The Securities and Exchange Commission of Pakistan (SECP) on Thursday ceased the guarantee business of Crescent Star Insurance Limited (Crescent Star) through a direction, under section 60 of the Insurance Ordinance, 2000.
The Crescent Star had issued guarantees amounting to Rs229 billion without obtaining requisite collateral and any valid reinsurance arrangements, according to a statement issued by the SECP here.
In order to ensure adherence to due process of law and provide Crescent Star with an opportunity to explain its position regarding the highlighted violations of the regulatory framework, a notice was issued to it by the SECP on January 31, 2024.
However, the company challenged the notice in the Islamabad High Court, which did not grant any relief to Crescent Star and directed it to participate in the proceedings initiated by the SECP.
The SECP provided six opportunities of hearings to Crescent Star and four written responses were submitted by it during the proceedings.
Despite these opportunities, Crescent Star failed to demonstrate the requisite compliance with regulatory requirements to carry on guarantees business including obtaining proper collateral and reinsurance arrangements.
With regard to the Crescent Star’s claim to have obtained reinsurance arrangement against its guarantees business, the SECP approached the concerned insurance company which categorically denied any such arrangement.
This confirmed SECP’s findings with regard to non-compliance with regulatory requirements to carry on the guarantees business and also exposed the misstatements of facts by the Crescent Star Insurance.
It was concluded that guarantees business of Crescent Star was being conducted without obtaining any requisite collateral or reinsurance cover.
In order to protect the integrity of the insurance sector, the SECP ceased its guarantee business with the direction not to rollover existing guarantees in any form and fulfil its obligations as and when due.
The Crescent Star has also been required to submit a comparative statement of outstanding guarantees on monthly basis to the SECP.
The Crescent Star may approach SECP for cancellation or modification of the direction, provided it complies with the requirements of regulatory framework i.e obtaining proper collateral and valid reinsurance arrangement, subject to satisfaction of the SECP.
In addition to Crescent Star, similar proceedings have also been initiated against the United Insurance Company of Pakistan Limited for carrying on guarantees business, apparently, without ensuring compliance with the requisite regulatory requirements.
The proceedings are pending as United Insurance has obtained a stay order from the Lahore High Court. As part of its ongoing commitment to enhance customers’ confidence, the SECP successfully addressed over 2,300 complaints during the first half of FY2024-2025, resulting in an additional recovery of claims to individuals, aggregating to Rs268 million.
According to the statement, the proactive approach by the SECP, is expected to enhance compliance in the insurance sector and build public trust.