ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has ceased the guarantee business of Crescent Star Insurance Limited through a Direction, under section 60 of the Insurance Ordinance, 2000 (Ordinance).
Crescent Star had issued guarantees amounting to Rs. 229 billion without obtaining requisite collateral and any valid reinsurance arrangements, according to a press release issued on Thursday.
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 on January 31, 2024.
However, the company challenged the notice in Islamabad High Court. The court did not grant any relief to Crescent Star and directed it to participate in the proceedings initiated by SECP.
SECP provided six opportunities for 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.
Following the Crescent Star’s claim of obtaining a reinsurance arrangement against its guarantees business, SECP approached the concerned insurance company which categorically denied any such arrangement. This confirmed SECP’s findings about non-compliance with regulatory requirements to carry on the guarantees business and also exposed the misstatements of facts by Crescent Star Insurance.
It was concluded that the guarantees business of Crescent Star was being conducted without obtaining any requisite collateral or reinsurance cover.
To protect the integrity of the insurance sector, SECP ceased its guarantee business with the direction not to rollover existing guarantees in any form and fulfill its obligations as and when due. Crescent Star has also been required to submit a comparative statement of outstanding guarantees on a monthly basis to SECP.
Crescent Star may approach SECP for cancellation or modification of the Direction, provided it complies with the requirements of the regulatory framework i.e. obtaining proper collateral and valid reinsurance arrangement, subject to the satisfaction of SECP.