Govt warns of bonding failure

With only a $25,000 investment to start up an insurance company and a $100,000 requirement to offer all lines of insurance, including labor bonds, how will CNMI bonding companies be able to handle their obligations in case of a mass repatriation of displaced workers?

Insurance Commissioner and Commerce Secretary Andrew Salas himself admits that the issue on bonding securities in the Commonwealth is “a joke,” saying that bonding companies would go bankrupt if they are asked to fulfill their bonding obligations at once.

“The bonding issue is a joke. Bonding companies are going to file for bankruptcy. Why do we need to even worry about bonding? It’s kind of late now,” he said during a recent Senate committee meeting tackling the current woes facing the garment industry.

Under the rules, bonding companies are required to shoulder any unpaid salary or repatriation costs for nonresident workers if their employers fail in their obligations.

The garment industry alone, which is undergoing a significant downsizing due to the lifting of worldwide trade quotas, consists of over 15,000 workers. At least three factories are now closed down.

Washington Rep. Pete A. Tenorio had earlier expressed fear that existing bonding companies may not be able to pay off all their financial obligations in case of a mass departure of factory owners.

“Given the current knowledge that I have about the status of bonding companies, I have serious doubts that these companies will have the capability to deal with these massive outlays of financial resources to take care of repatriation costs, let alone the guaranteed salaries for these workers,” he said.

Tenorio said that while there are regulations that govern the repatriation process, “it’s a different story when people are going broke, going bankrupt, the first thing they think about is to disappear from the face of the earth, so that they will not face the reality.”

There are currently 11 surety companies that offer labor bonds in the CNMI. These are Century Insurance Co., Equitable Insurance Co., Global Insurance Inc., Island Insurance Surety Corp., Marianas Insurance Co., Oceania Insurance Corp., Pacific Indemnity Insurance Co., Premier Insurance Co., Royal Crown Corp., Telebond Insurance Corp., and Traders Insurance Underwriters Inc.

In an interview, Royal Crown Insurance Corp. manager Jenny Ariar said the firm has never failed in its obligations for 13 years now.

“We’ve been here since 1992 and we’ve always met the requirements asked of us,” said Ariar.

For his part, Century Insurance president David Sablan said the company “is perfectly capable of standing behind every bond that we issue.”

“I can’t speak for other bonding companies but as far as we are concerned, we’ve got no problem because our capitalization is very stable,” said Sablan.

Sablan, who is also chair of the Marianas Visitors Authority board, said the issue about the probable insolvency of some bonding companies is a big concern.

“There is a probable insolvency and if that’s the case, the CNMI has a problem that needs to be corrected. The Insurance commissioner has to step in and sort those things out,” said Sablan.

He said the commissioner has to make sure that those bonded are, in fact, fully protected.

“If the commissioner and the government discovers that some of these bonding companies are extending bonding facilities beyond their financial capability, there’s a problem,” he said.

The Department of Commerce said that the existing insurance law, which was enacted in 1983, requires only $25,000 as capital to open an insurance company. Each additional line of insurance offered requires $15,000. If the company has $100,000, it can offer all lines of non-life insurance products.

Insurance administrator Jesse Palacios said the commission aims to push for amendments to the law to raise the $15,000 requirement to $100,000 per class or line of insurance.

He said, though, that any amendment may only apply to new insurance companies.

The commission requires insurance companies to submit audited financial statement every year.