Quinn Insurance – the glum facts

I’ve been reading with great interest the developing story of the Quinn Group’s Insurance company’s conflict with the Regulator.

As the story broke, I thought Quinn Groups got their stance completely wrong.  The main defence offered of their position was that “the group and Quinn Insurance are in a position to meet all their respective obligations from a cash perspective”

This was a paltry defence as Cash is not the primary measure of a Insurance company, nor should it be as insurance companies should always be cash rich. Think of it this way:

If an insurance company receives 1,000 annual motor insurance premiums for €400 on a single day, then it will have a nice €400,000 sitting in the bank.  Say if they have selling costs relating to that business of 50% straight away, then they will still have €200,000 sitting in the bank against future insurance claims and as profit.  Even if there was no profit and all of this amount was paid out against claims, you still have €200,000 sitting in the bank for an average 6 months.  so Insurance industry = lots of cash.

Incidentally, this is why Warren Buffett loves Insurance:  You get all this cash that you can make investments with. So, if you invest wisely, you can generate tremendous returns for having a cheap source of capital.  Quinn group replicated this, but unfortunately made investment errors.

This ‘cash issue’ also highlights that you need a good regulator – having loads of cash does not imply you have a good balance sheet.  The regulator was seen that the poor investments (and as I make it out, underpinned by large guarantees) meant that Quinn could struggle to pay future claims out of the premiums paid, without dipping into future premium payments.

Since their initial less than impressive response to the crisis, things have got better.   The defence has been robust and the situation has turned from a situation where you would not renew or seek a quote from Quinn Insurance, to where the public feel that Quinn group is worth supporting.

They continue to attack the Regulator for his stance (incorrectly in my view). But in some ways he may end up doing Quinn Group a favour in the long run if they can extricate themselves from current circumstances.  Have a read of Charlie Weston’s excellent opinion on this in today’s Independent.  I agree that if the Regulator is strong and can be relied upon, then we can all place greater trust in Quinn Insurance company products.

Quinn Group – The Hope

Sean Quinn is without doubt the most important Entrepreneur in Ireland.  Probably ever.  Not just in terms of creating wealth for himself as a shareholder, but in creating value in the economy.  Has a single entrepreneur created and sustained more jobs  in Ireland in their lifetime than Mr Quinn?  At a time when money is being burned on the altar of the bank Gods to satisfy bondholders, you can’t help but feel the economy would get a better return on investment in giving one of those billions to Quinn.

That cannot happen, but could now be the time for Quinn Group to float and give the public punter the opportunity to invest in the business?  Without having looked too deeply into it I’ll confess, this could be a way to keep the Group together and resolve the insolvency concerns.

In the meantime I’ll be asking them for a quote on my home insurance renewal next week for the first time!