Controversy is brewing between SIC Insurance and seven other insurance companies over the liability of those companies to pay their portion of the GH¢19.30 million guarantee bond they jointly indemnified for Ital Construction International Ltd.
The seven insurance firms shared risk to issue a bond guarantee to the construction company, which had won a bid to construct houses in parts of the country, at a premium of GH¢350,000, for a period of six months, covering April 2-October 1, 2014.
The companies include Mainstream Re and Equity Insurance, which underwrote 20 per cent each of the guarantee. International Energy Insurance picked up 12.5 per cent; Nsiah Insurance underwrote 15 per cent with Unique Insurance and Donewell Insurance picking up 10 per cent apiece.
Nem Insurance picked up five per cent, with SIC Insurance itself absorbing 7.5 per cent.
The credit guarantee enabled Ital Construction, which had won a government contract to build 4,120 affordable housing units across the country, to raise funds from private commercial entities, including the finance house, Ivory Finance Company Ltd, to undertake the project while it awaited mobilisation funds and some payments from the government.
Background
According to GRAPHIC BUSINESS sources close to the deal, after the lapse of the six months period of the bond guarantee, Ital International Construction went behind the guarantee issuers, principally SIC Insurance, to renegotiate the credit with Ivory Finance at a new compounding interest rate of 8.0 per cent per month.
However, although Ital managed to secure the funds from Ivory Finance to complete some of the houses at East Legon in Accra, it could not lay hold on the contract sum or part thereof, leading to its default to the finance house.
These twin defaults, therefore, triggered the need to call upon the credit/bond guarantee issuers, SIC Insurance and its partners, to redeem the debt, which had ballooned to GH¢138 million by the close of last year.
Controversy over obligation
First, SIC is contesting both Ital Construction and Ivory Finance over the new figure of GH¢138 million instead of the bond guarantee amount of GH¢19.30 million.
According to sources close to the deal, there is a clause in the bond guarantee documentation, which restricts SIC to the payment of the face value amount of the bond. Besides, Ital never involved the insurance company/companies in the second round of negotiations where the interest rate became higher and the compounding period prolonged beyond the initial six months.
Secondly, the counter parties to the issued guarantee have questioned their liability to cough up various sums of money equivalent to the portions they issued. Their argument, the sources said, stemmed from what could amount to non-full disclosure on the part of SIC Insurance, which is alleged to have disguised the deal as “Advanced Mobilisation” to the counterparties, instead of its known technical description of either credit or bond guarantee.
The local participants are also claiming non-liability because SIC Insurance never passed on their portions of the GH¢350,000 premium to them, until the claim fell due this year, when some of the insurance companies received part payments.
Their arguments include the fact that the guarantee was issued around the time the National Insurance Commission, regulators of the industry, issued the No premium, No Cover, policy which meant that the lengthiest period a premium debt could take was 90 days, which SIC did not comply with.
Historical
Between 1999 and 2000, SIC Insurance issued a lot of such credit guarantees, which banks pushed away due to the high risk involved. Most of the guarantees went bad, compelling the insurance industry regulator to caution the state insurer never to venture into the area.
However, about four years ago, some three officers were found culpable of a similar deal. The board told shareholders they would punish the officers involved but strangely the punishment took the form of transfer of the officers. And, in less than two years those officers are back in prime offices of the company – one at the Shopping Mall office and another at the Ring Road branch.
In all of these, analysts and shareholders who have called this paper, have been wondering whether the insurance company which is listed on the Ghana Stock Exchange
followed good governance rules or did not have an effective board at all.
It is believed that the former board chairperson, Mrs Felicity Acquah, a banker and an astute credit manager, quit the post for such malfeasance happening at SIC.
Exit of MD
Barely three weeks ago, the Managing Director of the company, Mrs Doris Nkani, was asked to step aside while investigations continue.
GRAPHIC BUSINESS sources indicated that although she may not be personally liable for any of the happenings, her weak supervision led to some of the incidents, such as the diversion of investible funds from the company’s subsidiary SIC FSL to another member of the group, the SIC Life Trust.
Diversion of funds
The Deputy Managing Director of SIC Insurance in charge of Finance and Administration, ??????Mr Musah…?????? is currently being investigated by the security agencies for allegedly transferring funds to his private accounts, both domiciled in Ghana and Togo.
The funds, which belonged to the insurance company, were meant for investments, which the board had decided should be channelled to their financial services arm, SIC FSL. Rather, he was alleged to have been convinced by the Managing Director of SIC Life, Mr Issa Alhassan, to rather invest it in the Life business’ subsidiary, SIC Life Trust, for bigger returns.
However, the funds allegedly ended up in the personal accounts of the two big shots since 2013. The two have been picked up and questioned by the security agencies and are on police enquiry bail, while investigations continue.