The Securities and Exchange Commission of Pakistan (SECP) has taken decisive action to cease the guarantee business of Crescent Star Insurance Limited (Crescent Star). This action was executed through a Direction under Section 60 of the Insurance Ordinance, 2000. According to an official press release issued on Thursday, Crescent Star had issued guarantees worth Rs. 229 billion without securing the requisite collateral or establishing valid reinsurance arrangements.
To ensure due process, SECP issued a notice to Crescent Star on January 31, 2024, giving the company an opportunity to address the identified violations of the regulatory framework. Instead of complying, Crescent Star challenged the notice in the Honourable Islamabad High Court. However, the court directed Crescent Star to participate in the proceedings initiated by SECP, providing no relief to the company.
SECP conducted comprehensive hearings, offering Crescent Star six opportunities to present its case. During these proceedings, Crescent Star submitted four written responses but failed to demonstrate compliance with regulatory requirements, such as obtaining proper collateral and valid reinsurance arrangements necessary for conducting guarantee business.
SECP further investigated Crescent Star’s claims regarding reinsurance arrangements by contacting the concerned insurance company. The insurance company categorically denied any such agreements, confirming SECP’s findings of non-compliance and exposing Crescent Star’s misstatements.
As a result, SECP concluded that Crescent Star’s guarantee business was being conducted without the necessary safeguards, posing risks to the integrity of the insurance sector. SECP directed Crescent Star to cease its guarantee business, refrain from rolling over existing guarantees, and fulfill its obligations as they become due. Additionally, Crescent Star is required to submit a monthly comparative statement of outstanding guarantees to SECP.
The SECP has provided Crescent Star with the option to seek cancellation or modification of the Direction, contingent upon full compliance with the regulatory framework, including obtaining proper collateral and reinsurance arrangements to SECP’s satisfaction.
Beyond Crescent Star, SECP has initiated similar proceedings against United Insurance Company of Pakistan Limited for engaging in guarantee business without regulatory compliance. United Insurance has secured a stay order from the Honourable Lahore High Court, and the proceedings are ongoing.
SECP’s proactive measures reflect its commitment to ensuring compliance and protecting public confidence in the insurance sector. During the first half of FY2024-2025, SECP successfully addressed over 2,300 complaints, recovering claims amounting to Rs. 268 million for individuals. These efforts by SECP aim to strengthen governance and build trust in Pakistan’s insurance industry.