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Wednesday, August 10, 2022

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Placing Constantia Insurance under curatorship is premature, says Conduit

This follows the SA Reserve Bank's Prudential Authority decision to place the firm under provisional curatorship.

This follows the SA Reserve Bank's Prudential Authority decision to place the firm under provisional curatorship.

Published Aug 2, 2022


JSE-Listed insurance investment holding company Conduit Capital has expressed surprised that its subsidiary, Constantia Insurance Company Limited (CICL), has been placed under provisional curatorship, and slammed the decision as “premature”.

Conduit's share price dipped by almost 52 percent on the JSE in intraday trade yesterday to R0.17. Its shares have dropped by 73 percent in the past three years.

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Constantia is a diversified pan-African insurer writing business in health, life, medical malpractice and property & casualty, providing coverage to people, professionals, and institutions across South Africa and in 19 other African countries.

The SA Reserve Bank's Prudential Authority (PA) approached the High Court of South Africa on July 26, by way of an ex parte application, to place CICL under curatorship.

CICL was placed under provisional curatorship after it failed to find an investor to inject capital of at least R450 million. The order was granted only in relation to the non-life insurance license and not the life insurance companies.

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Curatorship is a mechanism through which the business of an insurer is afforded an opportunity to get its affairs in order, and thus avoid potential business rescue or liquidation.

The group has also been temporarily barred from taking on new customers.

Conduit interim chief executive Peter Todd said: “We believe the decision by the PA was premature given the strong performance of the business over the past two years and given how close we are to concluding the recapitalisation of Constantia.

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"We have received an offer from a new investor and are well advanced with a second investor, so the decision of the PA has come as a surprise. We have worked actively to keep the PA abreast of these developments throughout the process.”

"Constantia is cash flow positive, has significant cash reserves, and generates underwriting profits in all of its major lines," it said, adding that the firm had sufficient resources to meet policyholder claims.

In March, Conduit’s interims showed that Constantia’s premiums increased from R788.5 million in 2015 to R1.94 billion in 2021, at an approximate 100 percent combined ratio.

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The capital position was temporary, and outside of the control of Constantia. This had also not impacted the operational performance of the company in any way, it said.

"Policyholders are not at risk from the decision by the PA. Constantia is close to concluding a recapitalisation transaction to support future growth, therefore, the regulatory decision by the PA is unnecessary," Conduit said.

The group said both Conduit and CICL were working with the PA and stakeholders to immediately resolve the matter and complete the recapitalisation as quickly as possibles.

"The PA has indicated its intention to support the recapitalisation and sees the appointment of the provisional curator as the means through which it can best support and expedite the conclusion of the process,” Conduit said.

Meanwhile, Ashish Desai of Deloitte & Touche was provisionally appointed as the curator of the business of CICL, and Gerdus Dixon, also of Deloitte, has been appointed as the alternate curator.

The High Court of South Africa also issued specific directives to the curator to take immediate control of the business.

The SARB has been increasingly proactive in protecting the public interest and financial services firms after the collapse of the African Bank in August 2014, which was subsequently placed under curatorship, and then rose successfully from the ashes.

In May it placed Ubank under a curatorship, in March 2018 it was VBS which was mired in scandal because of investments by several municipalities in the small mutual bank, that was placed under curatorship. Last year, 3Sixty Life, an underwriter of life insurance and funeral policies, was also placed under provisional curatorship.