Rainbow Insurance (RIC) had been providing insurance services in Mauritius. In 2004, the Financial Services Commission (FSC) carried out an inspection of RIC and finalised a report where it expressed major concerns over RIC's solvency.
Between 2005 and 2007, discussions took place between RIC and FSC in respect of the valuation of RIC's assets and the shortfall in RIC's investments in prescribed securities and its reserve funds. The FSC appointed Rambocus to investigate RIC's business. In his report Rambocus stated that RIC had a shortfall on its margin of solvency of Rs24.7 million as of December 31 2005.
In March 2007, the FSC issued directions to RIC under section 44(1)(b) of the Insurance Act (Act) informing RIC that it was prohibited from issuing or renewing any insurance policy and from using any money of the life fund for any other purposes than for the long term insurance business. RIC appealed to the Minister of Finance to review the decision of the FSC.
On September 21 2007, the Minister informed the FSC that he supported its proposal to suspend the registration of RIC. Subsequently, the FSC informed RIC that it was suspending with immediate effect its registration as an insurer.
RIC applied to the Supreme Court of Mauritius for judicial review but the application was dismissed. In 2012, RIC was granted leave by the Supreme Court to appeal to the Judicial Committee of the Privy Council (JCPC).
The JCPC held that the FSC did not act illegally and that there was no abuse of power, as the FSC had reasons to believe that RIC was in breach of the Act at the time it issued directions in March 2007; the more so that RIC never disputed that it was in breach of the Act. JCPC further held that RIC did not have a legitimate expectation as the FSC gave RIC ample notice of its shortfall on its margin of solvency and had given RIC enough time to propose and implement an acceptable scheme, which RIC failed to do. JCPC further held that RIC can have been in no doubt that the FSC's refusal to lift the prohibition was based not only on insolvency but on other breaches of the Act and of sound insurance principles.
Mushtaq Namdarkhan and Yashfir Beeharry