Freedom Insurance shares halved on liquidity warning

Posted on: December 6, 2018, by :

Freedom CEO Craig Orton, who has flagged plans to leave the company next month.

Investors have wiped out almost half embattled Freedom Insurance Group’s market capitalisation after it warned it may face a liquidity shortfall and admitted it was under investigation by the corporate watchdog for misconduct highlighted by the banking royal commission.

The company said it would have to repay customers up to $4 million in the December half and would not restart direct sales of life insurance products, which it suspended in October amid the fallout from the commission. Its shares plunged 47.3 per cent to 2.9¢, taking its loss for the year to 94 per cent.

Sources said the Australian Securities and Investments Commission (ASIC) would be looking at Freedom’s alleged mis-selling of life insurance products to vulnerable customers, issues with some of its products and potentially breaches of laws that prohibit insurers from cold calling potential customers.

ASIC had been looking at Freedom before the royal commission as part of its sector-wide review of life insurance sold directly to consumers, which uncovered a wide range of poor practices in the sector.

Freedom, which has lost two chief executives, a chairman and a chief financial officer and halved its  staff numbers since October, on Thursday said a strategic review undertaken with Deloitte had found there was no “immediate commercially viable option” to restart sales of its life products.

As part of the review, it identified that on a “business-as-usual” basis, it might face a liquidity shortfall in calendar 2019 due to the timing of payments of commission clawbacks coupled with a lack of commissions from new business sales.

It was considering “alternative options” to address the potential shortfall but “remains satisfied that the company is solvent, based on the funding, efficiency and business restructuring options available”.

Freedom’s new chairman, Pauline Vamos, said the company was viable because it continued to earn income from insurers for continuing to administer the policies of its “substantial” number of customers.

The board could decide to restart sales of life products in future but “today, it is about ensuring that we finalise discussions with ASIC”, said Ms Vamos, who used to work for ASIC.

She said all options were on the table and when asked if one of the options included a sale of the business to another insurer, she did not rule it out.

“As a board, our obligation is to look at all strategic options and we take those obligations seriously,” Ms Vamos said.

The group previously forecast a loss of up to $8 million for the six months to December 31, including restructuring costs.

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