Some local inssurance companies have failed to set aside enough funds to cover either themselves in times of financial difficulty or their customers when payments are due.
That was discovered in a special audit of the Supervisor of Insurance and Pensions (SOIP), the findings of which are contained in the just released Auditor General’s report for 2010.
Auditor General Leigh Trotman said that while many aspects of the Insurance Act and Exempt Insurance Act are being managed effectively and there is general compliance with the provisions, there are some issues that need to be addressed by the SOIP, including the collection of outstanding receivables.
The audit focused on how the Supervisor monitored and insured insurance companies with the relevant legislation between January 1, 2005, and December 31, 2009.
“Insurance companies are required to deposit certain securities with the SOIP. These deposits act as security for the company, to help meet liabilities in case of financial difficulty . . . .
“All 28 domestic companies were reviewed for 2009 and five did not meet the requirement. Some deposits had matured and the companies had not been notified that a replacement was received, while others paid less than the required deposit,” Trotman wrote.
The Auditor General recommended that considering the importance of the deposits, the Supervisor should monitor them more carefully to ensure that there are replacements for mature bonds.
To further protect investors, insurance companies are also required to hold a percentage of their assets in a Statutory Fund. These funds are to be under the control of a trustee approved by the SOIP and cannot be used without the approval of the trustee or Supervisor of Insurance.
However, it was observed that a number of companies did not have a trustee.
“There were also at least three companies which did not have the requisite assets in a Statutory Fund, which is set up to ensure that the companies have assets to meet future pensions and insurance liabilities,” Trotman said. “Action should have been taken by the SOIP to arrest this situation in a more timely manner.”
It was also discovered that some companies did not submit audited and certified financial statements as required.
“The majority of the companies sampled submitted their accounts late, with missing documents, and less than half asked for extensions to submit their accounts.
The supervisor sent reminders to some companies who were in breach of the law, and worked with them in an effort to bring them into compliance,” it was noted.
Submission of financial statements is particularly vital to ensuring that a company is solvent – that is, that the value of its assets exceeds the amount of its liabilities by $500 000 or 25 per cent of its premium income, whichever is greater.
The Auditor General said while the majority met the requirement, at least one did not.
“The consequence of failure to meet the solvency test is that a company may not be in a position to meet its insurance and pension commitments when due,” he warned.
The department had been selected for audit because of concerns that regulatory failure may have contributed to problems impacting on the insurance industry.
The objective of the audit was to assess the effectiveness of the SOIP in dealing with insurance companies’ noncompliance with their governing legislation.
