Policyholders of the beleaguered Equity Insurance Company Limited face the stark prospect of losing money on claims after the regulator, the Financial Services Commission, on Monday sought High Court approval to wind up the firm and warned that not all obligations may be met.
Citing new developments, the FSC shifted from a one-year pause to moving for liquidation. The regulator said the fund reserve that the insurance company maintains would not be enough and that it had met with the insurance industry to shore up policyholders’ coverage.
Last week, the court okayed the revocation of the licence, allowing the FSC to seize management and control, after it claimed multiple breaches of the laws governing insurance firms.
FSC Chief Executive Warrick Ward disclosed that this latest move to seek the liquidation of the insurer follows further developments in Equity’s circumstances, which substantially increase the insurer’s risk profile.
“Developments include significant additional risk factors in Equity’s financial position, and a resulting disruption to the company’s reinsurance arrangements, compounding a history of statutory non-compliance,” Ward said.
“In light of the several opportunities already afforded to Equity to remediate its deficiencies, the commission has carefully considered the available options for an orderly resolution of this general insurance company that would be consistent with our mandate of protecting the interests of policyholders and ensuring stability of the financial market. We have concluded that a court-supervised liquidation provides the best option.”
Over the past six to nine months, the commission has made a number of public disclosures regarding Equity’s challenges, including updates noted on the regulator’s website to the effect that Equity would be permitted to carry on business under the management of Craig Waterman of PricewaterhouseCoopers (PwC), whom the FSC appointed when it seized management and control last August.
The appointed manager’s findings confirmed the commission’s determination that it was necessary to revoke Equity’s licence to protect policyholders and creditors, and the commission subsequently revoked the insurer’s licence effective December 31.
The FSC’s initial intention was to facilitate a one-year run-off period in relation to policies issued before the date of revocation, Ward said.
“However,” the CEO said, “these most recent developments now require a different and more urgent approach to ensure the equitable distribution of available assets in accordance with statutory priorities.”
“The reality is that Equity’s financial position now poses significant risk to the company’s ability to confidently meet all present and arising financial obligations, including claims. It has therefore become prudent that we move to apply to the court for leave to present the petition to wind-up,” he added.
Ward further explained that an orderly liquidation process protects against the misapplication or depletion of funds: “In these circumstances where an insurance company is believed to be insolvent, the supervision of the court is required to guard against the substantial risk that payments are made with an unlawful preference which may disadvantage one group as compared to another.”
The chief executive advised that while existing policies with Equity remain in force until the court determines the commission’s petition, policyholders and other creditors should consider the real and present possibility that the resources of the company may be insufficient to meet their claims in full.
“Policyholders are encouraged to contact their insurance brokers or advisers as soon as possible to discuss suitable alternatives and ensure continuous cover beyond the duration of their current policy. Those who do not use a broker may wish to seek independent advice or approach alternative insurers directly to obtain replacement cover ahead of their policy’s expiration, “ he said.
The commission has also met with insurance industry figures, including the General Insurance Association of Barbados (GIAB), with a view to developing bespoke arrangements to accommodate displaced policyholders, Ward said.
The FSC also warned that the statutory reserve fund, which is required as a buffer to protect policyholders in cases such as this, is also inadequate to fully cover its obligations.
Ward also addressed the question as to the length of time this court process is expected to take. This, he said, can vary from case to case, but it is anticipated that the court’s decision on the petition for leave will be made within a month of filing.
A substantive hearing is likely to take place within three months of the application, depending on the court’s schedule and potential opposition from Equity’s shareholders.
The insolvency of an insurance company is a complicated matter, which may take several months to resolve under the supervision of the court, Ward contended.
The commission said it remains committed to transparency and will continue to share information on the next steps as this ongoing resolution process unfolds. Updates and related frequently asked questions (FAQs) will be made available on the FSC website at www.fsc.gov.bb and across its social platforms.
Officials of Equity were unavailable for comment.
Policyholders and other affected parties are invited to contact Waterman, the appointed manager, for further clarification and guidance on their individual interests at 429-2920 or via email at claims@equity.com.bb.
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