ISLAMABAD – The Securities and Exchange Commission of Pakistan (SECP) has ceased the guarantee business of Crescent Star Insurance Limited (Crescent Star).
Crescent Star had issued guarantees amounting to Rs229 billion without obtaining requisite collateral and any valid reinsurance arrangements.
As per the press release issued by the SECP on Thursday, Crescent Star was served a notice in this regard on January 31, 2024. However, the company challenged the notice in the Islamabad High Court which did not grant any relief and was directed to participate in the proceedings initiated by SECP.
SECP provided six opportunities for hearings and four written responses were submitted by the company 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.
About the claim of Crescent Star to have obtained 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. The SECP ceased its guarantee business with the direction not to roll over existing guarantees in any form and to fulfil its obligations as and when due.
Crescent Star has also been required to submit a comparative statement of outstanding guarantees every month 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 satisfaction of SECP.
In addition to Crescent Star, similar proceedings have also been initiated against 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.
