The Cayman Islands Monetary Authority has appointed Jeffrey Stower and Jason Robinson of KPMG as the controllers of Premier Assurance Group SPC.
The controllers assumed control of the affairs of the company on 14 Sept. and have the power to terminate the insurance business, the financial regulator said. The Grand Court confirmed the powers of the controllers in an order on 21 Sept.
In a public notice released on Wednesday, the authority said it also found Jorge Eduardo Falcon and Leonardo Cornide, two of Premier’s directors, not fit and proper to hold their director posts.
The company is a subsidiary of Premier Assurance Group LLC. It was registered in June 2012 as a segregated portfolio company and holds a Class B insurance licence.
It offers unit-linked life- and health-insurance products with global coverage, except for Cayman and the US.
On 22 Sept., the controllers applied for Chapter 15 recognition of the Cayman proceedings in the US Bankruptcy Court for the Southern District of Florida.
In the application, the joint controllers note that Premier Assurance Group, LLC, the parent of the Cayman insurer, had been under investigation by the US Securities and Exchange Commission since August 2017.
According to the US court filing, CIMA became aware that on 25 Sept. 2019, the SEC had settled cease-and-desist proceedings against Falcon and Cornide, the founders and shareholders of the Cayman insurer, for using investment funds to obtain personal loans and for failing to disclose their personal interest in transactions in which they used additional investment funds.
Audrey Roe, the head of CIMA’s compliance division, stated in an affidavit filed with the US bankruptcy court that the Premier Assurance directors had misrepresented the scope of the SEC investigation and failed to disclose that they were personally subject to investigation.
Roe said there was sufficient evidence that the SEC investigation uncovered the two directors were effectively using Premier Assurance Group as “a piggy bank” by loaning themselves money from its assets.
In “a clear conflict of interest” and “breach of fiduciary duty”, Roe said, the directors had, in their capacity as investment advisors, directed Premier Assurance Group to invest up to 25% of its investment reserves in a note with Silverback Capital Partners, LLC, an entity owned and controlled by the directors.
Silverback then made personal loans to the directors totalling more than $7 million from the funds borrowed from the insurer.
Falcon and Cornide settled with the SEC and agreed to a cease-and-desist order and to pay over $7 million in disgorgement and civil penalties without admitting or denying the SEC’s findings.
The head of the CIMA’s compliance division said one of the two segregated portfolios of Premier Assurance Group had a long history of balance sheet insolvency that had required enhanced regulatory supervision from CIMA since 2016.
On 10 April 2019, CIMA directed the insurer to cease writing business through its Global Assurance Segregated Portfolio (GASP) and ensure that it remained solvent.
However, in the wake of the company’s 2019 audit, the auditor informed CIMA about concerns that GASP had violated the order not to write new business and the insurer had established a “rent-a-cell” arrangement in another jurisdiction, intending to transfer its entire book of business to the new structure.
At the same time, CIMA had received complaints from policy holders about delayed claims settlements, including allegations of fraud and the refusal to return phone calls, Roe said.
The 2019 audit statement for Global Assurance Group contained a disclaimer stating that the auditor did not have enough information to form the basis of an audit.
The auditors advised CIMA that the second segregated portfolio, Premier Assurance Segregated Portfolio, had used an unapproved discounted cash-flow method to determine its loss reserves and had included projections for the economic impact of COVID-19 in its loss reserves at a time when it did not apply for the financial year ending in 2019. This understated the loss reserves and overstated assets, according to the auditors.
In the auditor’s belief, “Premier, as an entity could implode” and leave policy holders at risk, the Roe affidavit stated.