Opening Statement by Director of Consumer Protection Bernard Sheridan to Joint Oireachtas Committee on Finance, Public Expenditure and Reform 09 July 2014 Speech Introduction Chairman and Members of the Committee, I would like to thank you for inviting me here today to discuss the recent collapse of Setanta Insurance Company Limited. I am joined by my colleagues Colm Kincaid and Mick Stewart. The failure of any firm which impacts on Irish consumers, policyholders or claimants is a matter of serious concern for the Central Bank of Ireland. Policyholders buy insurance to protect themselves against future risks and therefore they should be able to rely on the cover they have paid for. Safeguarding consumers is one of the Central Bank’s primary objectives and with this in mind; the actions which the Central Bank has taken in relation to Setanta have been taken with the aim of protecting the interests of Irish consumers. I will give you a brief overview of what the Central Bank’s role has been in relation to Setanta. Background Setanta is a company which was established in Malta in 2007 and was authorised and supervised by the Malta Financial Services Authority (MFSA). Setanta sold insurance in Ireland on a Freedom of Services basis, i.e. it was entitled to sell here once it had obtained authorisation from the MFSA under the provisions of the single market directives. The firm did not operate on a branch basis in Ireland. It did, however, have an administrative office in Blanchardstown. Setanta was required to comply with conduct of business requirements of the Central Bank when selling to Irish consumers. Setanta provided private and commercial motor insurance policies to Irish consumers and sold exclusively through 230 brokers. At the time that it went into liquidation, Setanta had approximately 75,000 policyholders, two thirds of which were commercial motor insurance policies and one third was private motor insurance policies. In January 2014 the MFSA directed Setanta to cease carrying on the business of insurance, including the renewal of existing business. On 16 April 2014 Setanta handed back its licence to the MFSA and on 17 April the firm announced that it was commencing a creditors’ voluntary liquidation as it was unable to meet its outstanding claims in full. A creditors meeting was held on 30 April 2014 in Malta at which a liquidator was appointed to administer the liquidation of Setanta. All policies were cancelled by the liquidator with effect from 29 May 2014. The Central Bank’s role - prior to Setanta’s Announcement on 17 April 2014 In early September 2013 the Central Bank became concerned about the financial position of Setanta based on market intelligence and as a result contacted the MFSA, on a regulator to regulator basis, seeking confirmation that Setanta was solvent and that it had sufficient assets to meets its liabilities to Irish policyholders. The MFSA confirmed that it received monthly management accounts and solvency calculations and, according to its latest management accounts, Setanta was meeting the relevant solvency requirements in terms of the EU Solvency 1 Directive. In October 2013, the Central Bank conducted an inspection of Setanta to examine its practices in relation to claims handling. In November 2013, the Central Bank met with Setanta to discuss the findings of the inspection, including our concerns about how the company was reserving for its claims. The Central Bank also contacted the MFSA to share our findings and a copy of our inspection report was forwarded to the MFSA requesting that they take appropriate action. Due to our ongoing concerns for Irish policyholders, the Central Bank continued to engage very closely with the MFSA following the submission of the report to them. In January 2014 the Central Bank received further market intelligence which raised further concerns. We again raised these with the MFSA. We also wrote to the Department of Finance outlining our concerns in relation to Setanta and advised them of the possibility of a potential call on the Insurance Compensation Fund in the event of failure of this firm. The MFSA’s role - prior to the Setanta’s announcement on 17 April 2014 Following receipt of the Central Bank’s report on the findings of the inspection, the MFSA appointed a liability loss adjustor firm in December 2013 to carry out an independent assessment of Setanta’s outstanding loss reserves. On 16 January 2014 the MFSA notified the Central Bank that they had received initial indications from the liability loss adjuster that there was a material shortfall in Setanta’s reserves. Based on the final report received, and their knowledge of Setanta as its prudential regulator, the MFSA directed Setanta to cease writing new business and issuing renewals with effect from the close of business on 24 January 2014 and a Maltese firm was appointed to manage an orderly run-off. On 27 January 2014 Setanta issued a letter to its entire broker network to inform them of the MFSA’s direction to cease writing new business and issuing further renewals with effect from the close of business on 24 January 2014. Setanta also requested that the brokers issue a letter to the policyholders that provided information about the MFSA’s direction. Following the issuing of the direction, the MFSA continued to engage with Setanta in an attempt to resolve its financial difficulties and ultimately informed the Central Bank on 11 April that Setanta had failed to secure a resolution to its solvency deficit and that the directors were going to propose a voluntary liquidation to its shareholders. On 16 April 2014 the MFSA informed the Central Bank that Setanta had handed back its licence after the shareholders resolved to wind it up. The Central Bank’s role – after 17 April 2014 The Central Bank published a notice on its website on 17 April informing the public and the media about the liquidation of Setanta and that policyholders should make arrangements to obtain alternative cover without delay. This notice has been updated as new developments occurred. At the same time, Setanta notified its broker network that a solvent run-off of the business was no longer possible and that this information should be brought to the attention of policyholders. The Central Bank also communicated directly with the brokers and we instructed them to contact policyholders regarding making alternative insurance arrangements and to offer to assist them to obtain proof of no claims bonus. We also engaged with the representative bodies of the brokers (PIBA and the IBA) as well as Insurance Ireland to help facilitate policyholders’ transfer to another insurer. The Central Bank also provided advice to policyholders who contacted us as well as providing information to the National Consumer Agency. The Liquidation Process Currently, the liquidator is in the process of assessing the level of potential claims and the assets and liabilities of Setanta in order to estimate the actual shortfall. This process could take some time, particularly as some claims may not as yet have been submitted and also some claims may be ongoing for some considerable time. Policyholders or third party claimants, who have not yet submitted their claim to the liquidator, should do so as soon as possible. This will ensure that the claimant will be included as a creditor of Setanta when its liabilities are being assessed. Our understanding is that premium refunds are automatically included on the creditors list. Conclusion In conclusion, the failure of Setanta has clearly impacted on all of its policyholders. While the Central Bank’s supervision of Setanta extends to conduct of business issues only, we have sought to protect the interests of Irish policyholders through engagement with the MFSA, the firm and the liquidator. We will continue to ensure that affected consumers are fully informed of any developments and to liaise with the MFSA during the liquidation process. Thank you for your attention. We are now happy to take your questions