International Casualty

1
International Casualty Surety Company
Limitedand
Chris Browne
2
The makings of an international insurer

• In 1977, Mr and Mrs Miller of Titirangi,
  Auckland, New Zealand incorporated Valley Road
  Service Station (1977) Limited, renamed Abbotsway
  Energy Centre Limited in 1981.
• In July 1992, the company was sold to Mr Peter
  Harris, with 1 of 85,000 shares owned by the
  nominee company of a solicitor, Anthony Thomas.
  Both Mr Thomas and Harris became directors.
• In August 1992, Abbotsway Energy Centre Limited
  was transferred to Mssrs Vik Jain and Jesse
  Maynard, who also became directors. The companys
  share capital was increased to 10 million,
  provided by assets of First Assurance Casualty
  Co. Limited, a company registered in Oklahoma.
  One share remained with Mr Thomass nominee
  company.
• Abbotsway Energy Centre Limited changed its name
  to International Casualty Surety Company
  Limited.

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The makings of an international insurer

• In 1992 International Casualty Surety Limited
  lodged NZ 500,000 with the Public Trustee (at
  the time equivalent to around US260,000).
• In November 1992, Mr Vik Jain of ICS , met with
  Ministry of Economic Development officials, and
  advised that ICS intended to carry on business
  in New Zealand as an insurer, and for that reason
  had paid the deposit. The New Zealand directors,
  Mssrs Thomas and Harris, resigned.
• Within 5 months, ICS had advised the New Zealand
  media that it would not be carrying on business
  in New Zealand.

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New Zealands regulatory framework

• New Zealand Insurance Companies do not require a
  licence as such.
• Insurance companies are primarily governed by 2
  statutes.

• Insurance Companies Deposits Act 1953
• Payment of deposits to the Public Trustee by
  insurers who carry on insurance business in NZ.
• On liquidation, payment to New Zealand policy
  holders out of the deposit.
• Provision of annual statements in relation to
  business in New Zealand.
• Reference to deposit on cover notes

• Insurance Companies (Ratings and Inspections) Act
  1994
• The requirement of all New Zealand insurance
  companies carrying on business in New Zealand to
  be rated.
• The powers of the Registrar of Companies to
  investigate insurance companies.

5
ICS compliance with NZ regulation

• ICS paid a deposit of 500,000, held by the
  Public Trustee.

The Public Trust Office 1 October
1992 INSURANCE COMPANIES DEPOSITS ACT
1954 INTERNATIONAL CAUSUALTY SURETY CO LTD I
confirm that the Public Trustee has deposited
into his name the following Government stock to
meet the requirements of the above Act Amount -
530,000 Rate 8 Maturing 15 Nov 1995

• ICS did not file any financial statements in
  the prescribed form. The Department of Commerce
  accepted that if ICS transacted no New Zealand
  insurance business, it was not required to file a
  financial statement.

?
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From NZ to USA
Arizona
California
Colorado
Connecticut
Florida
Georgia
Hawaii
Kansas
Michigan
Nevada
New Jersey
North Carolina
Ohio
Oklahoma
Texas
Virginia
Washington
Wisconsin
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And the world
Australia
Belgium
Brazil
Canada
Columbia
Ecuador
Greece
Guatemala
Indonesia
Mexico
Panama
Venezuela
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Appearances can be deceiving

• New Zealand company, apparently incorporated in
  1977.
• Complied with New Zealand insurance regulations.
• Lodged the bond required to trade as an insurer
  in New Zealand.
• Did not trade in New Zealand, so not required to
  file financial statements
• Held no assets in New Zealand, other than the
  500,000 bond.
• Management of the company finances completed by
  Frontier Administrators Inc, or Premier
  Administrators Inc, both of Arizona.

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Appearances can be deceiving Bank accounts

• British Virgin Islands

London
Arizona Caribbean Mexico Michigan New Zealand
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Appearances can be deceiving Investments
Government bonds Dominion of Melchizedek Letter
of credit Union De Credito Metropolitana,
Mexico Capital Notes Blue Horizon Inc Colonial
Financial Holdings, Inc Shares Phoenix
Resources Technologies, Wasatch Pharmaceutical
Inc. Lifeguard Financial Systems Limited
NZ10.9 million
NZ9.8 million
11
Appearances can be deceivingGhost shareholder
April, 1993
June, 1993
August, 1993
shareholders
June, 1993
October, 1997
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Insuring the world
Samuel B Love, President of ICS, from a letter
dated 16 March 1995
We have developed some very good relationships,
both in Europe and in Latin America
relationships that should double our production
over the previous year. The increase will not
come from carrying larger limits, but from
additional markets. We see no reason to depart
from our conservative management philosophy by
taking larger risks in order to increase our
premium. Rather, it makes more sense to us to
expand the market, thereby spreading the risk
even further. I am happy to report that our
reinsurer did not have a single claim from our
business in 1994, and this is as it should be.
emphasis added
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Insuring the world
Enrique Alvarez-Malo, American Mexican Insurance
Services Inc, in an email dated 15 June 2001
In the Scotsdale office, the president of the
company Mr. Sam Love, had an attorney who handled
all claims, his name is Mr. Marvin Lewis, he
handled claims until he got sick, and Mr. Jim
Bower started handling the claims. But we
started having problems with the claims because
Mr. Bowers tought sic that if he hid the claims
in a drawer they would go away gradually, but
they didnt and our insureds as well as the
claimants started complaining about the bad
serviceemphasis added
14
Stripping the assets
In February 2000, ICS was sold to Axis Financial
Services Limited, controlled by a sole
shareholder/director, Irvin Boncamper of St
Kitts, West Indies. Between February 2000, and
August 2000, all assets of ICS were transferred
to an account with the Royal Bank of Canada, in
St Kitts in the West Indies. Liquidator of
ICS Letter to creditors dated 7 February 2003
The sale of ICS by Love to Axis/Boncamper in
February 2000 would appear to have been actioned
solely to remove and dissipate the assets of ICS
to the prejudice and disadvantage of its
creditors. Our piecemeal information indicates
the assets dissipated include monies due from
brokers of in excess of US1 million, cash of
US200,000-US300,000 and proceeds of
approximately 400,000 from a Mexico office We
are further aware that Axis/Boncamper, on 15th
August 2000, revoked the purchase contract and
the assets have not been returned.
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Untangling the mess

• First Assurance filed for bankruptcy in Oklahoma
  City in 1993.
• In mid 1995, victims of the LA riots found their
  property insurance worthless, and sued ICS for
  claims which rose to US60 million.
• A class action (on behalf of 5,908
  policyholders) was filed under the Racketeer
  Influenced and Corrupt Organisations Act against
  both ICS and Samuel B Love, said to have
  collected and diverted to their own use more than
  US19 million in premiums.
• ICS settled out of Court and contributed
  US150,000 to a US5 million settlement.
• Mr Love was found guilty of contempt and
  bankruptcy fraud charges in 2000, and sentenced
  to 5 years imprisonment at the Federal Training
  Centre, Okalahoma City.

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Untangling the mess

• We were instructed by two Mexican companies to
  take action against ICS in respect of claims
  notified, and ignored, by ICS. Summary judgment
  proceedings were issued in August 2000.
• On 6 October 2000, ICS was placed into
  liquidation. The liquidator was faced with a
  difficult task.
• Company records were largely destroyed or
  unavailable.
• Management of ICS was conducted entirely out of
  NZ.
• Former directors were either incarcerated or
  unavailable.

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Untangling the mess
Investments?
Government bonds Dominion of Melchizedek Letter
of credit Union De Credito Metropolitana,
Mexico Capital Notes Blue Horizon Inc Colonial
Financial Holdings, Inc ZeoSynd Corp. Shares
Phoenix Resources Technologies, Wasatch
Pharmaceutical Inc.
Fictional country Authorization revoked in
October 1997. Worthless Worthless Sold at a
loss (Phoenix shared office with Sam Love)

NZ10.9 million
0
NZ9.8 million
0
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Untangling the mess
Emilio Sanchez, Partner of KMPG Mexico Emails
dated 10 11 April 2001
10 April 2001 we have reason to believe that
the said credit Union may be in trouble. Please
take this information as preliminary information
subject to verificationwe will try to ascertain
the status of this Union, and will revert to you
as soon as possible 11 April 2001 The
Official Gazette (Diario Oficial de la
Federación) of the Federal Government of Mexico
shows that there is a Resolution dated October
20, 1997, from the National Banking Securities
Commission, buy means of which, this Government
Body revokes and cancels the authorisation
previously granted to the Unión de Crédito
Metropolitana, S.A DE C.V to operate as a Credit
Union under the Laws of Mexico.

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Untangling the mess

• The liquidators final report showed
• Claims of NZ34,936,977.85
• Assets of NZ 618,250 (500,000 of which was
  the bond).
• Liquidator, investigator and legal fees totalled
  439,225. Unsecured creditors received 1.436
  cents to the dollar.
• Liquidator of ICS
• Letter to creditors
• dated 7 February 2003

The 31 December 1999 audited financial
statements show investments with a value of
NZ30.6 million prior to a NZ9.4 million reserve
for loss on realisation. We have been unable to
obtain any tangible evidence that the investments
and the underlying companies exist
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Lessons learnt

• The case examples of ICS, and its predecessor
  First Assurance, highlight
• Assumptions made in a regulated industry.
• The inherent risk in relying on assumptions when
  dealing with other industry participants.
• Neither regulators nor industry can be
  complacent in dealing with trans-national
  participants that are primarily subject to
  regulations in another jurisdiction.