SECP ceases guarantee-business of Crescent Star Insurance

The Securities and Exchange Commission of Pakistan (SECP) has directed Crescent Star Insurance Limited (Crescent Star) to cease its guarantees business under Section 60 of the Insurance Ordinance, 2000. The decision comes after the company issued guarantees worth Rs. 229 billion without obtaining the requisite collateral or valid reinsurance arrangements. 

According to details, to ensure due process and provide Crescent Star an opportunity to explain its position regarding regulatory violations, SECP issued a notice to the company on January 31, 2024. However, Crescent Star challenged the notice in the Islamabad High Court. The court did not grant any relief to the company and instructed it to participate in SECP’s proceedings. 

During the proceedings, SECP provided six opportunities for hearings and received four written responses from Crescent Star. Despite this, the company failed to demonstrate compliance with the regulatory requirements, including securing proper collateral and reinsurance arrangements.  

Crescent Star claimed it had obtained reinsurance arrangements for its guarantees business. However, when SECP approached the concerned insurance company, it categorically denied the existence of any such arrangement, confirming Crescent Star’s non-compliance and misrepresentation. 

Following these findings, SECP concluded that Crescent Star was conducting its guarantees business without meeting the necessary regulatory prerequisites. To safeguard the integrity of the insurance sector, SECP directed Crescent Star to cease its guarantees business, refrain from rolling over existing guarantees in any form, and fulfill its obligations as they come due. The company has also been instructed to submit a comparative statement of outstanding guarantees to SECP on a monthly basis. 

Crescent Star may seek the cancellation or modification of SECP’s directive if it complies with the regulatory framework, including obtaining proper collateral and valid reinsurance arrangements, to SECP’s satisfaction.  

In a related development, SECP has initiated similar proceedings against United Insurance Company of Pakistan Limited for allegedly carrying out guarantees business without adhering to regulatory requirements. These proceedings are currently pending as United Insurance has obtained a stay order from the Lahore High Court. 

Meanwhile, SECP continues its efforts to enhance customer confidence in the insurance sector. During the first half of FY2024-25, the commission successfully addressed over 2,300 complaints, resulting in the recovery of claims worth Rs. 268 million for individuals.