The Securities and Exchange Commission of Pakistan (SECP) on Thursday ceased the guarantee business of Crescent Star Insurance Limited through a direction, under Section 60 of the Insurance Ordinance, 2000.
According to a press release, the SECP said Crescent Star had issued guarantees totaling Rs. 229 billion without obtaining requisite collateral or any valid reinsurance arrangements.
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 Jan. 31, 2024. The company challenged the notice before the Islamabad High Court, which did not grant any relief to Crescent Star, directing it to participate in the proceedings initiated by the SECP.
The SECP, per the statement, then provided six opportunities of hearings to Crescent Star, which submitted four written responses. Crescent Star failed to demonstrate the requisite compliance with regulatory requirements to carry on guarantees business, including obtaining proper collateral and reinsurance arrangements, it said. With regard to the claim of Crescent Star to have obtained reinsurance arrangement against its guarantees business, the SECP approached the concerned insurance company, which categorically denied any such arrangement. This confirmed the SECP’s findings with regard to non-compliance with regulatory requirements to carry on the guarantees business and also exposed a misstatements of facts by Crescent Star Insurance.
The SECP probe concluded that 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 fulfil its obligations as and when due. Crescent Star has also been required to submit a comparative statement of outstanding guarantees on monthly basis to SECP.
Crescent Star may approach SECP for cancellation or modification of the direction, provided it complies with the requirements of 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.
As part of its ongoing commitment to enhance customers’ confidence, SECP successfully addressed over 2,300 complaints during the first half of FY2024-2025, resulting in an additional recovery of claims to individuals, aggregating to Rs. 268 million. The proactive approach by SECP is expected to enhance compliance in the insurance sector and build public trust.