Former Deloitte CEO Paul Mercieca has been appointed liquidator for Setanta, the Malta-registered motor insurance company that collapsed earlier this year.
The group has been in trouble for some time. The 2012 financial reports for Setanta Insurance declared a loss of €1.3 million in spite of total premium income of €39 million, albeit an improvement on the €3.9 million loss in 2011. Parent company Setanta Holdings declared a loss for the group of €1.4 million for 2012 and of €4.1 million for 2011.
The auditors Grant Thornton had raised the alarm in the reports.
“Although there was a capital injection of €1.354 million, the company still needs further capital injection to improve on its solvency margin and to prepare itself for the more onerous requirements under Solvency II,” they said about Setanta Insurance, adding that the shareholders were planning to do this by April 2013.
“Further additional capital remains crucial for the company, and should the efforts to raise the necessary capital not be successful, there is formal agreement to seek a new shareholder for the company.”
In the notes to the financial report for Setanta Holdings, it added: “The insurance subsidiary is currently operating below the regulatory solvency margins but within the legal solvency requirements.
“These conditions indicate the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue operating as a going concern.”
Setanta was set up in 2007 and based in Dublin. In January, it announced that it would not be accepting new policies and in mid-April the company announced that it would be put into liquidation as it did not have sufficient funds to honour its obligations.
The first nominee for the post of liquidator was Louis Cassar Pullicino, who declined.
There were 22 shareholders involved in Setanta Insurances, who between them invested €8.4 million. One investor flew to Malta to attend the creditors’ meeting last Wednesday, at which Mr Mercieca was officially appointed. Another two investors were represented by local lawyers. The meeting was over in a very short time, with Mr Mercieca now putting together a team which will analyse the situation and set up the liquidation procedure. A statement of the company’s affairs together with a list of creditors and an estimate of their respective claims was laid before the meeting – however, no details were available at this stage as they are still being assessed.
The company deals mostly with corporate motor insurance, and Irish media report that around 75,000 held Setanta policies. The company has warned that full payments of claims cannot be guaranteed. To make matters worse, all payments of claims have now been suspended until the liquidator has determined all the liabilities of the company, an exercise “likely to take considerable time”.
Prompted by Irish MEP Pat Gallagher, EU Commissioner for Internal Markets Michel Barnier confirmed that his office is “looking into the matter”.
Setanta made use of EU legislation, which allowed it to sell insurance here although it was regulated in another EU country.
Mr Gallagher said in a statement: “It is necessary for the EU Commission and the [Irish] government to outline how an insurance company was allowed to operate in Ireland without the necessary funds.
Further additional capital remains crucial for the company
“In the aftermath of the economic and financial crisis, the EU institutions established the European Insurance and Occupational Pensions Authority to oversee the supervision of Europe’s insurance sector. But it appears that in reality we still lack adequate supervision and oversight of the financial sector.”
The Irish Brokers Association (IBA) is calling for the country’s Insurance Compensation Fund to cover unpaid claims. Its president John Bissett said in a statement that the European regulatory system needed a radical overhaul.
“The system in its current state allows insurance companies, which are primarily owned by Irish people and principally based in Ireland, to sell exclusively to Irish customers – but to be regulated in a different jurisdiction. The Setanta debacle is a clear example of how this regulatory structure is not appropriate and is not protecting Irish consumers. Insurance entities operating in Ireland, selling to Irish consumers, should be regulated by the Central Bank of Ireland,” he said.
The IBA called on the Irish Central Bank to put urgent pressure on Malta’s Financial Services Authority to ensure the bill for unpaid claims would not be picked up by the Irish taxpayer.
“We (the IBA) are also calling on the Malta appointed liquidator to apply to the Irish High Court to ensure that policyholders can access the Insurance Compensation Fund.
“Setanta Insurances’ directors and the European and Maltese regulatory authorities need to account for their actions which have put innocent Irish policy holders in this position – they need to provide an explanation as to how this occurred.
“Responsibility for the regulation and for the solvency of insurance companies lies with the regulators who have unfettered access to the inner financial workings of those companies and who maintain regular close contact with those companies and who also audit them.
“Brokers do not have access to this information so are not in a position to identify which companies may have solvency issues and must therefore rely on regulators to do this. In the case of Setanta Insurance, this function was solely the responsibility of the Malta financial regulator,” he added.
The Sunday Times of Malta asked the MFSA why it did not raise a red flag if it was clear from the 2012 reports that the company was making loss upon loss – and that it was undercapitalised.
It replied: “Please note that there is nothing to add at this stage to the announcements and FAQs already published. The liquidator should be allowed to exercise his powers according to law, without interference.”