Caso de Estudio

1. English Caso de Estudio XXI Asamblea Anual de ASSAL XI Conferencia sobre Regulación y Supervisión de Seguros en América Latina y Seminario de Capacitación IAIS-ASSAL Santiago Chile, 22 de Abril de 2010 Takao Miyamoto, Secretaría de la IAIS

2. Agenda Case Background Group Discussions Group Presentations & Summary 1

3. Supervisor and Company You are the insurance supervisor in country “YELLOWLAND”. Rainbow Insurance Brokers Limited (“RAINBOW LTD”) Is a small locally licensed insurance intermediary in YELLOWLAND. Specialises in long-term insurance products for overseas (country “GREENLAND”) clients. Also provides mortgages and related life assurance products to local clients. 2

4. First On-site Visit You carried out an on-site visit three years ago. At that time, RAINBOW LTD had Two local executive directors A GREENLAND-based director A local non-executive director A number of employees advising clients of YELLOWLAND and GREENLAND On-site visit raised concerns with the controls over employees based outside the country. After communicating concerns, you were told that Business will no longer be conducted by RAINBOW LTD in GREENLAND. Business will instead be dealt with by a related GREENLAND intermediary. 3

5. Changes – within a year of first on-site visit The managing director Mr. GREY was the only remaining locally resident executive director. Mr. GREY dealt with overseas clients. There were two other directors. Mr. PURPLE who is based in GREENLAND Mr. ORANGE who is a local non-executive director There was one other employee who dealt only with local business. Two former employees recently left due to disagreement with Mr. GREY. They started their own intermediary company Blue Intermediary Limited “BLUE LIMITED”. 4

6. Changes – within a year of first on-site visit A number of clients left RAINBOW LTD to join BLUE LTD. You first heard of these staff problems when BLUE LTD applied for a licence. Mr. GREY accused the two former employees of stealing client files from the office of RAINBOW LTD. Two former employees stated that they were owed substantial commissions by RAINBOW LTD. 5

7. Second On-site Visit Two more years passed by. You have planned an on-site visit to RAINBOW LTD and provided Mr. GREY with notice of visit. Three weeks before visit, you received a letter from Red Insurance Limited (RED LTD), a local insurance company. The letter outlined concerns over a motor insurance claim made by Mr. GREY. It was alleged that Mr. GREY Damaged vehicle while driving overseas. Returned home to take out an insurance policy on the car. Made a claim for damage after returning to the country of accident, pretending accident happened during this visit. 6

8. Second On-site Visit Two weeks later, Mr. GREY wrote to you that RAINBOW LTD would be ceasing operations within a week because business was no longer viable. Mr. GREY stated that the decision was taken by him and GREENLAND-based director. MR. GREY assumed that you would not be carrying out an on-site visit to RAINBOW LTD. You decided to carry out on-site visit to discuss the closure of business with Mr. GREY. 7

9. Second On-site Visit You took copies of commission statements from product providers. Mr. GREY agreed to provide information on financial position of RAINBOW LTD and clients list. Within a month, however, you did not receive and contacted him again to ask to provide information. You also asked for details of files that Mr. GREY alleged had been stolen by the former employees. Two weeks later, the information arrived but List of clients was considerably shorter than previous lists providedand conflicted with the number of files seen in the office during on-site visit. Mr. GREY was unable to confirm financial position of RAINBOW LTD. 8

10. Arrest A week later, Mr. GREY was arrested and charged with attempting to defraud RED LTD. This was related to information you received before. Mr. GREY was released on bail to return to court in a month’s time. At court hearing, Mr. GREY stated that he left YELLOWLAND for a number of years. However, your records indicated he was in YELLOWLAND and controlling RAINBOW LTD. You even met him on a number of occasions when he claimed he was not in YELLOWLAND. 9

11. Regulatory Action You imposed conditions on license of RAINBOW LTD. Prevent Mr. GREY from acting in his role as director. Prevent RAINBOW LTD from writing any new business. Require your consent to be obtained before RAINBOW LTD can make payments. Require payment received to be notified to you. You hand delivered the notice imposing conditions. 10

12. Regulatory Action Mr. GREY finally provided a set of accounts for RAINBOW LTD. However, you believed them to be inaccurate. Accounts included two motor vehicles as assets but the information provided by RED LTD suggested further vehicles were owned by RAINBOW LTD. Information from police suggested many vehicles were purchased in RAINBOW LTD’s name, using loans. But the loans do not appear. Mr. GREY also provided an amended client list. However, it did not include clients mentioned on commission statements, which you took during on-site visit. 11

13. Further Action You applied for warrant to search RAINBOW LTD’s office and Mr. GREY’s home. It turned out that Bank statements recovered under warrant showed that large payments had been made to both his personal bank account and related company in GREENLAND immediately prior to and after his arrest. It also suggested that money was being received from other sources outside YELLOWLAND. Payments had been made and received in breach of conditions imposed. Company cheque books showed that Mr. GREY had been using company funds to purchase personal items. Client file that Mr. GREY claimed were stolen by previous employees were discovered at his home. 12

14. Escape Mr. GREY failed to appear at court hearing but his lawyer read out a statement blaming you for hounding him and that he would not return to YELLOWLAND. The court issued a warrant for his arrest. You successfully applied to the court for freezing order on assets of RAINBOW LTD and Mr. GREY. The order was sent to Mr. GREY in GREENLAND. Six weeks later, you were informed by police that Mr. GREY was arrested when attempting to re-enter YELLOWLAND. 13

15. Liquidation and More Issues You applied to court to have RAINBOW LTD compulsory wound up due to doubts over solvency. The courts approved and appointed liquidators. After analysis of information and meeting with parties involved, the liquidators contacted you to discuss issues. Substantial payments were due to be made to RAINBOW LTD. However, it was never received. When asking the bank for sight of payment instructions, it was found that Mr. GREY requested payment be made to his personal bank account rather than RAINBOW LTD. Change was made by a letter signed by Mr. GREY and Mr. ORANGE, local non-executive director. 14

16. Liquidation and More Issues Time of fax header on the instructions showed that it was sent 30 minutes after you hand delivered conditions notice. Mr. ORANGE said that he definitely did not sign the instruction as he had never signed anything to do with RAINBOW LTD. Subsequently, Mr. GREY was arrested again and charged with further offence of fraud. 15

17. Agenda Case Background Group Discussions Group Presentations & Summary 16

18. Tasks • (Question 1) • As a supervisor, do you have any concerns with RAINBOW LTD prior to second on-site visit? • (Question 2) • Why do you think Mr. GREY wrote to you saying the company will cease writing business just before second on-site visit? Do you have any concerns over the decision to stop business? • (Question 3) • What misconducts/frauds do you think have occurred? Are there any other possible offences committed? 17

19. Tasks • (Question 4) • As a supervisor, how do you consider the actions of Mr. ORANGE, non-executive director? • (Question 5) • As a supervisor, is there anything you could have done to prevent the misconducts/frauds? 18