Court lifts gagging order on FSC action to protect policy-holders of ailing Elite Insurance
Concerns at the end of last year about cover provided by local insurer Elite, particularly for French building firms prompted an investigation by the Financial Services Commission which has gone a long way to protecting almost 1,5 million policy holders across a range of products in Britain, France, Italy, Ireland and Greece. The bulk of the policy-holders are in Britain - though none of these are active motor covers - and it was the French connection that prompted the Commission's initial concerns, Joe Perdoni the FSC Head of Prudential said yesterday.
He was speaking for the first time since confidentiality orders - imposed by the Gibraltar Supreme Court at Elite’s request at the beginning of July - were lifted on Friday, also at Elite's request. Initial court proceedings stemmed from Elite's legal challenge of the FSC's call for the insurer to inject capital and to cease writing new business. These directions by the Commission continue.
Risks are particularly high in the sphere of construction firms “cover against building defects where it often takes a long time for claims to come through,” according to Mr Perdoni. Elite had a substantial French construction book.
In the FSC direction which led to the court action, it urged the firm to directions to inject capital and to cease writing new business as part of a move by the Commission “to protect Elite’s current and future policy holders”.
“Our view [of the situation] differed from their view,” said Perdoni.
None the less, on July 4 Elite agreed to cease writing new business and entered into run-off. Elite has said that the run off will be solvent. Following an initiative by the Commission to liaise more closely with insurers, and a “Dear CEO” letter sent to firms, the FSC “continues to improve upon our supervision of insurance companies”.
Since the FSC's move, the individual directors of Elite have provided the Commission with declarations of solvency and with a run-off plan for its approval and this is currently being reviewed - a process which “can take quite a while,” according to Perdoni.
“By acting proactively, we aim to ensure the protection of policyholders. We continue to liaise with the Prudential Regulatory Authority (PRA), the Financial Conduct Authority (FCA) and the Financial Services Compensation Scheme (FSCS) on a weekly/bi-weekly basis including conference calls and face to face meetings. For example, with Elite we have kept all relevant regulators fully up to date, from the UK to the other regulators based in countries in which Elite wrote business,” a Commission spokesperson said.
The Commission has a range of powers to supervise insurance companies - ensuring that they comply with relevant regulations and requirements - the protection of policy holders central to its approach.
During its regular supervisory oversight, the Commission identified three main areas of risk - governance; Elite's delegated underwriting facilities with managing general agents (MGAs),and its financial reserving processes.
Since the middle of last year the Commission had worked to ensure that Elite resolved these risks. It had been “particularly concerned” to ensure that Elite “understood and resolved any implications for Elite’s capital adequacy and solvency” – the spokesperson said.
“Regulators do not operate a zero failure regime,” said Peroni.
“Under Solvency II there is a low level of tolerance for insurance company failure. Business failures will and do happen in all walks of life. We will never be in a position to stop all companies from failing.
“What we can do through our supervision and regulatory actions is reduce the number and frequency of firms getting into financial difficulty, and work with insurers and their management to resolve issues.”