The joint administrators of Quinn Insurance Ltd (QIL) are suing the firm's former auditors, PricewaterhouseCoopers for about €1 billion over alleged negligent auditing of accounts over several years.
Any damages recovered in the case will be used to repay to the State-backed Insurance Compensation Fund the cost, which could reach €1.65 billion, of meeting claims of QIL policyholders, the administrators said. Some €1.1 billion has been paid out of the fund to date and, because the fund had had insufficient money to meet the QIL claims, the Government has imposed a 2 per cent levy on all non-life insurance policies.
QIL had worsened the effects of reserve deficiencies on its finances by making "gifts" totalling €385 million to the Quinn Group and other companies connected with the Quinn family – made up of €175 million in 2006, €135 million in 2007 and €75 million in 2008.
Among a series of claims, the administrators allege PwC failed between 2005 and 2008 to notify either the QIL board or the financial regulatory authorities of QIL’s failure to have the level of reserves required for non-life insurance companies. They claim there was some €1.8 billion reserves in 2010 and further provision of €800 million had to be made.
Guarantees over debts
It is also claimed PwC failed to note in QIL's audited accounts that QIL had authorised subsidiaries to give guarantees over debts of other companies in the Quinn Group which guarantees extended to €1.29 billion by 2007. PwC also failed to bring those guarantees to the attention of either the QIL board or the financial regulators.
It is alleged QIL’s management carried out a “quasi-actuarial assessment” of the reserves required before getting an actuarial firm to vouch them or recommend adjustments. The relevant actuarial firm had said it had not investigated the accuracy of the data. PwC, it is alleged, failed to look adequately behind these matters.
After the administrators asked PwC to finalise the audit of the QIL financial statements for the year ended December 2009, it was only then PwC disagreed with the QIL actuarial analysis, it is claimed. PwC then proposed providing €68 million for claims, indicating a total loss for the 2009 financial year of €115 million, instead of the pre-audit €47 million loss in draft financial statements, the administrators claim.
The draft financial accounts suggested QIL, while loss-making in 2008 and 2009, had been historically profitable with a €338 million surplus of assets over liabilities before the posting of the 2009 loss, they also claim.
EMB Actuarial Consultants, asked by the administrators to carry out a detailed review of the QIL reserves, had in November 2010 expressed its views the reserves had been underestimated by €380 million. Further reviews had led to a total additional €800 million being added to the €1.8 billion reserve figures, it is claimed.
The administrators claim QIL was insolvent for a significant time before it was placed in administration in 2010 when an independent non-executive director of QIL notified the Financial Regulator of the guarantees. The claims against PwC will be vigorously defended, Paul Sreenan SC, for the firm, told Mr Justice Peter Kelly yesterday when consenting to an application by Paul Gallagher SC, for the administrators, to have the case fast-tracked in the Commercial Court.
The judge made directions for exchange of legal documents and will make further directions in October.
