by Parliamentary Opposition Leader, DAP Secretary-General and MP for Tanjung, Lim Kit Siang, in Petaling Jaya on Monday, May 23, 1994:
Fourth reason why Bank Negara is morally and legally bound to honour dollar-for-dollar the policies of the 263,000 Mercantile policyholders
Yesterday, I gave three reasons why Bank Negara is morally and legally bound to honour dollar-for-dollar the policies of the 263,000 Mercantile Insurance policyholders, namely:
• Firstly, Bank Negara had advised Mercantile Insurance policyholders immediately 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 for over three years that with its takeover, of Mercantile insurance, it is safe for them to buy or renew policies with Mercantile. I have no doubt for instance that the overwhelming majority of the 263,000 Mercantile policies which are affected by the sudden cessation of Mercantile business on May 18 were bought or renewed in the last 12 months and there is at a single policy left which had been bought before the Bank Negara takeover in April 1991.
• Thirdly, Bank Negara had been negligent in taking over three years to decide that Mercantile should cease all business and suspend all payments.
There is a fourth reason why Bank Negara must be morally and legally bound to fully honour the 263,000 Mercantile insurance policies.
This is because only six weeks before it made the sudden announcement on May 17directing Mercantile Insurance to cease all business and suspend all payments to claimants and creditors, it had given a public assurance to insurance buyers and the 263,000 Mercantile insurance policyholders in particular that the solvency problem of Mercantile Insurance was being resolved.
This public assurance of the Bank Negara was given in the 1993 Report of the Director-General of Insurance (who is the Bank Negara Governor) which was made public in March this year.
In the foreword to the 1993, insurance Report, dated March l, 1994, the then Bank Negara Governor, Tan Sri Jaffar Hussein in his capacity as Director-General of Insurance, made the following statement on ‘Solvency’ of insurance companies:
“Solvency. The solvency margin of the insurers improved in 1992 as a result of their enhanced capital bases, as well as better operating results. A total of eight insurers failed to meet the minimum solvency margin requirement with an aggre¬gate shortfall of RM691.8 million, compared with 11 insurers with a shortfall of RM911.7 million in 1991. Of the eight insurers, one had rectified fully its deficiency, while another partly recti¬fied its deficiency by injecting additional capital. One composite insurer disposed of its life business and utilised the proceeds to reduce the deficiency in its general business. The remaining five were at various stages of resolving their solvency problems.”
The message from the Bank Negara as on March 1, 1994 was very clear – that even Mercantile Insurance was resolving its ‘solvency problem’ and the insurance public should have no hesitation in continuing to buy or renew policies with Mercantile Insurance.
Bank Negara would be acting most irresponsibly if six weeks after giving such a satisfactory certificate of health to the insurance companies, including Mercantile Insurance Sdn. Bhd., it should deprive the 263,000 Mercantile policyholders of the full insurance protection they had bought in its proposal to wind up the company.
When Bank Negara first took over Mercantile Insurance in March 1991, there were reports that Bank Negara suspended four senior executives of Mercantile Insurance from their duties pending investigations on charges of mismanagement and claims of irregularities.
As there were no subsequent news in the last three years of anyone from Mercantile Insurance Sdn. Bhd. being charged in court, the public had been encouraged to believe that the problem at Mercantile Insurance Sdn. Bhd. was not that bad, and was definitely manageable and was being restored to a healthy financial stage by Bank Negara after the takeover.
Bank Negara owes the people and country a full explanation as to its stewardship of the Mercantile Insurance Sdn. Bhd. as it had clearly failed to act in the best interests of the policyholders in this case.
Why should the 263,000 innocent policyholders and some claimants be made to bear the brunt of the RM383.4 million deficiency of Mercantile Insurance Sdn. Bhd., when no been charged in court for criminal breach of trust or improprieties?
What has happened to the Bank. Negara investigations into the Bank Rakyat Merchant scandal?
This brings to mind the recent Bank Negara takeover of Rakyat Merchant Bankers Bhd. on March 3, because of 110 ficti¬tious accounts carrying a total loan approval of RM330 million and where these ‘phantom accounts’ eventually ended up in the pockets of two persons only.
There has been no further action or development in this RM330 million Rakyat Merchant Bankers Bhd. phanton loans scandal.
Is this going to be another case, like the RMM383.4 million Mercantile Insurance Sdn. Bhd. solvency deficiency scandal where there are no ‘criminals’ but where the innocent public – like the 263,000 policyholders – who will have to pay the price for such corporate crimes and irresponsibility?