VBS, Insure and other people’s money

By Corrie Kruger Time of article published Nov 9, 2018

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They say there are three kinds of people. One kind is those that make things happen, another is those that watch things happen, the third group is those that ask, what the heck happened? Perhaps a fourth group should be added, does any of this affect me?

In the case of VBS Mutual Bank and Insure we have made some progress with who made things happen. We know there are a lot of people who watched this happen and now the Financial Sector Conduct Authority (FSCA) and the National Prosecution Authority is starting to ask what the heck happened. 

What most people do not realise, is that this has affected the entire South African population. Tax payers, although comprising a small portion of the population will be asked to prop up the shortage in government finances, the poorest of the poor will not be getting the little relieve they were promised by the politicians.

We often hear the saying “passing the buck” and in the VBS and Insure case the buck is now being passed on and it stops far from the initial impact. The question arises as to why? It is one big fat loss and while our President is calling for prosecution of those responsible. It is not just depositors that have lost money. There are a host of other issues that had arisen from this debacle. 

The money, which had potential to bring relief to areas such as Giyani, is gone… with stats such as: 

  • Unemployment rate – 47%
  • Youth unemployment rate – 61.2%
  • No schooling aged 20+ – 25%
  • Higher education 20+ – 7.1%
  • Toilet connected to sewage – 11.9%
  • Weekly refuse removal – 11.7%
  • Piped water inside dwelling – 13.4%

Any South African that looks at statistics such as these must be touched and each and every one should ask themselves what they can do to improve the livelihood of these people. 

How is it possible that corrupt corporate action can have such a devastating and far reaching impact? 

People sitting in a large plush office building in the affluent Northern suburbs of Gauteng, overlooking the Highway and a golf course at their homestead, took corporate action and far from there a community is failed by: people they trusted, systems and governance that were thought to be world class, many red tape and rules and regulations. 

We also have a Company and Bank Acts, the King IV Report on governance and financial oversight by auditors, influential people’s morals, many watch dogs, corruption watch. This all seems to count for nothing.  Is this the real State of our Nation? Cry our Beloved Country, Cry!

The not so Full bucket never reached the poorest of the poor, but that is not the only area of damage, there are more unlikely innocent bystanders. At least thirty Insurance and re-Insurance companies are affected.

We posed the following questions to the FSCA which regulates Insure:

A review by the Financial Sector Conduct Authority (“FSCA”) of the regulatory solvency of IG lead to the appointment of a Curator. In this regard can you please state what is the required Solvency requirement in rand terms for IG and by what amount have they fallen short? In addition if not covered by the regulatory solvency requirement what is the amount of own Capital ie equity that is considered to be adequate for a company such as Insure handling in excess of R1 200 000 000 premium per month?

  • In terms of section 48(1) of the Determination of Fit and Proper Requirements published in Board Notice 194 of 2017 (the Notice), the assets of the person referred to in section 46(1)(a)  (“the FSP”)of the Notice must  at all times exceed the liabilities of that person;
  • the current assets of the FSP must exceed its current liabilities; and
  • the FSP must hold liquid assets equal to or greater than 4/52 weeks of annual expenditure.
  • IG is currently under curatorship and the curator is managing the financial affairs of the entity.
  • The FSCA is prohibited in terms of section 251 of the Financial Sector Regulation Act from sharing or disclosing the information requested. 

The Curator states that there are investments held by IG that are considered illiquid. In the case of a forced sale (fire sale) what amount could be recovered and what shortage would then be realised?

The curator is in the process of appointing an independent valuator who will assist with determining the actual value of the said investments.

Did the transaction between Vele Investments and Insure Group Managers contribute to the decision to appoint a curator for IG?

Yes, the transaction between Vele Private Equity and IG did contribute to the appointment of the curator.

What punitive steps and action will the FSCA be taking against a) the CEO and other directors and b) against the company itself being Insure Group Managers that has resulted in the current situation?

The FSCA is considering all contraventions by IG and its key persons including the information contained in the VBS forensic report. Appropriate action will be taken as soon as the process is finalised.

Is the Professional Indemnity insurance cover limit (Policy  being R100 000 000 in the Annual Aggregate (PI/ BBB/ Crime) R50 000 000 in the Annual Aggregate (D&O) sufficient cover for Insure Group Managers Ltd and Insure Group managers Services (Pty) Ltd. (A Group that handles between R1 200 000 000 and R1 400 000 000 premium per month? If not what amount would be efficient cover going forward?

The professional indemnity cover is a requirement in terms of the FAIS Act. The adequacy of the cover is determined by various factors including inter alia, the size of the business, complexity and clients. In the case of IG, there is no direct risk exposure to clients. The insurance companies on whose behalf IG is collecting premiums are caring the risk because the premiums collected by IG are deemed to have been received by insurers. The insurers have an obligation to ensure that they have the necessary governance framework to ensure an effective oversight of all outsourced functions including premium collection.

Did the Insure Group submit an investment Policy document to the FSCA? Is it a requirement to submit and adhere to a policy such as Regulation 28 relating to Life Insurance companies and Pension Funds?

No, IG is not an insurer, there is not a requirement in terms of the FAIS Act to submit this data.

Does Insure have a clean record relating to Solvency Issues or has there been previous failures to comply in this regard in the last 10 years?

Please refer to point 1.

Do the FSCA consider the Board of Insure properly constituted and do the FSCA consider Insure to comply with the King 4 report on corporate governance?

The FAIS Act allows us to look at the fitness and proprietary of the directors of the FSPs and not the composition of the board. The conduct of business report to be published in the near future deals with requirements relating to the governance structures of licensed financial services providers on a risk based and proportional basis. In addition to this, insurance companies have an obligation to ensure that they have the necessary governance framework to ensure an effective oversight of all outsourced functions including premium collection.

The answers speak for themselves. We are surprised by the fact that aspects of regulation that one would have suspected would be covered by the FSCA is seen by them as the responsibility of the Insurer. The FSCA considers premium collectors as an intermediary that preforms an outsourced function to the Insurers and that being the case the regulation with regard to how they invest such money should be regulated by terms agreed between the Intermediary and the Insurer. We are not sure that the Insurers see the regulation role they need to play in this regard in the same manner as the FSCA.

Corrie Kruger is an independent correspondent.


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