To read the full edition of the Insurance Newsletter, Autumn 2011, click here.
The Insurance (Amendment) Act 2011 (the "Act") was signed into law by the President on 30 September 2011. The Act, which imposes a levy of up to 2 per cent on all non-life insurance premiums, was enacted so as to fund the losses of the Quinn Insurance books and to amend the existing Insurance Act 1964 (the "1964 Act") and the insurance compensation fund ("ICF") established thereunder.
The 1964 Act established a fund, the ICF, designed to meet certain liabilities of insolvent insurers. Under the 1964 Act, as previously amended by the Insurance (No. 2) Act 1983, a liquidator of an insolvent non-life insurer could obtain funds from the ICF to make payments due to a policy-holder of the insolvent insurer.
Following the appointment of administrators to Quinn Insurance, focus centred on the ICF, its basis and its application. Under the existing wording of the 1964 Act, the ICF is primarily funded by grants and advances made by the Central Bank of Ireland and levies imposed by the Minister of Finance on non-life insurers. Under the 1964 Act, any levy imposed is calculated on premiums received on all policies issued by an Irish non-life insurer, including policies covering risks located outside of Ireland. Following the Quinn fallout, there was concern from a number of Irish insurers (who wrote no risk in Ireland) that any levy implemented by the Minister of Finance would be implemented on this basis and the fear in the market was that these insurers would withdraw from Ireland if the levy was deemed to apply to the business they wrote outside of Ireland.
Under the new Act, which imposes a levy of up to 2 per cent to all non-life insurance policies, the 1964 Act will be amended to ensure that any levy that is imposed on Irish non-life insurers will be calculated on premiums received in respect of all insured risks in Ireland, ie all policies covering risk located in Ireland. This eliminates any doubt for foreign insurers who do not write any risk in Ireland, ie those who conduct all of their business on an outward cross-border basis, and confirms that the proposed levy will not apply to those insurers. Furthermore, the changes ensure that the ICF levy legislation is consistent with EU law.
The Act also includes measures allowing the High Court to grant orders for payment out of the ICF for the ongoing costs of an administrator appointed to an insurer. Any such orders will only be granted in respect of insurers who conduct a significant percentage of their overall business in the Irish market. It is proposed that 'significant' will be defined as 70 per cent averaged over the previous 3 years. This aims to ensure that only those who pay the levy will receive the benefits from the ICF.
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