Santam takes over Inscon’s business

SANTAM Namibia has taken over the insurance business of the financially stricken Insurance Company of Namibia (Inscon).

In a statement issued through a Cape Town-based public relations company yesterday, the Namibia Financial Institutions Supervisory Authority (Namfisa) announced that the curators that have been appointed to take charge of Inscon have agreed to have Santam Namibia take over the underwriting of Inscon insurance policies. This is with effect from July 1.The takeover sees the core business of one of only a few fully Namibian-owned insurance companies being taken over by a much larger South African-owned competitor.The High Court on June 18 confirmed a provisional order, given on April 4, placing Inscon under curatorship after the company had started to fall short of meeting required solvency margins prescribed under the Short-term Insurance Act.When the provisional curatorship order was made final, the court also allowed the curators to dispose of the assets of Inscon, subject to the consent of the Registrar of Short-term Insurance, who is also the Chief Executive Officer of Namfisa, according to the statement.”In consultations with the curators it became clear to the Registrar that due to the financial position of Inscon, the company would be unable to pay its outstanding claims in full; hence some of its assets would have to be sold to ensure that policyholder claims would be fairly paid,” it was stated on Namfisa’s behalf.”Furthermore, it became clear that the financial position of Inscon was such that effective 1 July 2007, the insurer would be unable to continue underwriting the policies of its policyholders, which effectively meant that the curators had to cancel all the policies of Inscon as from that date.”As a result of this, the curators and the Registrar have attempted to get a new underwriter for Inscon’s policies, leading to an agreement being reached with Santam Namibia.”This implies that all remaining policies of Inscon would be underwritten by Santam as from 1 July 2007.This transaction was approved by the Registrar of Short-term Insurance,” it was announced.In the initial court application for Inscon to be placed under curatorship, Namfisa Chief Executive Officer Rainer Ritter stated that in terms of the requirements set by the Act, Inscon was supposed to maintain a solvency margin of at least N$8,95 million to safeguard policy holders’ interests.By December 31 2006, though, the company’s solvency margin was calculated at N$3,68 million – a shortfall of N$5,3 million compared to the margin required by law.Ritter claimed that Inscon’s solvency decline was “directly attributable to its directors”, who had approved “extremely generous dividends” even when the company was in a loss-making position.He informed the court that in 2004, dividends amounting to N$15,69 million were paid to the shareholders, while Inscon made a loss of N$3,492 million in that financial year.In each of 2005 and 2006 financial years, a dividend of N$1 million was paid, while in 2006 the company estimated a loss of N$8,114 million.The company’s Chief Executive Officer, Ferdinand Otto, who is also one of Inscon’s directors and shareholders, however struck back against Ritter’s claims in an affidavit that has also been filed with the court.He denied that the company’s solvency decline was directly attributable to the conduct of its directors and claimed that only the last dividend of N$1 million was paid to the shareholders personally.The other dividends, he claimed, were used to finance a management buy-out of the company that was carried out in 2004.Otto also claimed that Namfisa’s decision to have the company placed under the control of curators was a self-fulfilling move which led to the cancellation of a major portion of Inscon’s policies and saw the company only sinking deeper into financial difficulties, despite the fact that it had not defaulted on paying out any claims before Namfisa decided to target it with far-reaching legal action.This is with effect from July 1.The takeover sees the core business of one of only a few fully Namibian-owned insurance companies being taken over by a much larger South African-owned competitor.The High Court on June 18 confirmed a provisional order, given on April 4, placing Inscon under curatorship after the company had started to fall short of meeting required solvency margins prescribed under the Short-term Insurance Act.When the provisional curatorship order was made final, the court also allowed the curators to dispose of the assets of Inscon, subject to the consent of the Registrar of Short-term Insurance, who is also the Chief Executive Officer of Namfisa, according to the statement.”In consultations with the curators it became clear to the Registrar that due to the financial position of Inscon, the company would be unable to pay its outstanding claims in full; hence some of its assets would have to be sold to ensure that policyholder claims would be fairly paid,” it was stated on Namfisa’s behalf.”Furthermore, it became clear that the financial position of Inscon was such that effective 1 July 2007, the insurer would be unable to continue underwriting the policies of its policyholders, which effectively meant that the curators had to cancel all the policies of Inscon as from that date.”As a result of this, the curators and the Registrar have attempted to get a new underwriter for Inscon’s policies, leading to an agreement being reached with Santam Namibia.”This implies that all remaining policies of Inscon would be underwritten by Santam as from 1 July 2007.This transaction was approved by the Registrar of Short-term Insurance,” it was announced.In the initial court application for Inscon to be placed under curatorship, Namfisa Chief Executive Officer Rainer Ritter stated that in terms of the requirements set by the Act, Inscon was supposed to maintain a solvency margin of at least N$8,95 million to safeguard policy holders’ interests.By December 31 2006, though, the company’s solvency margin was calculated at N$3,68 million – a shortfall of N$5,3 million compared to the margin required by law.Ritter claimed that Inscon’s solvency decline was “directly attributable to its directors”, who had approved “extremely generous dividends” even when the company was in a loss-making position.He informed the court that in 2004, dividends amounting to N$15,69 million were paid to the shareholders, while Inscon made a loss of N$3,492 million in that financial year.In each of 2005 and 2006 financial years, a dividend of N$1 million was paid, while in 2006 the company estimated a loss of N$8,114 million.The company’s Chief Executive Officer, Ferdinand Otto, who is also one of Inscon’s directors and shareholders, however struck back against Ritter’s claims in an affidavit that has also been filed with the court.He denied that the company’s solvency decline was directly attributable to the conduct of its directors and claimed that only the last dividend of N$1 million was paid to the shareholders personally.The other dividends, he claimed, were used to finance a management buy-out of the company that was carried out in 2004.Otto also claimed that Namfisa’s decision to have the company placed under the control of curators was a self-fulfilling move which led to the cancellation of a major portion of Inscon’s policies and saw the company only sinking deeper into financial difficulties, despite the fact that it had not defaulted on paying out any claims before Namfisa decided to target it with far-reaching legal action.