Unrated Gefion must raise capital to restore its solvency ratio and allow it to start expanding again, as regulator inspection finds significant issues in the company’s management system
Unrated insurer Gefion has been ordered to stop expanding the business, following an inspection by the Danish regulator.
It means Gefion will not be able to exceed the amount of premium it wrote in 2018, will not be able to expand into new product lines, and will not be able to expand into new countries, until it fixes issues raised by the regulator.
The Danish Financial Supervisory Authority declared that Gefion’s management system was so far from what is legally required, that it needed a capital add-on of around £4.7m to its solvency capital requirement.
This took Gefion’s solvency ratio as of the end of May down from 105% to 86%.
“Thus, Gefion Insurance does not have own funds sufficient to cover the solvency capital requirement,” the Danish regulator said. “Due to the company’s solvency situation, the Danish Financial Supervisory Authority ordered the company not to expand its business volume.”
Gefion has stated that it “strongly disagrees” with the Danish regulator’s decision to impose a capital add-on and has said it will look to appeal the decision.
It stated the order does not prevent Gefion from continuing to trade with existing partners and underwrite insurance risks.
“The majority of the orders and reprimands regarding our governance structure have either already been addressed at this point in time or are in the process of being addressed,” a Gefion spokesperson said.
They added that immediate steps were being taken to recapitalise Gefion and bring the solvency ratio above the required figure of 100%, and was speaking with shareholders and other capital providers.
Existing shareholders recently pumped around £4.7m in Gefion to improve its solvency ratio.
In the medium-term, Gefion said it is in discussions with a number of third-party investors to “significantly increase our capital base before year-end.”
The Gefion spokesperson added: “Whilst we are disappointed with the decision taken by the DFSA, Gefion Insurance are determined to continue to operate as a successful company and valued insurer to our many customers and partners across the European insurance market.
“We look forward to being able to fully focus on developing the business for the remainder of 2019, where focus will be on consolidation and profitability in our existing programs.”
The DFSA stated that its Gefion decision was made after assessing Gefion did not have effective forms of corporate governance.
It said the company did not have the necessary control of external agents and claims managers and that the company did not have a sufficiently effective compliance, risk management and internal audit function.
Further inspection orders
The inspection from the Danish regulator into Gefion began in November 2018, and in its final statement concluding its findings, it also imposed a number of other orders on the business.
These were as follows:
- An order to calculate the best estimate for premium provisions using all relevant data
- An order to adjust the amounts recoverable from reinsurance arrangements with the expected losses due to the default of a counterparty
- An order to make a compete calculation of the risk-mitigating effect of the reinsurance contracts
- An order to bring its asset management contracts in line with regulations
- An order to ensure the reporting of its outsourced asset management contracts is in accordance with the company’s investment policy and guidelines
- An order to ensure the company’s assessment of its own risk and solvency includes an assessment of the company’s ability to comply with the solvency capital requirement and the minimum capital requirement, both within a time horizon of 12 months and for a period at least equal to the company’s strategic planning period
- An order to calculate its premium provisions in homogenous risk groups, where the calculation is based on grouped data
- The regulator is in dialogue with Gefion regarding the company’s provisions for internal costs in the technical provisions and the valuation of a reinsurance contract. The matter is subject to further investigation
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