Twin Peaks have failed us, says 3Sixty following provisional curatorship

The chief executive of 3Sixty Global Solutions Group, Khandani Msibi, has sharply criticised the FSCA and the Prudential Authority (PA) after 3Sixty Life was placed under provisional curatorship at the end of last year.

The PA brought an ex parte application before the Gauteng High Court on 21 December, because the life insurer had not restored its business to financial soundness by the PA’s deadline of 1 December.

3Sixty failed to meet the solvency capital requirement (SCR) and the minimum capital requirement (MCR) in 2020. 3Sixty attributed the failure to higher-than-usual claims and a shortfall in its budgeted premium income, because of the Covid-19 pandemic and the lockdown.

The PA said it had “numerous engagements” with 3Sixty last year in an effort to implement measures to return the insurer to financial soundness in order to meet legislative requirements and address the challenges the insurer faced. This included a plan by the shareholder to recapitalise the insurer.

Plan to sell Salt

Msibi said the recapitalisation plan was predicted on the group disposing of Salt Employee Benefits. He said the proceeds of the sale would have been ceded to 3Sixty Life and enabled it to meet the MCR and “get close to” the SCR.

However, he said “an attack” by the FSCA on Salt had “frightened away the banks and investors that were about to conclude the Salt transaction”.

Msibi was no doubt referring to the outcome of the FSCA’s investigation into the relationship between Salt and the trustees of the Private Security Sector Provident Fund (PSSPF).

The investigation, which covered the period between January 2016 and November 2018, followed the PSSPF being placed under statutory management in September 2018.

Although the FSCA did not release the investigation report to the public, it was reported in the media that the investigation had uncovered extensive corruption and maladministration, including the charging of exorbitant fees by Salt.

3Sixty Global Solutions Group bought a 75.5% stake in Salt in 2019 while the investigation was in progress.

Msibi said the Twin Peaks structure had failed the group, because, while they were working to leverage their shareholding in Salt to recapitalise 3Sixty Life, one of the Peaks, the FSCA, had “torpedoed” the transaction.

Property transaction

He said 3Sixty came up with a second plan to recapitalise the insurer that included transferring Doves Group’s property portfolio into 3Sixty Life. He said the transaction would have resulted in 3Sixty Life having an MCR of 144% and an SCR of 75%.

Although the SCR would still have been below 100%, he said the FSCA and the PA had, in April 2020, permitted insurers hit by the Covid-19 pandemic to operate with an SCR below 100%.

However, in their joint communication, the PA and FSCA said that where SCR ratios drop below 100%, the PA will “intensify” its supervisory activities, while MCR ratios below 100% “will not be tolerated and will be met with stringent supervisory intervention by the PA”.

Msibi said 3Sixty had communicated its property transaction to Kuden Naidoo, the chief executive of the PA, who had “noted” the strategy.

He said 3Sixty was “shocked and disappointed” to find that it had been placed under provisional curatorship, because it “had been co-operating with the PA in an open and transparent manner, providing frequent and detailed updates on the plans in place to recapitalise 3Sixty Life”.

Msibi said that by bringing the application ex parte, the PA had denied 3Sixty its right to present its case against “spurious and baseless accusations”.

“In the meeting we held with the PA about curatorship, we were never given any convincing reasons as to why they deemed it necessary go to court in secret given our co-operation with them and offering them a recapitalisation plan that was completely within our control, and which could be implemented immediately.”

‘Best interests of policyholders’

In a media release, the PA said that, based on the information available, it believed the curatorship of 3Sixty is in the best interests of its policyholders.

The curator, Yashoda Ram, will prepare a report to the High Court. The report will include details of the financial soundness, assets, liabilities, MCR and the SCR of 3Sixty, irregularities committed by 3Sixty, if any, and steps to be taken to safeguard the interests of its policyholders.

The business of 3Sixty will continue as usual under the control of the curator, who will furnish further information to the public over the next few months, the PA said.

The return date for the application is 22 April.

Msibi said 3Sixty Life will co-operate with Ram to demonstrate that the insurer was well run and that it should be taken out of curatorship at the earliest opportunity.