Unrated Gefion ordered to stop writing business

Unrated insurer Gefion has been ordered by its regulator to stop writing business after the Danish FSA (DFSA) refused to approve the insurer’s recovery plan after it fell below its Solvency Capital Requirement in November 2018.

The DFSA deemed that Gefion’s recovery plan “did not provide sufficient evidence that the company would be able to fulfill the Solvency Capital Requirement within six months and hence be able to adequately protect the interests of current and future policyholders”.

This means that the insurer will be unable to write any business, including for renewals, until it submits a recovery plan to the DFSA that meets these requirements in full.

Gefion is appealing the DFSA’s decision to suspend it from writing any form of business saying in a statement that it “does not agree” with the regulator’s decision to reject the recovery plan and that it is in ongoing negotiations to raise additional capital.

“Gefion Insurance has continued its capital raising efforts since the submission of the recovery plan in January with a view to restore the business to a level that will allow us to continue writing business in the short term,” the statement reads. “We are currently in on-going and progressed discussions with potential capital providers in order to secure sufficient own funds to meet the company’s Solvency Capital Requirement and re-establish the solvency ratio to above 100 before the expiry of the recovery period.

“Gefion Insurance also strongly disagrees with the order to cease writing new business and we have for the same reason appealed the decision to the Danish Business Appeals Board and requested that the appeal is granted suspensory effects. The Danish Business Appeals Board has already suspended a previous order from the DFSA, and we hope to obtain a similar outcome in this matter. In the meantime, however, we are required to comply with the order.”

“It is important for us to underline that the order does not impact business that has already been written on behalf of Gefion Insurance and operations will continue as usual in relation to such business,” the insurer added.

Gefion described the order to cease writing any business as “not a proportional measure which is suitable to protect the interest of our policyholders” and said that there had been “no deterioration” in its position since previous measures put in place by the DFSA to restrict Gefion’s business activities, with the regulator saying in January 2020 that the insurer had “serious liquidity problems”.

“The business of Gefion Insurance has already been limited following recent decisions from the DFSA and there has been no deterioration in the Company’s financial position, which can justify the order,” the insurer said in a statement. “In fact, the Company expects an improvement in the underlying business in the coming period as a result of the termination of loss-making agents and other factors.

“The Company still complies with its Minimum Capital Requirement and has so far complied with all other orders that have been issued by the DFSA.”

Impairment Losses

The DFSA has also ordered Gefion to recognise impairment losses on receivables from three of the company’s agents due to the agents’ financial situation, although the insurer can omit recognition of impairment losses for one of the receivables if it can document to the DFSA that the agent does not have significant financial difficulties.

The DFSA has also ordered the company to ensure that it has a proper accounting practice and is able to document its activities. 

Gefion said in a statement: “It is noted that Gefion Insurance has already fully written down the existing receivables towards two of the three agents mentioned by the DFSA and the Company does not expect any further adverse developments as a result hereof. The agent receivables were written down as soon as the Company was made aware of the adverse financial developments for these two agents.

“With regards to the third agent, the Company is genuinely surprised that the DFSA has taken the view that receivables should be written down as there are no indications of the agent being in a financially distressed situation and the agent continues to comply with the relevant solvency requirements of the home regulator.

“In our opinion, the matter has not been fully investigated by the DFSA and we expect that the DFSA will change this part of the decision as soon as more information is provided.”