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Placing Constantia Insurance under curatorship was premature, says Conduit Capital

JSE-listed Conduit Capital Limited believes the Prudential Authority (PA) acted prematurely when it applied for Constantia Insurance Company Limited (CICL) to be placed under curatorship, saying it was in talks with investors about a possible capital injection.

The Gauteng High Court placed CICL under provisional curatorship on 26 July after the PA brought an ex parte application, because CICL failed to meet the solvency requirements of the Insurance Act by the end of June.

CICL is owned by Constantia Risk and Insurance Holdings Limited, which is a wholly owned subsidiary of Conduit Capital Limited.

Peter Todd, the interim chief executive of Conduit Capital, said in a statement: “We believe the decision by the PA was premature given the strong performance of the business over the past two years and given how close we are to concluding the recapitalisation of Constantia.

“We have received an offer from a new investor and are well advanced with a second investor, so the decision of the PA has come as a surprise. We have worked actively to keep the PA abreast of these developments throughout the process.”

The curatorship order was granted only in relation to CICL’s non-life insurance business, and Constantia’s life companies should not be affected by the curatorship process.

The PA said Constantia Life and Health Assurance Company Limited and Constantia Life Limited are financially sound and adhere to the solvency and capital requirements of the Insurance Act.

The PA said CICL’s insurance licence has also been temporarily suspended, “to give the curatorship a fair chance of succeeding”.

The suspension was only in relation to new business and did not apply to renewals or amendments to existing policies. The suspension was to ensure that new business did not add any liabilities to CICL’s book that would require further capital injection.

The order was granted with effect from 26 July, and Ashish Desai of Deloitte was provisionally appointed as the curator.

The return date for the order is 6 December, at which time CICL or any other interested party may show cause why the provisional order, and the curator’s powers, should not be made final.

Solvency and capital requirements

In a statement, the PA said that in June 2019 it became aware that CICL had failed to maintain its business in a financially sound condition, by holding eligible own funds that were at least equal to the greater of the minimum capital requirement or the solvency capital requirement.

“CICL informed the PA that the failure was attributed to year-end audit adjustments, a significant impact of an asset write-down, as well as market fluctuations that negatively influenced its investment portfolio.”

The PA said it had numerous engagements with CICL from June 2019 to 2022, in an effort to help the company return to a financially sound position that would enable it to meet its required levels of capital. CICL had to provide monthly, and later weekly, reports to the PA.

CICL implemented short-term recapitalisation measures, including improved due diligence and the cancellation of unprofitable business lines, which resulted in positive underwriting results and positive liquidity over the past 24 months.

Its long-term recapitalisation plans included identifying a strategic partner to recapitalise the business. But CICL was unable to secure a suitable investor by the PA’s deadline of 30 June.

Conduit Capital announced on June 21 that a potential deal between it and Mmuso Capital had collapsed. The deal would have resulted in a capital injection of R500 million in exchange for the right to subscribe for redeemable convertible preference shares.

Operationally sound

The PA said the provisional curatorship was not triggered by operational or governance failures.

“CICL has continually returned positive underwriting results, nearly doubled its liquidity cash assets, significantly reduced its operational expenses, and put measures in place to reduce the volatility on its equity portfolio.”

However, as a result of the insurer’s failure to maintain the minimum capital requirement and the solvency capital requirement, the PA believed curatorship was in the best interests of CICL’s policyholders.

Conduit Capital said CICL “has seen a remarkable improvement in operating performance since 2020. Gross premiums increased and the company achieved operating profitability. The capital position is temporary and outside of the control of Constantia. This has also not impacted the operational performance of the company in any way.”

No immediate concerns for policyholders

The PA said that all policies were safe provided the curator can assist CICL to restore its financial soundness.

“CICL is highly liquid, and there are no immediate concerns for the policyholders that claims will not be settled,” it said.

The PA said it would work with the FSCA to ensure that CICL’s policyholders were properly protected during the curatorship.

Concerns and claims-related queries should be emailed to curator@constantiagroup.co.za.

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