POTENTIAL COST OF QUINN ADMINISTRATION SOARS

The cost of winding down Quinn Insurance, much of which is being met by a levy on insurance policies sold in the future, has soared to a worst-case scenario of £1.65bn ($2.04bn), joint administrators have told the President of the High Court. In October last year, before the same court, Mr Justice Nicholas Kearns approved a potential payout of €738m to deal with issues arising from the administration of Quinn Insurance Ltd. This week the administrators told the judge that the cost was now likely to be between €1.1bn and €1.3bn, with a worst-case scenario of €1.65bn. The administrators' barrister admitted this could mean that the 2% levy imposed on home, motor and commercial policies could be extended even beyond the 12 years that it was expected to last. Justice Kearns said that he wanted to hear personally from the administrators and from a representative of the Central Bank of Ireland. He added that there had to be strong public concern when a set of estimated costs was replaced by something far higher less than a year later. The administrators' lawyers said that causes of the increased estimate included higher claims provisions, a weakening euro relative to sterling, and reduced investment values. In October last year US-based Liberty Mutual bought Quinn Insurance operations going forward, and as a result Liberty Mutual Direct Insurance will contribute 25% of its profits to the Quinn Insurance Ltd fund, thus reducing the cost of administration. However, the administrators' barrister told the High Court this week that there had been a culture at Quinn Insurance, particularly in the UK, of underestimating required levels of reserves, and that the administrators were taking a more prudent and realistic approach to required reserve levels.