ANALYSIS:Seán Quinn's problems raise a key question: can entrepreneurs run an insurance business?

THE QUINN Group discovered an ancient burial ground called Giant’s Grave in the quarry next to the family farm of Sean Quinn at Derrylin, Co Fermanagh, from where he began his business empire digging gravel and selling it to local farmers.

Quinn is viewed by locals and employees of his business as a giant for the 6,121 jobs in the business he has created and they don’t believe the crisis at Quinn Insurance will bury him or his group.

But, with the confirmation of the appointment of an administrator to the most profitable part of his business, Quinn Insurance, taking it out of his control, the Quinn Group faces an uncertain and difficult future.

Quinn’s problems have been a rallying call for the local community. You only have to drive around Cavan and Fermanagh to see first-hand the support Quinn has received from local firms where he employs about 3,000 people.

Signs of support line the roads showing support for the group from interests such as Belturbet Traders, Virginia International Logistics Warehousing and The Bent Elbow pub in Ballyjamesduff.

“Sean Quinn is an entrepreneur and entrepreneurs take gambles. If he had not taken gambles, he would still be sitting on his family farm in Derrylin,” said one local.

Employees say his first big gambles was spending about €30 million opening his first cement factory. The factory sits on the four-mile border road between Ballyconnell in Co Cavan and Derrylin in Co Fermanagh where the majority of his manufacturing businesses – cement, packaging, insulation and glass – are concentrated.

Massive factories sit at the foot of Slieve Rushen which provides the limestone and shale – most of the raw materials for the manufacturing firms below – while 27 turbines generate enough power for 40,000 homes stand on the mountain.

Despite his achievements, Mr Quinn faces another mountain, of debt. His current problems arise from his disastrous investment in Ango Irish Bank. It has ultimately led to his group losing control of the cash cow that helped the wider business, a firm that is key to him and his family being able to repay €2.8 billion in loans to the bank which covered their share losses.

Quinn’s predicament raises an awkward question for the man and the business he founded 37 years ago – can entrepreneurs operate in a regulated area such as insurance?

The Financial Regulator felt obliged to act to protect the 1.3 million policyholders by appointing administrators to take control of Quinn Insurance from the management of the Quinn Group and put it on a secure commercial footing.

The new head of financial regulation, Matthew Elderfield, said there had been “serious and persistent breaches” of solvency rules by the insurance company and that if the firm had ‘shown him the money’ he may have backed down.

Quinn Insurance has now had its knuckles rapped twice for breaking solvency regulations - the first time in October 2008 when the firm was fined a record €3.25 million and Mr Quinn €200,000. He was also forced to resign from the firm at the time.

The regulator’s patience had run out. Not only does it believe that the insurer need about €700 million to cover guarantees provided by its subsidiaries for debts of the wider group and to provide a buffer to protect policyholders on the diminishing value of assets backing those policies, but more significant steps must be taken.

It’s understood that the regulator wants Quinn Insurance to be effectively “de-Quinn-ed” - to be taken out of the control of the group and away from its current owners, and put onto a sounder commercial footing in a strongly capitalised parent company.

Some 27 expressions of interest have been received for Quinn Insurance and the administrators now have the power to sell the insurance firm following the confirmation of the administration.

Yesterday the High Court confirmed their appointment after the Quinn Group withdrew its objection, conceding its two-week battle to stop the administration process.

The group effectively threw in the towel believing this was the best option for finding a solution to the crisis at Quinn Insurance.

Reality appears to be dawning at Quinn Group as it seems to have recognised that even after all the stone-throwing and public bluster over the regulator’s action, the insurer would still have a solvency problem that requires fixing.

Sean Quinn said as much when he conceded last week that the regulator was “technically right”.

It was simply an action the group was never going to win, though the group initially felt that if they opposed the administration they could buy more time.

This would have allowed State-owned Anglo to devise its out-of-leftfield rescue plan that would see it step in to restructure the wider Quinn Group, retaining ownership of Quinn Insurance in the process.

However, the regulator would still have questioned Anglo’s ability to take over the insurer as well as how the insurer would be run by a bank that has received a State bailout of €12.3 billion and faces a further €10 billion requirement.

It is telling that yesterday’s stand-down by the group came two days after it drafted in Murdoch McKillop of London corporate rescue experts Talbot Hughes McKillop as an interim executive director to restructure the conglomerate as it grapples with total debts of €4 billion owed by the Quinn group and the family.

The regulator met Mr McKillop and a non-executive director of the insurance firm yesterday.

“In order to resolve this we need constructive dialogue with the regulator - the court is not the best place to do that,” said the group’s chief executive Liam McCaffrey.

Mr McCaffrey said the company agreed to accept administration as a prolonged battle over the issue would have stopped the provisional administrators from taking the correct course of action for the benefit of all the various parties.

“We are where we are - we have to accept the cold reality that we are in administration,” he said.

The group recognised that there needed to be a period of stability to resolve the problems and for the management team at the wider group not to be distracted.

“We had to allow the administrators get on with finding a solution rather than fighting this in court because nobody wins there.”

McCaffrey refused to be drawn on the options facing the group after it has lost control of the insurance firm. He declined to say whether the group would take in outside investment or look to conclude to progress the Anglo plan.

“There are merits to the Anglo solution and we are exploring that with Anglo but we cannot put all our eggs in one basket - there are a number of options,” he said.

Mr McCaffrey said the group still believed that an independent Quinn Insurance “rooted in this area” but within the group would be a “satisfactory outcome” and a better option than if the company was taken over by a multinational with the prospect of job losses.

While the battle with the regulator is over, the group must now fight to retain ownership of the most profitable part of Mr Quinn’s empire which employs 2,800 of its 6,100-strong workforce.