# What happens to your pension or investments if your insurance provider goes insolvent?



## SClarke (3 Jan 2021)

I'm looking into starting a prsa as well as an investment with Zurich and saw on their key information document (for an investment option) a statement on insolvency: "If zurich is unable to fulfil its obligations as a result of its own insolvency or the insolvency of another party linked to the fund you have chosen, you may suffer a financial loss. There is no State guarantee scheme that can compensate you for all or part of these losses." 

Is this commonplace for all insurance providers in Ireland? Would my PRSA be protected in the instance of Zurich going insolvent or does this just apply to investments with them? It's a bit unnerving in either case so would appreciate any further info people may have on this topic, thanks in advance!


----------



## Brendan Burgess (3 Jan 2021)

A life insurance company is not like a bank which faces the risk of bad debts due to bad lending or an economic depression. 

Zurich has a very high credit rating. 



			https://www.zurich.com/en/investor-relations/ratings
		


It's hard to see what might go wrong here.  A huge epidemic which kills lots of people who have life insurance? 

It is heavily regulated and has huge reserves.  

I personally wouldn't worry about it. 

Brendan


----------



## Gordon Gekko (4 Jan 2021)

If the likes of Zurich go under, we’ll have bigger worries than the likes of Zurich going under.


----------



## SGWidow (4 Jan 2021)

I think insurers can fail. Wasn't Quinn allowed to run his insurance business recklessly? Hadn't there been a few other non-life insurers failing previously (PMPA and others)? On the life insurance side, didn't Equitable Life go under?

For life insurers, I'd be interested in understanding the precise priorities/protections in the event of an insurer failing on the presumption/understanding that all investments are not similarly protected - e.g. if I had an ARF, am I more protected than if I had an annuity with a given insurer.


----------



## NoRegretsCoyote (4 Jan 2021)

SClarke said:


> There is no State guarantee scheme that can compensate you for all or part of these losses.



Whereas in practice the state has stepped in to plug holes in PMPA, Quinn, and Setanta down the years.


----------



## Brendan Burgess (4 Jan 2021)

SGWidow said:


> I think insurers can fail. Wasn't Quinn allowed to run his insurance business recklessly? Hadn't there been a few other non-life insurers failing previously (PMPA and others)?



Non-life insurance such as motor is very risky.  But that is not relevant to the question of life insurance.



SGWidow said:


> On the life insurance side, didn't Equitable Life go under?



Sort of.  It was a very unusual set of circumstances. In an effort to be fair Equitable offered guaranteed annuities e.g that a pensioner would get an annuity of 12% of her pension pot on retirement.  They had caveats on this but the High Court and House of Lords in the UK overruled those caveats.

While some life companies still have some guaranteed annuities, they are a tiny part of their business. 

Brendan


----------



## SGWidow (4 Jan 2021)

Brendan Burgess said:


> Sort of.



Like being pregnant?



Brendan Burgess said:


> It was a very unusual set of circumstances.



Hmmm - a financial institution unreasonably interpreting a contract for a whole cohort of clients in its favour with disastrous consequences?


----------



## Brendan Burgess (4 Jan 2021)

Hi SG

You clearly have no idea about Equitable Life.

It was a mutual and had an ethical approach to its customers.    I thought that their contract was crystal clear.  The Courts took a different view and upheld the complaints but the losers were other customers not some shareholders.  The big losers were consumers generally. 

Brendan


----------



## SGWidow (4 Jan 2021)

Brendan,

I take the same view as the Court of Appeal.

Are the learned judges also clueless?

What EL tried was sleight of hand at its finest. It really is pure nonsense (and quite annoying) to say that the contract was crystal clear.

Also, I was personally at a meeting with the Head of EL Ireland where we my husband and I that the Irish "branch" was ring-fenced from the troubles in the UK.

I don't consider the ruse that brought them down or the misrepresentation made to me personally to be ethical.

So, specifically,

1. What part of the Court of Appeal judgement do you have issue with?

2. Are you aware that EL maintained that its Irish "branch" was ring-fenced when it wasn't?


----------



## Brendan Burgess (4 Jan 2021)

The Court of Appeal missed the whole point of what Equitable Life was - it was equitable and it was mutual.

For example, on its with profits funds, if someone cashed early, they got the full value of the fund. With the other companies, you could not get the full bonuses until the product matured. 

And that was the context in which the judgement should have been made. 

I don't remember the detail, but I remember being shocked that the Judges effectively sentenced the best life company to death. 

I don't recall the claim that the Irish branch was separate. I might have heard that claim at the time.

But the overall point is that life companies are very safe and the factors which brought down Equitable Life do not impact Zurich. 

Brendan


----------



## SGWidow (4 Jan 2021)

Brendan Burgess said:


> I don't remember the detail



but



Brendan Burgess said:


> The Court of Appeal missed the whole point of what Equitable Life was



I do remember the details very well that's why I asked those 2 specific questions.


----------



## roker (4 Jan 2021)

SGWidow said:


> but
> 
> 
> 
> I do remember the details very well that's why I asked those 2 specific questions.


are we talking about Annuities going bust? I am with  New Ireland


----------



## NoRegretsCoyote (4 Jan 2021)

SClarke said:


> Would my PRSA be protected in the instance of Zurich going insolvent or does this just apply to investments with them?



There are different issues with a PRSA and insurance.

With insurance they charge a pool of customers upfront, invest for the long term, and pay out in future. So poor investment returns and/or mis-estimation of risk means they may not be solvent when claims fall due.

With your PRSA they are simply taking your money and buying assets in whatever mix you tell them to, and holding on to these assets. The value of your portfolio will go up and down, but short of widespread fraud or embezzlement it can't disappear.


----------



## SGWidow (4 Jan 2021)

Precisely NoRegretsCoyote,

To adopt the phrase du jour, in the event of a failure (storm), not all cohorts will be in the same boat......


----------



## Brendan Burgess (4 Jan 2021)

NoRegretsCoyote said:


> With your PRSA they are simply taking your money and buying assets in whatever mix you tell them to, and holding on to these assets.



I am not an expert in the area, but my understanding of Irish life insurance companies is that your investment is not segregated in any way. Your assets are a liability of the life insurance company.  If the company goes bust, your assets would be gone.  This is extremely unlikely.

Even in a worst case scenario, it's likely that an investor would get back about 90% of their investment. 

But it's not like an online stockbroker which can go bust but your assets are usually in a separate company set up to own the assets.

Brendan


----------



## Brendan Burgess (5 Jan 2021)

Brendan Burgess said:


> It's hard to see what might go wrong here. A huge epidemic which kills lots of people who have life insurance?



I spoke to someone in the industry, who told me that established companies like Zurich are well balanced.  So if an epidemic results in increased life insurance claims, it will be well compensated for by falling annuity payments as older people die sooner than expected.

The threat would have to come from something like a war which disproportionately killed off people with life insurance while not affecting older people as much. 

Brendan


----------



## SPC100 (5 Jan 2021)

Personally I have pension in two different providers and that makes me feel more comfortable.

We simply can't forsee all the reasons a company may run into troubles. Having adequate reserves is theoretically as simple as a few extra zeros on a screen somewhere.

I consider it a non zero risk that your pension provider / broker / fund / investment plan provider could go bust. But what can you do about it or what alternatives do you have?


----------



## SPC100 (5 Jan 2021)

Use different funds/fund companies and different providers when you can?


----------



## SPC100 (5 Jan 2021)

There is also non zero risk that we die tomorrow.

Edit: I came back from dead to fix this post.


----------



## MugsGame (5 Jan 2021)

SPC100 said:


> There is also non zero risk that we die tomoy



Or God forbid, mid-po


----------



## Brendan Burgess (6 Jan 2021)

SPC100 said:


> I consider it a non zero risk that your pension provider / broker / fund / investment plan provider could go bust.



You are conflating a lot there.

It should not matter to you at all if your broker goes bust. She shouldn't have any of your money. 

Not sure what you mean by "pension plan provider" 

If you have a self administered pension fund, then you are protected.

Other than that, I think it's a life company and it is a non-zero risk, but as I have pointed out, it's fairly close to zero.

Brendan


----------



## SPC100 (6 Jan 2021)

Brendan Burgess said:


> You are conflating a lot there.
> 
> It should not matter to you at all if your broker goes bust. She shouldn't have any of your money.
> 
> ...


One of my pensions is non standard prsa with davy, davy (broker and pension plan provider), the nominee company, the fund provider (e.g. vanguard), the company the fund loans my equity too etc. There is a long chain of potential cases where my funds could suffer fraud, loss, or be stuck in a company that goes bust.

See below for my understanding of this from 2013.





__





						Cheapest Self-Directed PRSA Pension for ETF / ETFs (and ideally property!)
					

I am considering switching to a self directed PRSA with a view to reducing (or at the very least confirming) the costs on my pension.  I imagine that nil commission / execution only will be the cheapest way to go.  I am aware that the headline AMC + an ETF's TER may initially look higher vs...



					www.askaboutmoney.com
				








__





						Cheapest Self-Directed PRSA Pension for ETF / ETFs (and ideally property!)
					

I am considering switching to a self directed PRSA with a view to reducing (or at the very least confirming) the costs on my pension.  I imagine that nil commission / execution only will be the cheapest way to go.  I am aware that the headline AMC + an ETF's TER may initially look higher vs...



					www.askaboutmoney.com
				




Interestingly standard life at the time seemed to have some uk government guarantee.


----------



## roker (6 Jan 2021)

can my annuity go bust or is there a government guarantee?


----------



## jpd (6 Jan 2021)

There is no explicit government guarantee
But is there an implicit one - past experience shows that the government has stepped in and provided funds when insurers went belly up and a large section of the electorate was affected. Of course, it then claws it back by charging all future insurance buyers a tax eg Quinn Insurance, PMPA, ... so in the end the taxpayer does not end up paying. Why is my insurance so expensive?


----------



## Steven Barrett (6 Jan 2021)

You can't guarantee anything in life, but it is extremely unlikely that one of the main pension providers in Ireland will go bust. They have consolidated to just 5 now, meaning they are even stronger than ever. All of the insurance companies are required as part of their regulation to hold assets that hold policyholder liabilities, a risk margin on top and an additional margin to protect against stress event. Most hold further assets in addition. It is all explained here

If you hold your money with some of the more niche providers, you need to do more due diligence. Is your money held in segregated accounts? Is there a custodian account? Can the provider trade on my account? The issue with Custom House Capital is they didn't segregate accounts and they acted like a discretionary fund manager and funneled client money into their property deals when they couldn't fill them with willing investors. 

Cases like Equitable Life will not happen again as there are no longer any products offering guarantees like that. There may be a few legacy policies left but nothing to put a financial strain on a company. 

Solvency levels of insurance companies and their solvency and financial condition reports are freely available. So, aside from a widespread fraud throughout the company, it is very unlikely that they will go bust. 


Steven
www.bluewaterfp.ie


----------

