Insurer placed into provisional curatorship, JSE-listed owner crashes 40%

Conduit Capital plunged by over 40%

Constantia Insurance Company Has Been Placed into provisional curatorship

The South Gauteng High Court in Johannesburg has placed Constantia Insurance Company (CICL) into provisional curatorship after it failed to find an investor to inject it with much-needed capital of at least R450 million.

The Sandton-headquartered group has also been temporarily barred from taking on new customers.

Founded in 1952, Constantia is a non-life insurance company that falls under Constantia Risk and Insurance Holdings, a subsidiary of JSE-listed Conduit Capital. Conduit’s share price fell by 42% to a low of 20 cents on Monday morning.

CICL offers several insurance products, including property, motor, accident and health and medical malpractice insurance.

The SA Reserve Bank’s Prudential Authority (PA) has been engaging with it since June 2019 after it found that it was not holding sufficient funds to protect policyholders. Under South African law, insurers must hold a statutory reserve of money to meet their obligations to pay out claims.

But in the three years that it provided monthly and later weekly updates to the PA, it was unable to reach the prescribed threshold. According to the Reserve Bank, Constantia needs an injection of at least R450 million.

Its unsound financial position was caused, in part, by the collapse of Insure Group Managers in late 2018, which left R94 million hole in its accounts.

While Constantia managed to make some savings since 2019 and is solvent, it failed to find a strategic partner to “restore the business to financial soundness”, the PA said on Monday.

The high court ruling states that Ashish Desai of Deloitte has been appointed the group’s curator and will take immediate control of the business.

“The order was granted only in relation to the non-life insurance licence,” the PA noted. “The life insurance companies are not under curatorship and should not be affected by the curatorship process.”

The PA said that Constantia’s insurance licence for new businesses had also been temporarily suspended. This does not apply to renewals or amendments to current policies.

“This is done to ensure that new business does not add any further liabilities on the CICL book that would require further capital injection,” it said.

Policies are safe – for now

The PA said that all the group’s policies remain safe “provided that the curator can assist the insurer in restoring the financial soundness of the entity”.

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

It said that Desai, a qualified actuary with over 28 years of experience in the insurance sector, was already in discussions with investors for the recapitalisation of the group.

Meanwhile, Conduit Capital said in an update to shareholders that Constantia has “sufficient resources” to meet policyholder claims and remain in business. It added it was likely that the ban on new business would be lifted.

The parties will return to court on 6 December to hear whether the insurance company should be placed into final curatorship.

*Correction: A sentence in this article previously stated that Constantia had been placed into provisional liquidation. This is incorrect. The company was placed into provisional curatorship.

Read the original article on Fin24.

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