The Council of Romania’s Financial Supervisory Authority (ASF) on September 17 withdrew the operating license of City Insurance, the country’s biggest insurer that owes its position to the massive portfolio of mandatory car insurances.  The ASF will now initiate bankruptcy procedures against City.

The Romanian insurer, set up and controlled until June by Romanian businessman Dan Odobescu, the brother-in-law of former prime minister Adrian Nastase, failed to observe the recovery strategies required by the ASF in June.

Under the strategies, the insurer was supposed to increase its capital by €150mn before September 6.

A Swiss-registered investment vehicle, I3CP, promised to buy new shares issued by the insurer but it failed to come up with the money by the deadline.

The ASF announced that Romania’s biggest insurer failed to demonstrate it is capable of increasing its own resources such as to meet the minimum and solvency capital requirements.

The authority also concluded that the company is already insolvent and its solvency keeps deteriorating.

Under existing regulations, the claims generated by the insurance policies issued by City will be processed from now on by the Insurance Guarantee Fund (FGA) but the payments will be disbursed only after City’s bankruptcy.

The government is reportedly drafting an emergency decree that would allow the FGA to disburse the money within 60 days after the insurer loses its operating license.

According to sources familiar with the market, City’s portfolio will generate total claims in the amount of around €100mn.

City Insurance is 85% controlled, through Swiss-registered Vivendi International, by Odobescu.

ASF officials reported massive frauds at City Insurance, particularly after it took over the management of the company in June. Among the frauds spotted, City Insurance’s main owner reportedly siphoned off €18mn since 2017, according to ASF director Valentin Ionescu, who has investigated the case.

City Insurance has paid €18mn to its main shareholder, Vivendi International (Odobescu’s investment vehicle), for fictitious loans since 2017, disclosed Ionescu.

Specifically, City Insurance declared that it borrowed €50mn, €25mn, and another €50mn this year from Vivendi — but the accounts in the Swiss banks indicated by the insurance company do not exist and Vivendi extended no loan to City while cashing interest rates of 10-12%.

Ionescu was appointed at ASF earlier this year, specifically to investigate the situation on the insurance market.

Nicu Marcu, the current ASF president who was appointed in 2020, has launched extensive controls on insurance companies, including overseas operations. Before Marcu, in 2017-2020, the president of ASF was Leonardo Badea, the current vice-governor of the National Bank of Romania (BNR).

In an interview given to Radio Free Europe, Ionescu disclosed other irregularities at City Insurance such as under-stating the cost generated by the green cards issued, which had the effect of understating the capital requirements.