’t be, I can’t put it in writing, but that’s what what’s 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.

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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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ANGLO’S QUINN RESTRUCTURING PROPOSAL
The Anglo/Liberty deal was part of a wider restructuring and takeover of Quinn Group and QIL by Anglo th announced on the 14 April 2011. This action by Anglo is subject to High Court proceedings issued by the Quinn family. The family allege that the security obtained and enforced by the Bank is illegal, as it was in breach of S60 of the Companies Act and the EU Market Abuse Directive (2003/6/EC). Furthermore, they allege that the funds advanced by the Bank were used to support the Banks own shares, when they knew its published accounts where misleading. Anglo was informed of the family’s stance several times by Quinn Group executives and family’s legal advisers prior to any enforcement action, the most recent such warning was given by a letter from the th 12 family’s solicitors, Eversheds on 7 March 2011 . It is common knowledge that Sean Quinn Senior had acquired a 25% Contracts for Difference (“CfD”) position in Anglo throughout 2007. When Mr Quinn informed the Bank of the CfD position, in September 2007, the Chairman and CEO of Anglo assured him that the Bank was in a very good position, that it was heading for record profits and that it was well positioned for growth over the next number of years Apparently, they asked Mr. Quinn not to dispose of shares. Significantly, although €2.34bn was advanced by Anglo to support their shares between that September meeting and July 2008, it was not until December 2008 that Anglo sought to execute the Share Pledges that ultimately enabled them to take over the Quinn Group. Later still, in September 2009, having apparently realised that there were significant issues with the legality of these loans, Anglo’s legal advisors contacted the Quinn’s local family solicitor, asking him to give the family retrospective legal advice. Naturally, since the relevant transactions had long since taken place, he refused. In September 2007, the Quinn family had €445m of legitimate borrowings from Anglo that had been used to acquire certain properties, that did not include the disputed properties in Russia, India or the Ukraine. From September 2007 until July 2008, Anglo advanced a further €2.34bn to Quinn companies to maintain the CfD position, as the Banks share price continued to decline. In July 2008, the bank advanced funds to the Quinn family and 10 other customers of the bank (known as the Maple 10) to close out the CfD position and acquire the shares outright. It is notable that it was only in December 2008 several months after the final money was advanced and after the Chairman and CEO of Anglo had resigned, that the Bank obtained security over the Quinn family’s shares. The family allege that this security is tainted with illegality, on the basis for which the monies was lent.
In a judgement delivered by Mr Justice Charleton on 29th February 201113, when ruling on preliminary issues relating to the Quinn family’s proceedings to set aside the security, Justice Charleton said that if the funds have been advanced as alleged, he stated:

“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.
12 13

Eversheds Letter to McCann Fitzgerald, 7th March 2011 J Charelton Judgement, Record No. 2011/4336P, 29 February 2011 Page 18

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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 family’s 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 family’s case is unlikely to be heard until 2015. That is unjust, since justice delayed is justice denied. SUMMARY OF ANGLO’S PLAN Anglo’s 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 *Anglo’s 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

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 O’Brien, 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. Anglo’s 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 Anglo’s 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” .
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Paul O’Brien, Quinn Group, Statement ‘Business Disruption’ 5th November 2012 Quinn Group, “Financial Restructuring – Summary Overview”, 19th April 2011 Page 20

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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 family’s 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 bank’s takeover was always going to lead to substantial losses, when com pared to the family’s 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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QIL’s 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.

CENTRAL BANK IRISH INSURANCE STATISTICAL REVIEW 2009;
Each year the Irish Central Bank (formerly the Irish Financial Regulator) produce a statistical review of the insurance sector. This report is based on the statuary returns filed by the different insurers. The Central Bank Insurance Statistical Review for 2009, at Table A, page 13 , compares the reserves for the ‘home’ regulated motor insurers (Insurers whose head office is based in the Republic of Ireland). In 2009, these figures prove that QIL had average reserves of 1.8 times the industry average for motor claims, by far the highest of any insurer. Unfortunately, neither the Regulator nor the FSA produce similar statistics for Commercial business. The following is an extract from that Table.
Table A/ Extract of Data from 2009 Statutory Insurance Annual Returns in the Motor Claims Settlement Analysis Forms in respect of 2009 Accident Year (Form 8) - (Monetary Values are expressed in 000’s) Aviva Chartis AXA FBD Allianz plc Insurance Insurance Insurance Insurance (Europe) Ireland 10,634 12,058 16,905 6,331 8,678 45,917 27,197 73,114 6.88 129,178 18,341 147,519 12.23 117,835 12,693 130,528 7.72 11,596 5,118 16,714 2.64 68,680 5,485 74,165 8.55 Irish RSA Quinn Zurich Public Insurance Insurance Insurance Bodies Ireland 870 17,282 9,658 8,894 3,824 3,174 6,998 8.04 238,845 36,341 275,186 15.92 41,177 1,261 42,438 4.39 75,033 15,577 90,610 10.19
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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

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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

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THE EMB REPORT 2010;
EMB are a UK-based actuarial firm. The EMB report was requested by the Administrators on 30 June 2010 st 20 for the year ended December 2009. The Report was signed off on the 1 November 2010 . In order to prepare QIL’s accounts for year-end 2009, the former management team had already obtained an independent actuarial estimate from Milliman an actuarial consultancy firm (based in the UK and Ireland) to assess QIL’s claims liabilities. Prior to the appointment of the Administrators, PwC and Milliman had been working on finalising the accounts for year-end December 2009. QIL had made a loss for 2009, largely attributable to a decrease in the valuation of property assets, rather than a deficiency or an underestimation of claim reserves. When considering the EMB Report, it is important to note that EMB would not have been familiar with the QIL model, it differs significantly from its competitors in both the UK and Ireland; The Administrators were not in a position to brief or dispute EMB on their findings, as the Administrators themselves were completely unfamiliar with QIL’s business model; The Report was commissioned while the Company was in Administration, consequently EMB would be prudent in taking this into consideration when estimating the development of claims. When the Quinn Group executives met with Richard Woodhouse of Anglo after the Report was released, he advised them that, according to their experts Tower Watson, the EMB report was ‘barking mad.’ For the most recent actuarial reviews, Grant Thornton have reverted back to using Milliman. Considering Grant Thornton are accusing QIL of previously under reserving for claims, it’s hypocritical and surprising that they are using the same actuaries as QIL did in 2009. Despite the negatives in the Report, it does however show that contrary to the Regulator’s assertions, with the exception of Professional Indemnity Insurance, the UK and NI Commercial book were extremely profitable. After QIL was placed into Administration, the UK business was completely shut-down, only for the Motor book to be re-opened on a reduced scale months later. The profitable UK Commercial business, including some of QIL’s historically most profitable lines (according to EMB) was never re-opened. According to the EMB Report, the Commercial lines of business contributed £16.8m of underwriting profit in 2009, and £128.5m over the previous 5 years. These profits exclude any potential investment gain on premium income, which would have been significant considering the premium income of these lines was £90.2m in 2009, and £434.2m over the previous 5 years. Not only was QIL missing out on substantial profits by not writing these lines, but the Company was continuing to incur costs for its Commercial book, for example, QIL still employed a full commercial sales and underwriting team with no work to do, once the commercial business was terminated. The following extracts from the EMB report provide evidence of the performance of the QIL UK Commercial book, while under Quinn management. (Note: For a full understanding of the ratios reported, the reader should do a comparison with other insurers in that year; that will demonstrate the solid performance of QIL.)
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EMB Report, “Quinn Insurance Limited (under administration) Actuarial Review as at 30th June 2010”, 1st November 2010 Page 23

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Extracts from the EMB Report, 01 November 2010
Property Damage UK (B-27) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio Employers Liability UK (B-23) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio Public/Product Liability UK (B-24) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio Property Damage NI (B-53) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio Employers Liability NI (B-49) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio Public/Product Liability NI (B-50) Earned Premium Ultimate Claims Cost Ultimate Loss Ratio 2005 2,807 1,480 52.7% 2005 24,492 12,201 49.8% 2005 11,894 7,666 64.5% 2005 4,191 1,777 42.4% 2005 14,047 4,583 32.6% 2005 9,472 3,271 34.5% 2006 5,880 2,658 45.2% 2006 31,890 15,486 48.6% 2006 19,845 14,254 71.8% 2006 4,594 1,050 22.9% 2006 13,763 6,789 49.3% 2006 9,962 3,458 34.7% 2007 9,260 8,995 97.1% 2007 33,640 22,299 66.3% 2007 22,763 19,012 83.5% 2007 4,594 1,367 29.8% 2007 12,524 6,595 52.7% 2007 9,423 2,981 31.6% 2008 13,066 7,432 56.9% 2008 36,369 31,020 85.3% 2008 25,133 33,874 134.8% 2008 5,442 5,606 103.0% 2008 10,661 13,539 127.0% 2008 8,285 4,915 59.3% 2009 15,115 7,877 52.1% 2009 32,240 25,959 80.5% 2009 22,725 27,389 120.5% 2009 4,895 2,050 41.9% 2009 8,530 5,729 67.2% 2009 6,682 4,347 65.1% 2005 - 2009 46,128 28,442 61.7% 2005 - 2009 158,631 106,965 67.4% 2005 - 2009 102,360 102,195 99.8% 2005 - 2009 23,716 11,850 50.0% 2005 - 2009 59,525 37,235 62.6% 2005 - 2009 43,824 18,972 43.3%

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GRANT THORNTON’S RESERVE ESTIMATES;
Throughout 2010, after QIL was placed into Administration, the Administrators regularly informed the Court that QIL was a very profitable business and did not require any funds from the ICF. In September 2011, as the business was been transferred to Liberty/Anglo, the Administrators requested €775m from the ICF. They suggested that they had uncovered a ‘hole’ in the company’s reserves and that they required funding to meet claims, however little detail or a credible explanation was provided, even to this day. Then incredibly in July 2012, almost a year after the sale to Liberty/Anglo was complete, the Administrators informed the Court that they required an additional €875m from the ICF, bringing the total amount requested to €1.6bn, more than doubling the previous estimate. This was a staggering request and telling that it was made some 28 months after the Administrators had been appointed. This request did not receive any form of real scrutiny, despite its magnitude, by either the authorities or the media. The request did however prompt Minister Noonan to claim he was ‘misled’ by the Administrators in correspondence between his Department and the Administrators – the evidence suggests that Minister Noonan was regularly misled on these issues. Yet no real enquiry was conducted by his Department. The Administrators were given access to €1.6bn from the ICF and the Department of Finance has not conducted any real enquiry into why QIL required such a level of support. Furthermore, Quinn representatives had presented the Administrators, the late Minister Lenihan, the Central Bank and the Department of Finance with a copy of the professional opinion from Moore Stephens LLP which stated that the Guarantees did not impact QIL’s solvency prior to the Administration. This should have caused alarm bells to start ringing in the Department of Finance, and should have alerted them to the fact that the Administration process had been flawed from the outset. A copy of Grant Thornton’s tenth report filed in the High Court in July 2012 has come into limited circulation – 21 its contents are truly staggering . The increase of €875m or 112.9% required from the ICF is broken down as follows:

REQUIREMENT
Original Funding Requirements Increase in claims provisions Adverse Deviation Provision

€M’s
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.

Reserve for sterling hedge

215

21

Grant Thornton, Quinn Insurance Limited (Under Administration), Tenth Report of the Joint Administrators, 30 July 2012. Page 25

Quinn Insurance Limited

Reduction in asset values and miscellaneous adjustments TOTAL

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

€M’s
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 QIL’s accounts. Liberty’s 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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QIL’s MANAGEMENT REPORTS (THE MIS STATS)
Arising out of the data produced in a number of reports produced by Grant Thornton, in their role as Administrators to QIL, a number of issues arise. The following are among the main ones, but they are not the only ones.

(i) Grant Thornton’s 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)

Grant Thornton’s Allegation That QIL was Historically Unprofitable

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

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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 didn’t there is no doubt they wouldn’t 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

Loss Ratio 65.45% 75.09%

Open Claims 46 2,593

Source: Table A. MIS Stats, 12 March 2012 [24]

Summary 2004-2008 Premuim Income [€2.48bn / 75.09%] 2004 - 2008 Developed Claims Cost 2004-2008 Underwriting Profit [€3.3bn - €2.48bn]

€ 3,305,747,839 € 2,482,286,052 € 823,461,787

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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GRANT THORNTON MISMANAGEMENT OF QIL
In an interview with the Irish Times on 25 February 2011, Michael McAteer admitted he knew ‘ nothing about insurance’ when he, along with Paul McCann, were appointed Joint Administrators of QIL. Over the course of the Administration process there have been numerous costly instances of outright mismanagement. The following are some of the more glaring examples, provided in a number of categories.
th

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 QIL’s 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, QIL’s 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

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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. It’s a prudent view. In Grant Thornton’s 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 Stg£0.70 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

2011 639,795 573,441 129,392 20.2% 22.6%

2010 829,980 822,283 188,434 22.7% 22.9%

2009 1,061,940 1,053,585 178,490 16.8% 16.9%

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

Quinn Insurance Limited

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 Company’s 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

Yr on Yr Increase 17% 42% 66%

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 QIL’s 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
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period, there will be no future obligations on the parties to each other regarding the 28 reserves.” That is some (indirect) indictment of Grant Thornton’s 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

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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 QIL’s 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

New Business Renewals Grand Total

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 QIL’s 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 QIL’s 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

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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. Regulator’s 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.

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The Michael Noonan Interview of 14th April 2011
The following is a series of excerpts taken from an interview given by Minister for Finance, Mr. Michael th Noonan T.D. on 14 April 2011, specifically in relation to QIL. Each of the selected comments is 33 accompanied by a critique of the comment made . Minister Noonan: “It was one of the first files he looked at when he came into Government. In so far as I had to consent to various proceedings, we moved it along pretty quickly.” Comment: Indirectly, this shows how involved the Department of Finance was in relation to the restructuring of QIL and the Quinn Group and the level of complicity inherent in that involvement. Minister Noonan: My priority was maintaining the jobs, because as it has been a priority of Government to maintain and create jobs, and there was a very large number of jobs here, I think its almost 2800 in the Commercial companies and 1650 in the Insurance Companies, when you stick the two together, what does that come out at, about 4 3 - 4 4 something like that, it is lot of jobs, they are well paid jobs as well, they are skilled jobs.” Comment: The priority of Anglo and Noonan should have been the maximum recovery of debt. The Quinn family proposal would have created a further 1,500 jobs. Anglo ’s proposal to date has lost 1,200 jobs through redundancy alone and many more un-replaced through natural attrition. Furthermore, due to Anglo’s restructure of Quinn Group, they have also embarked on a voluntary redundancy scheme. Minister. Noonan is also incorrect when he states that Quinn companies employed 4,200 to 4,400 employees, over 7,000 were employed by Quinn companies. Minister Noonan: There is another kinda good story in it as well, at least a topical story, the bondholders took a heavy hit, in the negotiations with Anglo, I think they took a hit up to close to 50%, which was a sizeable amount of money” Comment: This is a complete mistruth, it’s not clear whether Minister Noonan was wrongly advised or intentionally sought to mislead the public that the bondholders of the Quinn Group had taken a hit on their debt. Prior to the restructuring of the Group, the consortium of banks and bondholders were due €1.27bn, after the restructuring the lenders are still due €1.27bn. It is unclear how Minister Noonan believes the lenders took a hit close to 50%. As part of the deal, the interest rate was increased by three times the previous rate and the debt was split into two Tranche’s A & C. A = €760m @ 8.5% C = €517m @ 8.55% All of this debt and interest is due . Anglo have zero chance of making a recovery on the Quinn Group, 34 even though they advised the Minister for Finance they would make a return of €270m . Before going public with such a statement, Mr. Noonan should have ensured that he had the facts, not the spin. Minister Noonan: Liberty are putting in a big chunk of equity as well, a big chunk of money going in from Liberty, it is still commercially sensitive as there is a couple more months before it is in place, I’m not going to say the amount of money they are putting in, but its quite significant.” Comment: Liberty have put in €102m to gain control of QIL, which had €1.1bn of cash, €450m of property asset, and has an additional €1.6bn from the ICF. They seem to have received excellent value, and as per the McAteer interview, Liberty is likely to quadruple its investment. The reality is more likely to be that they will increase their investment by 20 times, rather than the four times referred to by Mr McAteer. The €102m is between 6% and 10% of the amount that Administrators are seeking from the ICF (€1.0 – €1.6bn) – probably only 6% ultimately.

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

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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 it’s a good news story for the workers.” “Guarantee people their jobs, if you are thinking about losing you job you won’t 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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QUESTIONS TO BE ANSWERED REGARDING QUINN INSURANCE
There are many issues which need to be addressed in relation to these matters. The following are some of the questions, to which answers have never been provided and to which answers are definitely needed, if justice is to be done and seen to be done. 1. Considering the financial advice that the Quinn Group received from Moore Stephens LLP and the company’s auditors, PWC, subsequent to the Administration of QIL, it now appears that the basis for the Administration was flawed, and that the Court may in fact have been misled. They both confirm that the guarantees upon which the Regulator relied in placing the company into Administration appear to have had no effect on the solvency of QIL prior to the Company being placed into Administration. Despite numerous requests, Mr Elderfield has failed to produce the legal or professional advice that he relied upon at the time to place QIL into Administration. Is it now not imperative for him to do so before he leaves office? 2. The Regulator, the Department of Finance and the Administrators, were all provided with a copy of the professional opinion from Moore Stephens LLP, stating that the Guarantees did not affect the solvency of QIL. The Guarantees were the very reason that QIL was placed into Administration. It was only after that report had been presented to all the relevant parties that the purported ‘ hole’ in QILs’ reserves began to appear. Was this simply a retrospective attempt to justify the administration process after it emerged that the original reason was fundamentally flawed? What action, if any, has the Department of Finance, the Regulator or the Administrators taken since they received the Moore Stephens LLP report? 3. In December 2010, Mr Michael McAteer was recorded during a conference call with senior management and members of the employee committee. During that 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. How did he know this? Was he informed of this by the Regulator? Certainly one would have to question the impartiality of the sales process after such a comment by a Court appointed Administrator. 4. In a report dated 29 October 2010, PwC stated that the Regulator instructed the Administrators of QIL to write the assets of subsidiary companies down to zero in QIL’s solvency returns, thus ensuring that there was a solvency deficit. On what legal or professional advice did the Regulator seek to have the QIL subsidiary companies written down to nil? Was this an attempt by the Regulator to try and justify retrospectively his decision to place QIL into Administration? The Administrators were Court appointed, and are answerable to the Court. Why were they taking such direct instructions from the Financial Regulator and not allowed to assess the situation independently? 5. The Administrators paid the bondholders of the Quinn Group €267m from the reserves of QIL, to release the disputed guarantees. Why would the Lenders of the Group take a 50% haircut if they believed the guarantees were legitimate and why would the Administrators pay €267m without fully testing the legitimacy of the guarantees? Was this transaction done in order to try and justify the decision by the Regulator to place the Company in Administration? What communication did the Administrators have with the Regulator with regard to the legitimacy of the guarantees? 6. The former Chairman of the IBRC Alan Dukes stated in a letter dated 4 May 2011 to the cross border political representatives that “It had become clear that the Financial Regulator would not approve any project in which Sean Quinn would be involved”. One can only assume from this comment that Mr Dukes had been told this by the Regulator. Was this an appropriate communication between a party in a bidding process and the Regulator? 7. It has been well publicised that Anglo and the Quinn Group were advancing discussions regarding “The Quinn Proposal”. Did the Regulator have any influence or discussions with Anglo regarding the future of th QIL prior to the 14 April 2011, when the sale to Liberty was confirmed?
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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 Elderfield’s former colleagues in the FSA or from QIL’s competitors? And, did these calls influence Mr Elderfield’s 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, Liberty’s stand-alone operation, at a direct cost to the ICF and the Irish taxpayer? 11. While employees shouldn’t 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 policyholder’s 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 IBRC’s assets, this would include Anglo’s/IBRC’s 49% shareholding of QIL. Does this mean there will be a fire sale of IBRC’s 49% shareholding, further eroding any possible return to the taxpayer? What is the Department of Finance’s 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 O’Brien 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 Charleton’s 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 Anglo’s 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 McCann’s 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 O’Brien, 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/IBRC’s 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

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