- Thousands and thousands of rands’ price of insurance coverage premiums paid by staff had been siphoned from 3SixtyLife.
- The insurer has been underneath curatorship since December final 12 months.
- Not solely did 3Sixty Life pay for issues that had no industrial worth to the corporate, together with a party for Numsa secretary-general Irvin Jim, it was additionally used to fund loans.
Thousands and thousands of rands in insurance coverage premiums paid by members of the Nationwide Union of Metalworkers of SA (Numsa) had been siphoned from life insurer 3Sixty Life to prop up different Numsa-owned corporations between 2017 and 2019.
The Prudential Authority, a monetary regulator, positioned the insurer underneath curatorship in December 2021, after a 12 months of working in an bancrupt place. This determination is being challenged by the board of 3Sixty Life, together with appearing CEO Khandani Msibi.
Throughout the court docket battle, a report ordered by the Prudential Authority in Might 2020 by Gerdus Dixon, a companion at auditing firm Deloitte, has come to gentle. The report offers an alarming record of dodgy monetary choices taken by administration of 3Sixty Life throughout 2017, 2018, and 2019, earlier than an enormous spike in claims because of Covid-19 left 3Sixty Life struggling to remain afloat.
3Sixty Life is wholly owned by the belief of the Nationwide Union of Metalworkers of South Africa (Numsa), via the Numsa Funding Firm. The Numsa Funding Firm (NIC) owns the 3Sixty International Options Group (3Sixty Group), which owns the Doves Group, which owns 3Sixty Life.
Khandani Msibi is the lynchpin of this operation, and has been since 2008. He’s chairperson of 3Sixty Life, and CEO of each the NIC and the 3Sixty Group. He sits on the board of almost each Numsa-owned firm.
Dixon’s report exhibits that not solely did 3Sixty Life pay for issues that had no industrial worth to the corporate, together with a party for Numsa secretary-general Irvin Jim, however the insurer was additionally used as a supply of loans for corporations within the 3Sixty Group, and carried most of the bills of those corporations.
3Sixty Life’s enterprise
In keeping with Msibi’s affidavit within the curatorship problem, 3Sixty Life’s main sources of premium earnings are Doves policyholders (49%) and Numsa Monetary Providers (NFS, 26%). NFS markets merchandise to Numsa members. 3Sixty Life additionally will get earnings from retirement funds that service Numsa members.
In his personal affidavit, Jim defined that NFS affords Numsa members two schemes. The obligatory scheme has over 280 000 funeral help policyholders contributing R2.2 million a month, whereas the voluntary scheme has 29 400 policyholders, contributing an additional R11 million a month. A full earnings assertion was not offered to the court docket, however these figures counsel that Doves policyholders contribute about R25 million in premium earnings per 30 days, with the sum of policyholder earnings at about R50 million a month, or R600 million a 12 months.
This regular stream of premium earnings balanced by actuarially-predictable payouts (pre-Covid) meant that 3Sixty Life had prepared entry to liquid belongings.
Mortgage fever
In September 2017, 3Sixty Life loaned its guardian firm Doves R6 million, in accordance with the Deloitte report. The plan was for Doves to repay by promoting a few of its properties however there is no such thing as a indication that this was carried out. This mortgage seems to have been added to an account as by the top of the 2017 reporting interval, 3SixtyLife had R19 million in loans receivable from Doves, in accordance with extracts from audited monetary statements included within the Deloitte report.
Then on 30 November 2018, 3Sixty Life offered a second mortgage to Doves, of R27.5 million.
In keeping with the phrases of the settlement, Doves was to repay the stability of this mortgage, which was interest-free, in month-to-month instalments of R600 000, however, not less than by July 2020, no repayments had been made.
Dixon mentioned neither mortgage was topic to solvency or liquidity checks which have to be carried out earlier than a mortgage is issued, nor was there proof that the phrases of the loans had been “honest and affordable” to the corporate, opposite to the calls for of the Firms Act. Additional, these loans had been prolonged with out notifying the Prudential Authority, as required.
By 2019, Doves owed 3Sixty Life a complete of R32 million in loans, in accordance with extracts from audited monetary statements included within the Deloitte report.
In 2019, 3Sixty Life additionally lent greater than R7 million to different corporations within the group, together with over R4 million to guardian firm 3Sixty Group.
Dixon flags the loans as severe governance failures, discovering that “the board of administrators didn’t approve the Doves Group and 3Sixty Group loans transactions earlier than they had been superior”, and the necessities of the Firms Act weren’t met.
Nonetheless, in a letter from PricewaterhouseCoopers (3Sixty Life’s auditors for 2018) to Dixon, it’s confirmed that board members mentioned the loans. Msibi and Ola Luthanga, the CFO of the 3Sixty Group, are additionally administrators of 3Sixty Life and of Doves, and likewise of the 3Sixty Group and the NIC.
Unusually, in September 2018, simply two months earlier than the second R27.5-million mortgage, 3Sixty Life’s board of administrators resolved that Doves ought to present 3Sixty Life with R7.5 million in alternate for a share subscription. This was apparently transferred to 3Sixty Life to ensure that it to adjust to statutory solvency capital necessities. This transaction was flagged by 3Sixty Life’s auditors for 2021 as a reportable irregularity, because it was an unapproved discount in share capital, in contravention of the Insurance coverage Act.
In November 2021, 3Sixty Life retroactively notified the Prudential Authority of this manoeuvre.
Funds to different corporations
All in all, 3SixtyLife paid R137million in 2019 to corporations within the group – almost half of its complete working bills. In 2018, this determine was R110 million.
Many of those bills accrued with out an settlement in place. In 2017, Dixon recognized not less than R10 million in bills to corporations within the group made with out an settlement in place. In 2018, this grew to R19.3 million. Dixon confirmed that the pattern continued into 2019, the place these bills included R2 million to NFS for “petrol bills”, and R2.2 million to Sechaba Medical Providers.
Fee funds made with out an settlement in place got here underneath explicit scrutiny.
In 2019, Doves acquired R65.6 million in commissions and R8.9 million in brokerage charges. In 2018, fee to Doves was R60 million, and no brokerage charges had been paid to Doves. In 2019, these alone accounted for 25% of whole operational bills.
Dixon discovered that these fee funds from 3Sixty Life to Doves had been made with none written settlement in place, and thus no element about how fee was calculated. Dixon was advised that “fee was not calculated as a proportion of the premiums, however slightly as a reimbursement of sure wage and different prices incurred by the Doves Group.”
This absence of settlement is explicitly barred by the Lengthy-Time period Insurance coverage Act, and the Monetary Advisory and Middleman Providers Act.
Curatorship
Earlier than being positioned underneath curatorship on the urging of the Prudential Authority, 3Sixty Life operated for over a 12 months in breach of statutorily required solvency capital necessities, and for near a 12 months in breach of minimal capital necessities. It has additionally not submitted audited monetary statements since December 2019.
On the coronary heart of the Prudential Authority’s curatorship software was a priority that policyholders will need to have their insurance policies honoured, and that the regulator “now not had religion” that 3Sixty Life’s administration might repair its monetary place with out exterior help. The Prudential Authority had ample proof of statutory non-compliance at 3Sixty Life, via Dixon’s report.
In keeping with the replying affidavit submitted by the Prudential Authority in reply to Msibi and Jim, not one of the suggestions in Dixon’s report had been carried out, after being handed the report in February 2021. On this affidavit, the Prudential Authority says the regulator now not believes that 3Sixty Life’s administrators are “match and correct”.
Central to Msibi’s try to take away the curatorship is the declare that Covid-19 was the underlying reason for the insolvency. However Dixon’s report exhibits an organization struggling to control itself in accordance with the legislation, lengthy earlier than the world modified in March 2020.
Doves had not responded to questions from GroundUp by the point of publication. Msibi has additionally not responded to emails we have now despatched him.