Group 3

Bhaiya M. SondawleDonilia Cuffy

Martin LibingaSarika Wattuhea

Limbikani Nundwe

Group 3 2

Our Presentation

Group 3 3

Chapter off-site Submissions

This chapter provides the following off-site submissions by Commoninsurer Limited to its supervisory authority.

Intermediary agreement between the intermediaries

the insurance companyReinsurance agreements entered into by the CompanyDiscretionary investment management agreementCorrespondences between Commoninsurer Limited

and the supervisory authority Commonisland Insurance Regulatory Authority

Group 3 4

The Agreement was reviewed by the Regulators and the following weaknesses were highlighted:

Background

It is not the responsibility of the intermediary to underwrite policies; it is the function of the insurance Company.

2. General

2.2 The intermediary should not be responsibility for the promotion, marketing, distribution and management for the Company.

Definitions

RegulatorAmend to read” Regulator” means any regulatory authority which regulates the provision of Insurance Act for the protection of Policyholders.

Group 3 5

4. Obligation of the intermediary

4.1.5. Why payment by cash is not allowed?4.1.7. Keep accurate records......duration is

not specified.4.1.7........... ............and to provide details

and allow inspection of those add “Bank records and claims files”

Group 3 6

5. Personal Indemnity

5.1 In that case the Broker is acting like the agent. This should not be the case; hence it appears that there is no agency agreement.

7. Premium and Credits

7.1 .................Insurer shall be deposited within two business days. Amend to read “should be deposited the next working day”

8. Claims

8.1 The intermediary shall ensure management of claims pertaining........In this case it denotes that the broker is the agent of the Company.

Group 3 7

Regulatory Requirements:

9.2 The intermediary shall be solely responsible for complying with all rules set by the Supervisory Authority..............................In this case the intermediary is deemed to be an agent of the Company and not as an independent contractor.

10.Commission

10.5 Needs to be clarified

11.Obligations of Commoninsurer

11.1.1 To use its best endeavours “to obey the instructions” of the intermediary....................... Why should this be so?

11.1.1, 11.1.2, 11.1.5 &11.1.8 should not be accepted; in these cases there is no agency agreement.

Group 3 8

13. Confidentiality, Intellectual Property and Data Protection

13.3 Again Intermediary should not be responsible for promotion or advertising

13.7 This is not an agency contract

14. No Assignment – should consider deleting seems like the Broker’s agreement.

Group 3 9

Appendix 1.

Claims Management

The intermediary shall pay the claims in accordance with criteria specified by the insurer from time to time. In this case it appears that the Broker is acting like the Agent of the Company. This intermediary should not operate as an agent of the Company.

Group 3 10

Appendix 2.

Commission rates:It was observed that the treaty was not signed. The treaty was not signed and should be signed by participating parties.

ARTICLE IV-ULTIMATE NET LOSSAll salvages, recoveries and payments recovered or received by the Company subsequent to a loss settlement under this agreement.........We noted that no cash loss settlement provision was made.

ARTICLE VII-PREMIUMSettlement shall be in Sterling....................We noted that no settlement provision was given in agreement.

Group 3 11

Article XVI – INTERMEDIARY Intermediary clause is lacking pertinent information and is insufficiently stated

The insolvency clause is missing from the treaty agreement.

Group 3 12

Motor Physical Damage/Bodily and Third-Party Liability Excess of Loss Reinsurance Agreement – Schedule

ARTICLE IIMotor (Third-Party Liability)There is a gap of 250k between the two lawyers; which falls back on the retention of the Insurance Company.

ARTICLE IIIReinstatementsA record of 9 in both instance seems liberal and unusual, the Regulators must see the treaty agreement.

The treaty is not signed by the participating reinsurer

The commencement date and end date must be recorded on the agreement

Group 3 13

ARTICLE XV-ARBITRATIONAgain no Arbitrary Clause mentioned

ARTICLE XVI-INTERMEDIARYAgain there is no Intermediary Clause.There is no per risk excess of loss treaty. Therefore the company is retaining 100%

Group 3 14

There is no expiry date in the long term treaties therefore asked for validity certificate by re-insurer and insurer broker.

Group 3 15

Discretionary Investment Management Agreement

• Due diligence report on service provider was not submitted

• No further delegation of investment function/independent Investment Manager

Group 3 16

4. Custodian

• The custodian of the assets must be registered under the custodian/trust laws of the country.

• There must be a custodian or trustee agreement between the insurance company and the custodian or trustee authorities

Group 3 17

Appendix B

Duration of investment period of 4.5 yrs is too long for a general insurance.

Group 3 18

The letter of 1 December 2008 written to the company on the reinsurance program gives comfort to the company that its 2008 reinsurance program is acceptable to the Regulators which is not the case.

The reinsurance program for 2008 has the following short comings: 1. There are no per risk and per policy access of loss treaties to protect the exposure

arranging out of single loss or accident

2. The following clauses were not incorporated in the treaties: • Insolvency clause• Intermediary clause 3. There is a coverage gap between lawyer 1 and 2 in the case of motor treaty

4. The Compliance issued from Mr Chief has to address the short comings in the 2008 treaties

 

Group 3 19

Dividend distribution for Commoninsurer Mr Chief has requested the regulators for the release of

dividends to the shareholder in the amount of GBP479k within 30 days of the end of the financial year. The regulators by the letter of February 2009 conveyed their no objection of the distribution of the dividend

 We hereby note that the regulators should not allow the release

of the dividend of the basis of the management account on the contrary the regulator should conduct the analysis on the adequacy of technical reserve after the receipt of audited account i.e. after the six month of the financial year.

 

Group 3 20

Reinsurance Program for 2010

We are surprise that the Regulators have approved the company’s reinsurance program for the year 2010 in spite of the following discrepancies.

 The newly reinsurance Ltd was not authorized in the country

reinsurance island.

It is a newly set up company with capital of only GBP50kThe reinsurance company has no credit rating and has no plan

to apply for it up to the period of 3 yrs subsequent to operation. 

Group 3 21

Dividend distribution for 2010  The Regulators by the letter of 209 July 2010 informed the company that the company has

experience d the significant lost over the first quarter of 2010. They also expect the company to take immediate and concrete steps to restore the own fund position as least to the GBP3M level. They also directed the company to submit the Board’s plan to address the short fall and outline proposals for ensuring that such losses do not reoccur.

The Company by its letter of 5th August 2010 informed the Regulators that the loss in first quarter of 2010 was the result of negative developments on claims pertaining to the year 2008 and 2009.

This clearly indicates that the Company has been unreserved to inflate the company’s profit by under reserving its technical reserves. In this circumstance the Regulators should not have been approved the dividends for the years 2008 and 2009.

     

Group 3 22

Commoninsurer’s own fund position

The Regulators should not approve the loan of $2m repayable in 5 years time without verifying the repayment capacity in the scenario that the Company has been incurring losses in its operations. Also the provision of 5% IBNR reserves is not acceptable to the Regulators it should have been minimum 10%

Group 3 23

Thanks for your attention