Struggling Inscon placed under curators’ control

THE directors of the Insurance Company of Namibia (Inscon) – most of whom are also shareholders in the company – have been accused of “continuous mismanagement” of the company, which the High Court placed under provisional curatorship last week.

In terms of an order granted by Acting Judge Annel Silungwe on Wednesday, Inscon’s short-term insurance business has been placed under provisional curatorship – a step that transferred the control and management of the company away from its board of directors and its management and into the hands of two court-appointed curators. Namibian lawyer Simon Steyn, of L&B Commercial Services, and a South African chartered accountant and insolvency practitioner, Jay Pema, have been appointed as joint curators.They have to take over the management of the company and have been directed by the court to compile a report on the overall financial position of Inscon, and to report to the court “on any irregularities committed by the company, its directors, or management and the contravention of any laws in the conduct of the business”.These reports must be made to the court on May 29, when the court will also have to decide whether the provisional curatorship should be confirmed, Acting Judge Silungwe directed.The provisional order placing the company under curatorship was granted at the request of the Chief Executive Officer of the Namibia Financial Institutions Supervisory Authority (Namfisa), Rainer Ritter, acting in his capacity as Registrar of Short-term Insurance.Ritter informed the court in an affidavit that the urgent application for Inscon to be placed under the control of the joint curators was prompted by: * the company’s failure to comply with statutory solvency levels and “its ever-declining solvency margin”; * the “continuous mismanagement” of Inscon by its directors, who are, with the exception of one, also its shareholders and the recipients of substantial dividends that were declared by themselves at a time that Inscon was already suffering financial losses; and * the inability of the directors of Inscon to satisfy Ritter that under its current management Inscon is capable of adequately addressing and correcting the issues which have led to the company’s failure to comply with the Short-term Insurance Act’s requirements on solvency levels that have to be maintained by short-term insurers in Namibia.Ritter stated that the Short-term Insurance Act requires every registered short-term insurer to maintain a prescribed margin of solvency – meaning that its assets should exceed its net liabilities by a certain margin – at all times.These insurers’ assets should exceed their net liabilities by either N$4 million, or by 15 per cent of their gross premium income, minus premiums paid for reinsurance business for the year, he informed the court.In Inscon’s case, an inspection carried out by Namfisa has shown that the company is supposed to maintain a solvency margin of at least N$8,95 million to safeguard policyholders’ 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.According to Ritter, he wrote to Inscon on January 20 to direct its shareholder, Inscon Holdings, to shore up the company by injecting new capital of between N$8 million and N$10 million into Inscon by February 28.This was not done.In the meantime, in Ritter’s words, Inscon is in a “liquidity crisis” in which it is at risk of defaulting on the payment of claims due to its policyholders, or at the very least would be forced into “serious delays” in the settlement of claims.Inscon “is on the verge of financial collapse” which should be arrested on an urgent basis by the Registrar of Short-term Insurance, Ritter stated bluntly.He also informed the court: “The (Namfisa) inspectors are of the opinion that (Inscon’s) solvency decline is directly attributable to its directors, who bar one, are all shareholders in the holding company.It was noted that (Inscon) paid out extremely generous dividends even when it was in a loss-making position.For instance, in 2004, dividends amounting to N$15,69 million were paid to the shareholders, while (Inscon) made a loss of N$3,492 million for the 2004 financial year.In each of 2005 and 2006 financial years, a dividend of N$1 million was paid, while in 2006 the company estimates a loss of N$8,114 million.The directors who approved the N$15,69 million dividend payout on November 24 2005 were the Inscon Board Chairperson, Charles Kauraisa, the company’s Managing Director, Ferdinand Otto, its Finance Director, Albert Mundt, and fellow directors Johannes Endjala, Mbakumua Hengari and Johannes Engelbrecht.According to a Namfisa inspection report placed before the High Court, Endjala holds 30 per cent of the shareholding in Inscon Holdings, which is a 100 per cent shareholder in Inscon.Kauraisa, Otto, Mundt and Hengari each holds 17,5 per cent of the shareholding in Inscon Holdings.Namibian lawyer Simon Steyn, of L&B Commercial Services, and a South African chartered accountant and insolvency practitioner, Jay Pema, have been appointed as joint curators.They have to take over the management of the company and have been directed by the court to compile a report on the overall financial position of Inscon, and to report to the court “on any irregularities committed by the company, its directors, or management and the contravention of any laws in the conduct of the business”.These reports must be made to the court on May 29, when the court will also have to decide whether the provisional curatorship should be confirmed, Acting Judge Silungwe directed.The provisional order placing the company under curatorship was granted at the request of the Chief Executive Officer of the Namibia Financial Institutions Supervisory Authority (Namfisa), Rainer Ritter, acting in his capacity as Registrar of Short-term Insurance.Ritter informed the court in an affidavit that the urgent application for Inscon to be placed under the control of the joint curators was prompted by: * the company’s failure to comply with statutory solvency levels and “its ever-declining solvency margin”; * the “continuous mismanagement” of Inscon by its directors, who are, with the exception of one, also its shareholders and the recipients of substantial dividends that were declared by themselves at a time that Inscon was already suffering financial losses; and * the inability of the directors of Inscon to satisfy Ritter that under its current management Inscon is capable of adequately addressing and correcting the issues which have led to the company’s failure to comply with the Short-term Insurance Act’s requirements on solvency levels that have to be maintained by short-term insurers in Namibia.Ritter stated that the Short-term Insurance Act requires every registered short-term insurer to maintain a prescribed margin of solvency – meaning that its assets should exceed its net liabilities by a certain margin – at all times.These insurers’ assets should exceed their net liabilities by either N$4 million, or by 15 per cent of their gross premium income, minus premiums paid for reinsurance business for the year, he informed the court.In Inscon’s case, an inspection carried out by Namfisa has shown that the company is supposed to maintain a solvency margin of at least N$8,95 million to safeguard policyholders’ 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.According to Ritter, he wrote to Inscon on January 20 to direct its shareholder, Inscon Holdings, to shore up the company by injecting new capital of between N$8 million and N$10 million into Inscon by February 28.This was not done.In the meantime, in Ritter’s words, Inscon is in a “liquidity crisis” in which it is at risk of defaulting on the payment of claims due to its policyholders, or at the very least would be forced into “serious delays” in the settlement of claims.Inscon “is on the verge of financial collapse” which should be arrested on an urgent basis by the Registrar of Short-term Insurance, Ritter stated bluntly.He also informed the court: “The (Namfisa) inspectors are of the opinion that (Inscon’s) solvency decline is directly attributable to its directors, who bar one, are all shareholders in the holding company.It was noted that (Inscon) paid out extremely generous dividends even when it was in a loss-making position.For instance, in 2004, dividends amounting to N$15,69 million were paid to the shareholders, while (Inscon) made a loss of N$3,492 million for the 2004 financial year.In each of 2005 and 2006 financial years, a dividend of N$1 million was paid, while in 2006 the company estimates a loss of N$8,114 million.The directors who approved the N$15,69 million dividend payout on November 24 2005 were the Inscon Board Chairperson, Charles Kauraisa, the company’s Managing Director, Ferdinand Otto, its Finance Director, Albert Mundt, and fellow directors Johannes Endjala, Mbakumua Hengari and Johannes Engelbrecht.According to a Namfisa inspection report placed before the High Court, Endjala holds 30 per cent of the shareholding in Inscon Holdings, which is a 100 per cent shareholder in Inscon.Kauraisa, Otto, Mundt and Hengari each holds 17,5 per cent of the shareholding in Inscon Holdings.