by Parliamentary opposition Leader, DAP Secretary-General and MP for Tanjung, Lim Kit Siang, in Petaling Jaya on Sunday, 22nd May 1994:
Bank Negara is morally and legally bound to honour dollar-for-dollar the policies of 263,000 current Mercantile Insurance policyholders as Bank Negara has taken over Mercantile Insurance for over three years
Bank Negara has acted most irresponsibly in suddenly announcing on 17th May 1994 that it had directed Mercantile Insurance Sdn. Bhd. (MISB) to cease writing new business and renewals in all classes of insurance business, and to suspend all payments to claimants and creditors with immediate effect.
In making such an announcement without any notice whatsoever, Bank Negara has left the 263,000 Mercantile Insurance policy holders – 140,000 of whom are motor policyholders – in a lurch overnight, where the 263,000 Mercantile Insurance policy-holders lost the protection they had bought with their policies and there are now 140,000 motor vehicle owners whose vehicles are not fully protected in the event of accidents!
Bank Negara is morally and legally bound to honour dollar-for-dollar the policies of the 263,000 Mercantile policyholders for the following three reasons:
Firstly, Bank Negara had advised Mercantile Insurance policyholders after its takeover of the firm in April 1991 that they should not cancel their policies as Mercantile Insurance “can and will undertake to meet its obligations”;
Secondly, Bank Negara had led the public to believe that with its takeover of Mercantile Insurance, it is safe for them to buy or renew policies with Mercantile riot only after April 1991, but also in 1992, 1993 and the first five months of 1994;
Thirdly, Bank Negara had been negligent in taking over three years to decide that Mercantile should cease all business and suspend all payments.
Bank Negara said that it found that the true extent of Mercantile Insurance’s solvency deficiency based on its audited accounts for the financial year ended-December 31, 1991 was significantly higher at RM556.2 million, compared with the deficiency of RM97.2 million (as at December 31, 1989) relied upon at the time of the takeover in April 1991.
Bank Negara also said that the Mercantile Insurance shareholders had been called upon in November 1992 to bring in fresh capital of RM556.2 million to rectify the solvency defi¬ciency as at December 31, 1991 but they had failed to do so.
There are two important questions which demand answers from Bank Negara:
• Firstly, why had Bank Negara taken over 20 months after it had assumed control of Mercantile Insurance and appointed the accounting firm of Samad & Co. to investigate and manage the assets and affairs of Mercantile Insurance to realise that Mercantile Insurance was in an even more serious position of solvency deficiency than originally thought?
• Secondly, why did Bank Negara continue to allow the public to buy and renew Mercantile Insurance policies after November 1992 when it realised the true Magnitude of the solvency deficiency of Mercantile Insurance?
Bank Negara said that preliminary accounts for the year ended December 31, 1993 showed a reduced, but still very large, solvency deficiency of RM383.4 million.
Finance Minister, Anwar Ibrahim must protect and safeguard the rights of the 263,000 Mercantile policyholders to dollar-to-dollar payment before issuing any winding up order
Bank Negara said that unless the Mercantile Insurance shareholders injected new capital of at least RM383.34 million to fully rectify the solvency deficiency within two weeks – i.e. by 1st June 1994 – it would recommend to the Minister of Finance to order the winding up of the company. It gave the assurance that before the order of the winding up is issued, the shareholders of the company will be given an opportunity to make representations in respect of the proposed order.
What about the right of the 263,000 Mercantile shareholders to make representations to the Finance Minister to object the winding up of the company, unless and until their rights to dollar-to-dollar payment is guaranteed by Bank Negara?
It is clear that the Mercantile shareholders would not be injecting the RM383.4 million demanded by Bank Negara. The Finance Minister, Datuk Seri Anwar Ibrahirn must protect and safeguard the rights of the 263,000 Mercantile policyholders to dollar-to-dollar payment before issuing any winding-up order of Mercantile Insurance Sdn. Bhd.