The Securities and Exchange Commission of Pakistan (SECP) has directed Crescent Star Insurance Limited (Crescent Star) to discontinue its guarantee business under Section 60 of the Insurance Act, 2000. The decision comes after the company issued guarantees worth Rs. 229 billion without obtaining the required guarantees or proper reinsurance arrangements.
According to the details, to ensure due process and give Crescent Star an opportunity to explain its position regarding the regulatory violations, the Securities and Exchange Commission (SECP) issued a notice to the company on January 31, 2024. However, Crescent Star objected to the notice in the Islamabad High Court. The court did not award any compensation to the company and ordered it to participate in the SEC proceedings.
During the proceedings, the SEC provided six opportunities for hearings and received four written responses from Crescent Star. Despite this, the Company failed to demonstrate compliance with regulatory requirements, including securing appropriate collateral and reinsurance arrangements.
Crescent Star claimed to have secured reinsurance arrangements for its collateral business. However, when the SEC contacted the insurance company in question, it categorically denied the existence of any such arrangement, asserting Crescent Star’s non-compliance and misrepresentation.
Following these findings, the SEC concluded that Crescent Star was conducting its safeguards business without meeting the necessary regulatory requirements. To protect the integrity of the insurance sector, the SEC directed Crescent Star to cease guarantee work, refrain from renewing existing guarantees in any form, and fulfill its obligations when they fall due. The company has also been directed to submit a comparative statement of outstanding warranties to the Securities and Exchange Commission on a monthly basis.
Crescent Star may seek to rescind or modify the SEC’s guidance if it complies with the regulatory framework, including obtaining adequate collateral and valid reinsurance arrangements, to the SEC’s satisfaction.
In a related development, the Securities and Exchange Commission of Pakistan has initiated similar proceedings against United Insurance Company of Pakistan Limited for allegedly carrying out guarantee work without adhering to regulatory requirements. These proceedings are currently on hold as United Insurance has obtained a stay order from the Lahore High Court.
At the same time, the SEC continues its efforts to enhance customer confidence in the insurance sector. During the first half of FY 2024-25, the Commission successfully addressed over 2,300 complaints, resulting in claims recoveries worth Rs. 268 million for individuals.