A LEADING insurance company, First Mutual Life Assurance, a wholly owned subsidiary of First Mutual Holdings Limited, has filed a High Court application seeking to overturn a directive by the industry regulator ordering its shareholders to pay ZW$209 386.885 and US$21 141.686 to its policyholders in respect of actual losses.
OWEN GAGARE
First Mutual is suing the Insurance and Pensions Commission (Ipec) and Finance minister Mthuli Ncube over a corrective order which it says is tainted with irregularities and illogical.
It wants the corrective order dated 20 December 2023 which directed its shareholders to make good actual and potential losses of ZW$209 386885 and US$53 681 013, including any interest forgone sustained by the its policyholders, be set aside.
Ipec and Ncube are cited as the first and second respondents respectively in the court application. The court heard that on 8 February 2022, Ipec informed First Mutual that it intended to launch a forensic investigation into its affairs.
The forensic investigation was commenced in September 2022 and BDO Chartered Accountants Zimbabwe were appointed as the forensic auditors.
The forensic investigation was completed on 17 February 2023 and BDO submitted its report to Ipec on 20 February 2023. On 10 May 2023, a copy of the report was availed to First Mutual and the company was given 30 days to respond.
The application states that First Mutual delivered its response to the minister on 8 June 2023.
On 20 December 2023, Ipec then issued a corrective order directing First Mutual shareholders to pay ZW$209 386.885 and US$21 141.686.
In addition, the corrective order refers to potential losses of US$32 539 327, and directs First Mutual to do reconciliations which should be reviewed and signed off by an independent auditor, with all overpayments being refunded to policyholders together with interest by 30 June 2024.
It is stated in the corrective order that the minister mandated Ipec to institute corrective measures following the conclusion of its forensic investigation in line with section 67 of the Insurance Act, a procedure which FML feels is tainted with both procedural and substantive irregularities.
FML believes Ipec had no jurisdiction to issue the corrective order while the minister did not have any statutory authority to order Ipec to issue the corrective order as it did. “The decision is grossly irrational and unlawful.
“The applicant’s right to administrative justice, more particularly the right to be heard, was violated in the issuance of the Corrective Order,” read the application.
To support its application, First Mutual adduced an affidavit through its company secretary, Sheila Lorimer.
Giving background facts, Lorimer said in October 2020, Ipec appointed a company called Atchisor Actuarial Services to conduct an analysis of the insurance industry’s separation of assets between policyholders and shareholders’ accounts.
“This exercise was undertaken in respect of all insurance companies operating in Zimbabwe. “In executing its assigned mandate, the Actuaries requested for information from insurance companies for the period 2009 to 31 December 2019,” Lorimer said in her founding affidavit.
This information would be submitted to Ipec which would then pass it on to actuaries for analysis. According to the secretary, when First Mutual submitted its own information, it was deemed inadequate by the actuaries and there were further follow-ups seeking detailed explanations and additional documents.
She said First Mutual continued to supply whatever supplementary information was requested by the actuaries. On 18 November 2021, the actuaries presented their draft report to FML and further highlighted areas where they considered its responses to be inadequate.
“After the meeting, First Mutual collated and provided all the information highlighted as inadequate by the Actuaries so as to enable the completion of the asset separation exercise by the end of December 2021.
“Notwithstanding the cooperation of the applicant with the Actuaries, on the 8th February 2022, Ipec wrote to First Mutual that all the submissions made by the it were deemed inadequate and therefore the Ipec intended to launch a forensic investigation into the affairs of the Applicant.”
She said the company wrote back requesting engagement to discuss the Actuaries’ final report and the areas they felt were inadequate.
Lorimer said the intended forensic audit did not commence for several months and on 10 May 2022 they wrote to Ipec and the minister seeking assistance to enable the commencement of the forensic audit.
The court was told that on 27 July 2022 Ipec wrote back advising that BDO Chartered Accountants Zimbabwe had been appointed as the forensic auditors.
“The investigation covered the period 1 February 2009 to 31 December 2021.
“The forensic audit then commenced on 5 September 2022 and was completed on 17 February 2023 and the auditors submitted their audit report to Ipec on 20 February 2023,” she said.
On 10 May 2023, the court heard, a copy of the audit report was availed to FML for comments and the company was given 30 days within which to furnish Ipec with its comments. On 8 June 2023, First Mutual furnished both respondents with its detailed responses to the audit report.
“No response was ever received from either respondent.
“On the 1 November 2023, the applicant wrote to the minister requesting a speedy resolution to the issues pertaining to the Audit Report and the applicant’s response thereto. “Again, no response was received from both respondents,” Lorimer explained.
She said having received no response and there being no further engagements on the issues raised in the audit report, the company was surprised to be served with a corrective order.
She said of particular interest was that the corrective order had the exact amounts as the audit report despite the applicant having made submissions on the incorrectness of some of the amounts contained in the report.
“Simply put, the corrective order does not make any reference to the representations made by applicant vis-à-vis the findings of BDO and the reasons why 1 and/or 2 respondents aligned themselves with the findings of BDO and not that of applicant,” she said.
Lorimer said after the issuance of the corrective order, the Board of Directors of First Mutual sought to amicably engage with both Ipec and Ncube. A meeting was held on 25 January. She said at the meeting, the company aired its grievances against the corrective order.
The company wrote to the Ipec commissioner requesting withdrawal of the corrective order as a way to facilitate negotiations and further engagements based on good faith. The court was told that Ipec said the issue had been referred to the permanent secretary for the ministry of Finance and Economic Development.
There was however no commitment to revoke the corrective order and as a way of protecting its rights from any adverse inferences the applicant has been left with no alternative remedy except approaching this court to exercise its review powers.
This led to the present application being mounted. Raising First Mutual’s grounds of appeal, Lorimer said Ipec had no jurisdiction to issue the corrective order in the manner it did. First Mutual also said Ipec purported to have issued the corrective order upon a mandate conferred to it by the minister.
“The minister could not have delegated its powers to Ipec because there is no provision in the Insurance Act which gives authority to the minister to delegate his powers or mandate Ipec to exercise the powers conferred to the two espondent in terms of section 67(6) of the Act.
“Simply put, the minister did not have any statutory authority to mandate Ipec to issue the corrective order as it did and such order by Ipec can only be a nullity,” Lorimer submitted. She also said the issuance of the corrective order was an exercise of a discretionary power of a quasi-judicial nature and it could not have been lawfully delegated to Ipec in the absence of express statutory provision or specific legislative authorisation.
“Failure to comply with a mandatory statutory requirement means that Ipec and Ncube’s actions are a nullity at law and the Corrective Order has no legal basis.” She said the decision is grossly irrational and unlawfuI.
“The figure of US$53,681,013 was first computed by the Auditors and is contained in the final audit report,” she said. “The manner of calculation was challenged in the applicant’s written submissions to the respondent.
“For present purposes, the irregularity stems from the fact that the corrective order fails to make a distinction of obligations arising between 1 February 2009 to 22 February 2019 and those arising from 23 February 2019 to 31 December 2021.
“By operation of law all United States Dollar obligations acquired before 22 February 2019 were converted to RTGSS dollar at the rate of 1:1. “Notwithstanding that the actual calculations are contested, the corrective order also ignores the currency conversion which was sanctioned by statute and is therefore unlawful.
“The applicant’s right to administrative justice, more particularly the right to be heard, was violated in the issuance of the corrective order,” she said
