MAS Directs Cosmic Insurance to Cease Accepting New Business
Singapore, 20 September 2002. MAS has directed Cosmic Insurance Corporation Ltd ("Cosmic") to cease accepting new business, including policy renewals, with effect from 20 September 2002. This is a pre-emptive move to protect the interests of the policyholders of Cosmic.
Under the directive, Cosmic will confine its activities to honouring all obligations under insurance policies accepted prior to 20 September 2002 and paying off all outstanding and future lawful claims. Cosmic will also appoint India International Insurance Private Limited (III) as its manager to discharge its liabilities to policyholders and claimants. Mr. Athappan, Chief Executive of III, and his team will work with Cosmic to ensure that these claims are handled in a smooth, orderly and timely manner. Cosmic has informed MAS that it will cooperate fully in complying with the directive.
Cosmic is a general insurance company whose principal line of business is offering motor insurance, performance bonds and fire insurance policies. The company has 26,000 policyholders and 15,000 claimants, and its business accounts for 3.3% of gross premiums in the general insurance industry. In view of Cosmic' small market share, the limitations placed on the company should not significantly affect the industry.
Over the past 12 months, Cosmic has experienced serious operational difficulties, including continued losses arising from higher claims, large uncollected premium balances, and inadequate loss reserves. MAS had given Cosmic' time to address these problems, but the company has not succeeded in overcoming them. Cosmic did raise additional capital to strengthen its financial position, but the amount raised was insufficient to restore the regulatory solvency margin that Cosmic was required to maintain under the Insurance Act for its domestic insurance policies.
This solvency margin is a buffer of assets in excess of its estimated liabilities. Its purpose is to protect the interests of policyholders. Financial statements as of 31 August 2002 show that although Cosmic still had a positive solvency margin of $21 million, this was $2 million short of the minimum required under the law.
In view of Cosmic's breach of the regulatory solvency margin and its other continuing operational difficulties, MAS exercised its statutory powers to direct the company to stop accepting new business and to run-off its existing business in an orderly manner.
All insurance policies issued by Cosmic remain valid. Existing policyholders will continue to enjoy insurance protection in accordance with the terms and conditions of their policies with Cosmic.
Cosmic has informed MAS that its directors have been seeking a financially strong partner for the company. While these efforts have to date been unsuccessful, MAS understands that Cosmic is making renewed attempts to find a partner. MAS' action does not preclude these efforts continuing, and if necessary the manager will cooperate in facilitating this process.
Cosmic' problem is an isolated one. No other general insurer in Singapore is in breach of its regulatory solvency margin, even though the industry as a whole faces difficult conditions. MAS will continue to monitor the financial condition of general insurance firms and stands ready to act, wherever necessary, to protect the interests of policyholders.
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