Oops, your car isn’t insured

The Financial Services Conduct Authority (FSCA) has warned Constantia Insurance customers that their short-term insurance policies have finally expired – and they have been without auto insurance since October 1, 2022.

In a statement Monday, the FSCA warned that from October 1, 2022, Constantia Insurance customers will need to purchase coverage from new insurers for suitable alternative coverage.

“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 coverage,” the Revenue Commissioner said.

In fact, for a few months customers were warned that it would be wise to start looking for new insurance. Constantia Insurance was placed under interim custodianship towards the end of June 2022 following repeated warnings from the authorities that the company lacked the necessary capital to ensure its continued operations.

best try

At first, curator Ashish Desai seemed optimistic that the company could survive. In a letter to the Reserve Bank’s Prudential Authority dated August 18, the trustee wrote: “After I took office, I encouraged the agency not to stay the proceedings [licence] of the Company within the meaning of Section 27 of the Insurance Act and I have indicated in meetings with the Authority (on and about 27 July 2022) that I believe it is important to obtain permission from the Authority to issue new policies in order to have a reasonable chance of maintaining operations in accordance with the court order.

“My motivations in this regard are set out in my letter to the Authority dated July 29, 2022, at the Authority’s request for a court order.

“I have controlled, managed and investigated CICL’s businesses and operations, together with all assets and interests related to those businesses, under the control of the regulator. I have consistently considered the best interests of the Company’s policyholders (in accordance with the court order); I have exercised the powers delegated to me to obtain the business; I have – as of the date of this letter – made policyholder claims payments subject to the Company’s available resources; (and) I have submitted progress reports to the Authority on a weekly basis, specifically on August 5, 2022 and August 12, 2022.”

Worse than expected

Unfortunately things have changed.

Desai said in the letter that Constantia Insurance’s “earliest preliminary results of examining my team’s financial condition” indicated that its financial condition was worse than expected.

“As reported to the agency at the time, I had legitimate concerns about unrestricted reliance on these results given, among other things, that I only had access to unverified data; the results had not yet been tested with the head of the company’s actuarial function; and I had not yet received an explanation of how the company handles the applicable solvency ratio rules.

“The data available, which I have obtained from the head of the company’s actuarial function, shows that the financial position is significantly worse than that in my report to you on 12 , but that the Solvency Capital Requirement Ratio was zero at the time.

“Although we have not had an opportunity to question the valuation of the Company’s unlisted investment portfolio, we have come to believe that the likelihood of full repayment of related party loan assets is remote and have observed further deterioration in the illiquid listed equity portfolio since 30 June 2022.

“My projections at this point indicate that the company will likely not have sufficient cash flow to continue operating until the day the court order is returned.

“The company has no realistic borrowing options to fund its inevitable lack of liquidity,” Desai said.

He stated that the then-suspended management of Constantia Versicherung did not dispute his assessment of the balance sheet, although he had been given the opportunity to correct or supplement his views.

liquidation

Desai then concluded that there was no point in writing new policies and that it would have exposed new and existing policyholders.

“I have been unable to convince previously reluctant investors to commit to recapitalizing the company and (the deteriorating financial position) has made it impossible to attract further potential investors with the result that efforts to preserve the company have failed are feasible.

“The company has no prospects of complying with the requirements of Section 36 of the Insurance Act in the foreseeable future, if at all,” he said, before recommending that Constantia Insurance be liquidated.

Liquidation means that policyholders with valid claims against their insurer become claimants in the liquidation process and claims settlement is effectively suspended.

“One commercial consequence is that the company’s remaining liquidation liabilities are not covered by sufficient assets given the company’s insolvency situation. In my capacity as interim curator, nothing can be done to halt this process, which ultimately serves to potentially disadvantage current policyholders,” Desai said.

He suggested that the FSCA waive the customary 30-day notice requirement to cancel policies to allow customers to purchase new insurance immediately, and recommended any other assistance or intervention that the FSCA can provide to help these policyholders .

On September 14, 2022, the Gauteng Division of the High Court issued an order placing Constantia Insurance in permanent liquidation.

Pending Claims

The FSCA notes in its recent announcement that it is aware of and concerned that certain Constantia Insurance policyholders with valid motor vehicle claims are having difficulty securing the release of their vehicles from service providers such as body shops and garages due to non-payment of claims.

In short, policyholders with claims have to pay for repairs themselves and join the line of creditors trying to get something out of Constantia Insurance’s remains.

“The processing and payment of existing claims will be affected by the insolvency proceedings, but the insolvency practitioners will advise all existing creditors in a timely manner on the steps they must take in the insolvency proceedings to establish and prove their claims in the insolvency proceedings.

“All unpaid claims of CICL will be examined by the insolvency administrators as part of the liquidation proceedings in due course. Once the liquidators have reviewed and assessed the company’s ability to make payments (in whole or in part) of the existing claims, all existing claimants will be notified,” says the Prudential Authority.

The FSCA says the liquidation could also result in unnecessary storage costs for policyholders.

“The FSCA urges service providers to release vehicles immediately when repairs have not been made or allow applicants to make payments directly to ensure the release of their vehicles.”