The Financial Services Conduct Authority (FSCA) has warned Constantia Insurance purchasers that their short-term insurance insurance policies have lastly lapsed – and so they have no car insurance as of 1 October 2022.
In a press release on Monday, the FSCA warned that Constantia Insurance purchasers might want to safe cowl with new insurers with impact from 1 October 2022. “The FSCA recognises that this may occasionally not present brokers with ample time to contact all impacted policyholders to present them choices for appropriate various cowl.
“The FSCA strongly encourages CICL (Constantia Insurance Company Limited) policyholders to urgently contact their brokers or financial advisers for future coverage options to ensure uninterrupted insurance cover,” says the monetary authority.
In truth, purchasers have had just a few months’ price of warning that it might be clever to search for new insurance. Constantia Insurance was positioned below provisional curatorship in direction of the top of June 2022, following a number of warnings by authorities that the corporate lacked the capital wanted to make sure it might proceed to function.
Best try
At first, curator Ashish Desai appeared optimistic that the corporate would possibly survive. In a letter to the Reserve Bank’s Prudential Authority on 18 August, the curator wrote: “Upon assuming workplace, I motivated to the authority to not droop the [licence] of the corporate by way of part 27 of the Insurance Act, and I indicated in conferences with the authority (on and round 27 July 2022) that I thought of it necessary to obtain permission from the authority to problem new insurance policies with the intention to have an affordable prospect of conserving the enterprise in accordance with the court docket order.
“My motivations on this respect have been set out in my letter to the authority, dated 29 July 2022. My motivations have been made on the idea of the understood place of the corporate and the enterprise as set out within the founding affidavit that was filed within the authority’s software for the court docket order.
“I have taken control of, managed and investigated the business and operations of CICL, together with all assets and interests relating to such business, subject to the control of the Prudential Authority. I have consistently given consideration to the best interests of the company’s policyholders (in accordance with the court order); I have exercised the powers vested in me with a view to conserving the business; I have – up to the date of this letter – made payments of policyholders’ claims subject to the available resources of the company; (and) I have furnished the authority with progress reports on a weekly basis, specifically on 5 August 2022 and 12 August 2022.”
Worse than anticipated
Unfortunately, issues modified.
Desai mentioned within the letter that the “earliest provisional results of my team’s investigation of the financial position” of Constantia Insurance prompt its monetary place was worse than anticipated.
“As communicated to the authority on the time, I had respectable considerations concerning unqualified reliance on these outcomes provided that, amongst different issues, I solely had entry to unaudited information; the outcomes had not but been examined with the corporate’s head of actuarial perform; and I had not but acquired a proof of the corporate’s therapy of the relevant solvency quota share preparations.
“The available data procured by me from the company’s head of actuarial function record a markedly worse financial position, as contained in my report to you dated 12 August 2022,” wrote Desai, including that Constantia then wanted a solvency capital requirement of roughly R909 million, however that the solvency capital requirement ratio on the time was zero.
“While we have now not had the chance to interrogate the valuation of the corporate’s unlisted funding portfolio, we have now fashioned the view that there’s a low chance of full restoration of associated celebration mortgage property and have noticed additional deterioration of the illiquid listed fairness portfolio since 30 June 2022.
“My projections at this stage point out that the enterprise is unlikely to have ample money move to allow it to function till the return day of the court docket order.
“The company does not have any realistic options to borrow to fund its inevitable cash shortfall,” mentioned Desai.
He famous that Constantia Insurance’s govt administration – suspended on the time – didn’t dispute his evaluation of the stability sheet, regardless of having been afforded a chance to appropriate or complement his views.
Liquidation
Desai then concluded that there was no advantage in searching for to write down new insurance policies and to take action would have uncovered new and present policyholders.
“I’ve been unable to steer any previously tentative buyers to decide to recapitalise the corporate and (the deteriorated monetary place) has made it not possible to draw any extra potential buyers, with the end result that efforts to preserve the enterprise aren’t possible.
“The company has no prospects of achieving compliance with section 36 of the Insurance Act in the foreseeable future, if at all,” he mentioned, then recommending that Constantia Insurance ought to be liquidated.
Liquidation implies that policyholders with legitimate claims in opposition to their insurer grow to be claimants within the liquidation course of, and settlement of claims is successfully suspended.
“A commercial consequence is that any run-off liabilities that remain with the company will not be covered by sufficient assets given the insolvent position of the company. In my capacity as provisional curator, there is nothing that can be done to arrest this process, which ultimately serves to potentially prejudice current policyholders,” mentioned Desai.
He proposed that the FSCA waive the standard requirement of 30 days’ discover to cancel insurance policies to permit purchasers to instantly search new insurance, and really helpful another help or intervention that the FSCA can provide to assist these policyholders.
On 14 September 2022, the Gauteng Division of the High Court granted an order to position Constantia Insurance below last liquidation.
Pending claims
The FSCA notes in its latest announcement that it’s conscious and anxious that sure Constantia Insurance policyholders with legitimate motorized vehicle claims are experiencing challenges with securing the discharge of their automobiles from service suppliers, comparable to panel beaters and restore retailers, because of non-payment of claims.
In brief, policyholders with claims might want to pay for repairs themselves, and be part of the queue of collectors attempting to get one thing from the stays of Constantia Insurance.
“The processing of and cost of present claims will probably be adversely affected by the insolvency proceedings, however the liquidators will advise all present claimants quickly on the steps they should take as a part of the insolvency proceedings to submit and show their claims as a part of the insolvency course of.
“All the CICL’s unpaid claims will be considered in due course by the liquidators as part of the winding up process. Once the liquidators have considered and taken a view on the company ability to make payments (in whole or partially) of the existing claims, this will be communicated to all existing claimants,” says the Prudential Authority.
The FSCA says that the liquidation may also end in pointless storage prices for policyholders.
“The FSCA urges service providers to immediately release vehicles if no repairs have been made or to allow claimants to settle payments directly to secure the release of their vehicles.”
