7 firms shared in SIC’s troubled deal

Business News of Tuesday, 24 February 2015

Source: B&FT


Seven other insurance companies participated in the bond transaction that has landed SIC Insurance Company in financial troubles, B&FT enquiries have revealed.

The companies, Mainstream Re, Equity Assurance, International Energy Insurance, NSIA Insurance, Unique Insurance, Donewell Insurance and NEM Insurance, all benefitted from the GH?350,000 premium paid by ITAL Construct International Limited to secure a credit guarantee bond from SIC.

Currently, the credit guarantee product underwritten by SIC Insurance has resulted in a legal tussle with Ivory Finance Company over the payment of about GH?138million as the guranteed — ITAL Construct International Limited — failed to fulfil its obligations under the credit Guarantee.

Information available to the B&FT indicates that SIC, which provided the credit guarantee bond, shared the business with seven other companies through a facultative reinsurance placing– a form of reinsurance where the main insurer decides what level of risk it should maintain on any one policy, and offers to share the remaining risk with another insurer(s) for a commission.

According to the reinsurance documents, Mainstream Re and Equity Assurance each took 20 percent of the risk representing a liability of a little over GH?3.860million, while International Energy Insurance and NSIA assumed 12.5 percent (GH?2.412million) and 14.98 percent (GH?2.892million) of the risk respectively.

Unique Insurance and Donewell Insurance both got 10 percent each, representing a liability of GH?1.930 million; with NEM Insurance taking five percent, which comes up to a liability of GH?965,190.

SIC, the main insurer maintained 7.516 percent of the risk representing a liability of a little above GH?1.450 million and also benefitted by receiving GH?97,107 as commissions on the premium paid to the other insurance firms.

SIC, should by now be calling on all participants under the cut through provisions of the reinsurance contracts.

B&FT investigations show that ITAL — a wholly-owned indigenous real estate company — secured a US$200million government of Ghana contract to provide 4,120 housing units in all the 10 regions of the country to enable public servants to acquire housing accommodation.

The housing project follows an Export Credit Guarantee Department (ECGD) loan agreement between the government of Ghana, Barclays Bank (as coordinating Mandated Lead Arranger) and the British Secretary of State for an amount of US$170million at a rate of 2.25% per annum, as well as a medium-term loan facility from CAL Bank Limited and other local banks for US$30million as co-financing for the design and construction of the buildings.

Each public servant is to pay at least US$37,793 per housing unit, a figure the Ministry of Works and Housing said informed the government to choose ITAL as the most price-competitive bidder to execute the project.

Further inquiries show that ITAL on securing the contract contacted Ivory Finance, which in turn asked for a credit guarantee bond from an insurance company before it would advance the credit facility for the developer to execute the design and full construction of the two- and three-bedroom apartments.

So ITAL approached SIC Insurance for the credit guarantee bond, which was granted and issued on the 28th of March 2013 for a period of six months.

According to clause 2 of the guarantee in the policy document issued by SIC, the total liability of the guarantor (SIC) under the guarantee shall under no circumstance exceed the sum of GH¢19.303million inclusive of interest, bank charges and commissions should ITAL Construct fail.

Subsequently, on 19th April, 2013, ITAL and Ivory Finance reached a credit facility agreement with provisions that would yield incremental penalty charges should ITAL default.

Ivory Finance and SIC Insurance are now in court over claims of about GH?138million, an amount that many analysts believe when paid could cripple the publicly traded mainly state-founded insurance firm, whose total assets as of 2013 stood at GH?151.8million.

The interpretation that should be given to the Clause 2 referred to the above is now a subject matter of contention. The use of the word “inclusive” raises the issue of whether interest and other charges should kick in, in the event of non-performance by the guaranteed.

One school of thought is of the view that the guarantor’s liability is limited to the GH¢19,000,000.00 guaranteed without interest as the wording is to the effect “up to the limit of…”

“We SIC Insurance Company Limited guarantee to pay Ivory Finance Company Limited, upon your request demand and without vigil or argument, any sum or sums up to the limit of GH¢19,303,800.00 including interests, commissions and charges as aforesaid without your needing to prove or to show grounds or reasons for your demand for the sum specified therein and despite any objection by the Customer”.