CITR, liquidator of City Insurance, has identified a series of operational and fund management reasons that led to the bankruptcy of the largest insurance company, with a 43% market share in the RCA market (motor liability) in 2021. The report of reasons is a very complex document, which the CITR team managed to complete in just 4 months, a short time given the specificity and scope of the case.
With 1.15 million RCA policies in force at the end of last year, including 500,000 automatically terminated on May 11eWith 16,305 surety policies still in force to date, involving more than 7,000 individuals, institutions and other insured legal persons, as well as more than 10,000 national and international disputes, the bankruptcy of City Insurance is the largest in the Romania’s recent history.
Paul Dieter Cîrlănaru, CITR CEO: “Today, after a complex analysis, we have a clearer picture of the elements that led to the most resounding failure of the insurance market. There are still steps to follow until we can consider this file closed, a file that I hope will serve, over the years, as a case study for us all to learn valuable lessons. . Nevertheless, we have an obligation to understand how this endemic situation was reached, in order to prevent it from happening again. Then, we will formulate the requests for joint and several liability in the case of the events that led to the City’s bankruptcy, and the competent courts will be able to act accordingly.
Among the operational reasons for the insurance business, there is a large deficit, of RON 1.2 billion, resulting from the sale of policies below the notified fees, with the aim of increasing market share, as resulting from the analysis of City Insurance’s activity over 2018 – 2021.
Additional losses of RON 422 million were generated by City’s failure to act to recover reinsurance debts, while an additional RON 54 million resulted from the company’s failure to recover compensation claims .
Other sources of losses were failure to pay claims on time, leading to penalties and enforcement costs in excess of 45 million RONwhile the constant losses of the Greek and Italian subsidiaries between 2017-2021 created a deficit of RON 185 million.
The CITR also found shortcomings in money management. Thus, City Insurance paid interest and success fees of RON 147 million related to loans from the majority shareholder and a foreign company, loans which were not used by the company.
Added to this are losses of RON 57 million, generated by the non-recovery of loans granted to the affiliated company City Invest & Management.
Other sources of losses are represented by some real estate transactions with land purchased at high prices between 2012 and 2014, which was then sold at lower prices between 2019 and 2020, resulting in a difference of RON 42.6 million.
Liability for causes of bankruptcy
With regard to the personal liability of those who caused the bankruptcy of City Insurance, in accordance with article 268 of the insolvency law, the judge-commissioner may decide that the damage shall be borne by the members of the management bodies and/or supervision within the company, as well as by any other person who has contributed to the insolvency of the debtor by committing one of the acts expressly provided for by law.
The liquidator has identified the occurrence of several cases of personal liability provided for in Law 85/2014, as follows:
- having decided, in a personal interest, to continue an activity that has visibly led the insurance/reinsurance company to cease payments;
- used the assets and/or credit of the insurance/reinsurance company for their own benefit or for the benefit of others;
- engaged in double counting, facilitated the disappearance of accounting books or failed to keep accounts in accordance with the law;
- having misappropriated or concealed part of the assets of the insurance/reinsurance company or having fictitiously increased its liabilities;
- using detrimental means to procure funds for the insurance/reinsurance company, with the aim of delaying the cessation of payments;
- having prepared annual financial statements, other accounting statements or reports, in violation of legal provisions;
- in the context of internal verification actions, they did not identify and/or incorrectly observe the acts that led to fraud and/or poor management of the assets of the insurance/reinsurance company.
CITR’s experience in insurance
CARPATICA ASIG was facing a capital shortfall of RON 707 million at the end of July 2016, when ASF revoked the company’s operating license and then applied for the start of the enforcement procedure. bankruptcy. Since the opening of the procedure, in February 2017, the number of creditors has reached more than 600 and CITR has distributed around RON 130 million. The Carpatica Asig project required the management of more than 10,000 disputes.
The CERTASIG – Project Societate de Asigurare și Reasigurare SA has been managed by CITR since June 2020. According to the preliminary table of receivables, the current number of creditors exceeds 160. The process of capitalizing the company’s assets is currently underway, with outstanding receivables collections of approximately 10 million RON.