RMCA REINSURANCE LTD (Reasons for suspension)

Mr Chia Shi Teck asked the Minister for Finance (a) what are the reasons behind the suspension of a trustee stock, RMCA Reinsurance Ltd; (b) who are its controlling shareholders; (c) how many investors have used their Central Provident Fund savings to purchase the shares; and (d) whether there is a chance for these investors to get back some of their money invested.

The Minister for Finance (Dr Richard Hu Tsu Tau): RMCA Reinsurance was admitted to the Stock Exchange Main Board in 1988 and became a CPF trustee stock in the same year. At that time, the company had a paid-up capital of $20 million and a three-year profit record which met the SES listing requirements fully.

On 11th September 1991, RMCA Reinsurance requested the Stock Exchange to suspend its shares from trading pending the announcement of its results for the financial year which ended on 30th June 1991. The company had incurred a loss of $56 million in that year due to heavy claims for damages caused by natural disasters, including the Hurricane Hugo in the United States and Storm Daria in Europe and losses in its Asian reinsurance business. Insurance companies worldwide suffered losses on their reinsurance contracts as a result of the unusual severity and frequency of natural disasters in recent years.

The $56 million loss reduced RMCA Reinsurance's equity to $9.6 million which was far short of the US$25 million considered adequate in the international reinsurance market. As RMCA Reinsurance was liable for claims on various reinsurance contracts still in force, the $9.6 million equity was insufficient to cover the potential claims. The company therefore requested the Stock Exchange to continue the suspension of trading of its shares while it re-assessed its future direction. Since then, the company has stopped writing new businesses and the suspension of its shares has remained till today.

The company lost another $82 million in FY 92 and $10 million in FY 93.

RMCA Reinsurance is 30% owned by the Insurance Corporation of Singapore (ICS) and 20% by Sime Darby Singapore Ltd. The remaining 50% of the shares are held by the public.

As at 11th September 1991, the date of suspension, 2,120 CPF members used their CPF savings to purchase a total of 5.423 million RMCA Reinsurance shares. The shares were traded at 90 cents per share just before its suspension.

After the suspension of RMCA Reinsurance shares from trading on 11th September 1991, the company ceased writing new business and conducted a review of its operations. The company concluded that it has no reasonable prospect of returning to profitability. On 1st October 1991, it appointed a run-off manager, RMCA Pte Ltd, to oversee an orderly run-off of the company's reinsurance liabilities.

Subsequently, the company engaged insolvency expert Messrs Cork Gully of Coopers & Lybrand to independently assess the company's position and find ways to resolve its financial predicament. On 20th September 1993, upon the advice of Messrs Cork Gully, the company's board proposed to its shareholders a Scheme of Arrangement under section 210 of the Companies Act. The Scheme sought to avert an involuntary liquidation of the company and provide an early commutation of all claims against the company. Although RMCA Reinsurance would have no assets left after the Scheme is implemented, it will preserve the company as a corporate entity with a listing status. The Scheme was approved by the shareholders at an Extraordinary General Meeting on 6th October 1993. It has also been approved by the company's creditors and is now subject to the approval of the court.

Although RMCA Reinsurance is not to be wound up, it will have no assets left after the Scheme is implemented. Its shareholders will not receive any distribution. Thus, their RMCA Reinsurance shares are likely to be worthless.

Mr Chia Shi Teck (Nominated Member): Sir, does that mean, even if ICS belongs to Temasek, as long as it is a normal course of business, and it has gone bust, whether it is a CPF trustee stock or non-trustee stock, the investing public has to accept the fact that there is a risk involved?

Dr Richard Hu Tsu Tau: The answer is yes. ICS itself is 49.8% owned by DBS Bank and not by the Government directly.

Mr Chia Shi Teck: That would also mean that for all future investments in Government companies, the Singapore investors have to open their eyes that the Government will not bail them out even if it is directly owned by Temasek.

Dr Richard Hu Tsu Tau: I think this must be the case.