Constantia’s policyholders with claims will have to join the queue of creditors if the insurer is liquidated

Policyholders of Constantia Insurance Company Limited (CICL) who have outstanding claims will have to join the queue of creditors if the application to have the insurer liquidated is granted.

Last week, the provisional curator of CICL, Ashish Desai, announced that he and the Prudential Authority (PA) have launched an application to wind up CICL and simultaneously end the curatorship.

Meanwhile, there are reports suggesting that some of CICL’s divisions, including EthiQal, will be moving out of CICL and may survive the liquidation (see below).

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

Communications issued by Conduit and the PA after CICL was placed under provisional curatorship gave the impression that the insurer would be put on the road to recovery, and policyholders and other stakeholders had no reason to be concerned (see below).

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

Read: Placing Constantia Insurance under curatorship was premature, says Conduit Capital

The curatorship order was granted only in relation to CICL’s non-life insurance business. Constantia Life and Health Assurance Company and Constantia Life are not under curatorship.

“In terms of the order granted by the High Court, the curator was required to furnish the PA, on a weekly basis, with progress reports on the independent review undertaken on the solvency position of CICL,” Desai said in a communication dated 30 August.

“The curator, in consultation with independent experts, has analysed the financial position of CICL based on the unaudited numbers made available. After analysing such financial information, the curator concluded that CICL is in breach of its capital requirements. In addition, the curator has ascertained that CICL’s liabilities exceed its assets.

“CICL is consequently both technically and financially insolvent,” he said.

Claims may not be paid in full

Desai cancelled all active CICL policies on 31 days’ notice, which means policyholders’ cover will end on 30 September.

Although policyholders will continue to be covered until the end of this month, if CICL goes into liquidation, they may not receive the full pay-out if they submit a claim, because claims will be subject to the Insolvency Act.

However, Desai said it was important for policyholders to continue to submit claims, as not doing so will result in their forfeiting any claim against the insolvent estate of CICL.

The curator said he will not pay any existing claims, to avoid the possibility of preference being given to some claimants over others before the establishment of a concursus creditorum (Latin for “coming together of the creditors”) if CICL is liquidated. In terms of this, all creditors will, depending on their ranking, be entitled to participate in any distribution made by the liquidators.

Similarly, policyholders who have already paid their premiums for October or beyond will have to wait for the liquidators’ distribution, to see whether they will get any of their money back.

Desai also provided binderholders with 31 days’ notice that their binder agreements with CICL will end on 30 September, and they will not be entitled to any fees or remuneration after that date.

He asked binderholders to:

• Identify and place all the policies they administer with alternative underwriters;
• Obtain written permission or voice-logged confirmation from policyholders to cancel the policies and move the policies to another insurer; and
• Inform the policyholders they administer of CICL’s pending liquidation and that their policies have been cancelled.

The curator said he would inform the FSCA that he has terminated all binder agreements.

Desai told binderholders and brokers that, with immediate effect, he will not accept requests for renewals or variations.

Uncertainty over EthiQal

Moonstone has sent questions to Desai and CICL for clarification of reports that EthiQal, CICL’s medical indemnity division, will be moving to a new insurance structure outside CICL from 30 September.

Doctors – particularly those in higher-risk disciplines – insured by EthiQal are understandably concerned considering how long it can take to assess and settle a malpractice claim. They also face paying higher premiums if they move to another provider.

Juta’s Medical Brief quoted the chief executive of the South African Private Practitioners Forum (SAPPF), Dr Simon Strachan, as saying although SAPPF members “must make their own informed decision on their choice of medical insurer”, he and his executive have met with Desai, who assured them that “every indication was that EthiQal would survive and continue to provide medical insurance”.

Strachan added: “The protection of policyholders is both EthiQal and the curator’s primary concern. We believe it prudent to allow some time for the process to unfold and that there’s no need to make rushed decisions about changing insurers. We’ll stay in close contact with the curator and the EthiQal team, and report again as soon as we have new information.”

Referring to the same notice, Business Day reported that Dr Strachan has advised doctors that EthiQal is in advanced discussions with “a serious investor”, although a deal had not been concluded.

The publication also quoted from a notice by Alex Brownlee, EthiQal’s executive head, as stating that the firm was moving to “a new insurance structure outside Constantia” from September 30, and “many other business partners of Constantia are doing the same”.

The details of EthiQal’s alternative insurance structure were being finalised and were subject to regulatory approval.

Brownlee said that “with the support of an investor”, EthiQal’s alternative insurance solution should avoid any potential gaps in cover for its clients. He added that EthiQal “remains a profitable business”.

‘No immediate concerns for policyholders’

The news of the liquidation is in stark contrast to the statements issued by the PA and Conduit Capital when CICL was placed under curatorship.

In a question-and answer document published on 1 August, the PA stated under the heading “Is my policy safe and why?”:

• All policies remain safe at CICL 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.
• The curator is currently in discussions with the CICL management and suitable investors for the recapitalisation of CICL. The curator intends to perform his duties and to investigate all options available in terms of governing legislation to assist CICL to be permitted to commence underwriting new insurance policies and to be released of its provisional curatorship.

A statement issued by Conduit Capital on the same day included the following quotes from Conduit’s acting chief executive, Peter Todd:

“We believe the decision by the Prudential Authority 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 Prudential Authority has come as a surprise. We have worked actively to keep the PA abreast of these developments throughout the process.”

The statement also quoted Todd as saying: “The improved operating performance and increase in cash reserves means the business has sufficient resources to meet all current and future claims obligations. There is no reason for policyholders or partners to be concerned. The Prudential Authority has indicated its intention to support the recapitalisation and sees the appointment of the provisional curator as the means through which it can best support and expedite the conclusion of the process.”