The Insurance (Amendment) Act 2011 (the "Act") was enacted on 30 September, 2011 and, once commenced, will update the existing legislation relating to the Insurance Compensation Fund (the "ICF").
The main changes that will result from the Act are:
(i) the introduction of "excluded risks", policies of insurance in respect of which will not be subjected to the levy;
(ii) the dis-application of the levy to policies that do not relate to "risks in the State"; and
(iii) the introduction of new offences.
We have set out below an overview of the previous ICF regime, together with an outline of the changes that will be introduced on the commencement of the Act.
Legal Basis of the ICF
The ICF has its legal basis in the Insurance Act, 1964 (as amended) (the "1964 Act"). The original purpose of the ICF was to cover the cost of claims due to a person under a policy issued by an insurer in the State where that insurer was in liquidation. An "insurer" for the purposes of the 1964 Act is an undertaking that holds an authorisation under the European Communities (Non-Life Insurance) Framework Regulations 1994. The Insurance (No. 2) Act, 1983 extended the ICF's applicability, allowing for the administrator of an insurer to apply to the High Court seeking funds "required to enable the administrator to carry on the business of the insurer and to perform his other functions under the [1964 Act] in relation to the insurer". This extension was in response to PMPA entering administration in October 1983.
Current Financial State of the ICF
It is reported that ICF funding currently stands in the region of €40m. The joint administrators of Quinn Insurance Limited have indicated that there is likely to be a call in excess of €600m on the ICF during the course of that company's administration. It is on this basis that the Central Bank is driving the introduction of a new 2% levy.
To date the Central Bank was entitled to impose a levy of up to 2% of the gross amount of premiums paid or payable to an insurer in respect of all policies issued by that insurer in a given year where it felt that the state of the ICF was such that financial support should be provided for it. On the basis of the definition of "insurer" set out above, all income in respect of non-life insurance policies may have been subjected to the levy. However, political discretion was used to dis-apply the levy's application to certain types of insurance policy. This position has...