# What would happen if an insurance company went bankrupt?



## whytis (19 Feb 2014)

In looking to start buying into pension funds with a personal pension, it's been suggested to me to regularly purchase positions in funds with several large Irish insurance firms.

By doing so, am I betting on the stability of those insurance firms over the life of the pension until I retire?


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## Steven Barrett (19 Feb 2014)

Insurance companies have massive capital reserves, way over that required of them by legislation. 

And remember, they are not banks, they take money in, they don't lend out. The insure their potential liabilities with re-insurers. 

I would see no reason to spread your pension over a number of providers for this reason. Maybe for investment choice but not because you think one of them will go to the wall. 


Steven
www.bluewaterfp.ie


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## MrEarl (19 Feb 2014)

SBarrett said:


> Insurance companies have massive capital reserves, way over that required of them by legislation.
> 
> And remember, they are not banks, they take money in, they don't lend out. The insure their potential liabilities with re-insurers.
> 
> ...




Hello,

Are the insurance companies covered by any central "insurance fund" similar to the "comfort" offered to depositors by those bank's paying into the scheme with the Central Bank for example ?

I must admit, I don't take full comfort from these companies having massive capital reserves - Equitable Life comes to mind I'm afraid.


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## JoeRoberts (19 Feb 2014)

SBarrett said:


> Insurance companies have massive capital reserves, way over that required of them by legislation.
> 
> And remember, they are not banks, they take money in, they don't lend out. The insure their potential liabilities with re-insurers.
> 
> ...


 .
 If we have learned anything over the past decade it should be that nothing is certain when it comes to financial matters, regardless of reserves or legislation. Very few people, if any, know and understand the true financial position of insurance companies.
 So such blanket assurances are not advisable.


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## whytis (20 Feb 2014)

Is it an inherent risk of purchasing mutual funds (or whatever we call them here) that you rely on the entity managing your fund?

Granted, that risk may be very small, or at least unpredictable over the course of several decades.


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## Steven Barrett (20 Feb 2014)

MrEarl said:


> Hello,
> 
> Are the insurance companies covered by any central "insurance fund" similar to the "comfort" offered to depositors by those bank's paying into the scheme with the Central Bank for example ?
> 
> I must admit, I don't take full comfort from these companies having massive capital reserves - Equitable Life comes to mind I'm afraid.



Equitable Life guaranteed massive annuity rates which they couldn't pay for. No one went without though. 

Insurance companies will pay into the ICCL but that only pays up to €20,000, so in a lot of cases, it is chicken feed to the potential losses suffered. 




JoeRoberts said:


> .
> If we have learned anything over the past decade it should be that nothing is certain when it comes to financial matters, regardless of reserves or legislation. Very few people, if any, know and understand the true financial position of insurance companies.
> So such blanket assurances are not advisable.



It's all available on their respective websites. Banks got into trouble because of wreckless lending. The likes of Anglo and INS were stealing the march on the likes of AIB and BoI, so they went to the extreme to win the business back. The stuff they were doing was crazy, throwing money out like confetti on the back of a phone call with no paper work to back it up. 

As I have already stated, insurance companies do not lend. You do of course have to do that bit of extra due diligence on smaller providers after the CHC case but if you stick to the main players, you'll be ok. 

Otherwise, you might as well stick your money under the mattress. 


Steven
www.bluewaterfp.ie


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## PatMacG (20 Feb 2014)

Insurance companies go broke and have gone belly-up here with the tax-payer footing the bill (as usual) in living memory. ICCI  shares anyone? We paid insurance levies on our  policies for decades after that failed.


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## Steven Barrett (20 Feb 2014)

Wasn't that a general insurance company? No pensions involved.

In the few cases, such as Equitable Life, the policyholders didn't lose out, so I don't think there is a need to spread your investments in case one of them goes bust. Afterall, history has shown that they will be bailed out. Too big to fail...


Steven
Www.bluewaterfp.ie


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## whytis (21 Feb 2014)

What could cause an investments insurance company to fail?

What comes to mind is if there was a massive crash, their management fees on funds would dry up, and they'd run out of money.

Since they don't lend money, I'm trying to think what could make an insurance company bankrupt.


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## Steven Barrett (21 Feb 2014)

What has happened in the past is they have given massive guarantees on annuities and the returns in the markets haven't been good enough for them to cover the guarantees. They are few and far between now. 

Massive crash? What happened in 2008? 

Life companies incomes have halved over the last number of years and they are still here, although I would say some of them are looking for an exit strategy. I would say we will be left with 3 or 4 big companies and the rest will sell their book and move out of Ireland.


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## whytis (21 Feb 2014)

So the risk comes from their selling of annuities.

Are there large institutions that sell mutual funds in Ireland, yet do not sell annuities?

Or are we saying that the large insurance companies are as safe as it gets?


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## mercman (21 Feb 2014)

I asked this question a fair number of years ago, and a qualified person answered me stating that the rest of the Insurance industry would mop them up, and cover their liabilities.

What springs to mind here was the PMPA. Also, we all know about the ongoing Special Liquidation of IBRC. But last year I spent many months disputing with the FSOB regarding a case I had with IBRC LA (the Life Assurance arm of the Bank, who are NOT in liquidation and the Ombudsman's office was forced to investigate the case. 

Also about 15 years ago a number of Italian Assurance/Insurance companies ran into Financial Difficulty, but were mopped up by the industry.


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## Steven Barrett (21 Feb 2014)

Any of the examples given are of general insurance companies and not life and pensions. 

The most recent one would be Quinn Life but again, it was nothing to do with the life and pensions side of that particular empire, it was the general insurance side. And as mercman mentioned, the rest of the industry would buy up the assets, like Irish Life did in the case of Quinn Life. 


Steven
www.bluewaterfp.ie


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