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| The logo of China Taiping Insurance |
China Taiping Insurance is facing a legal battle with Shinhan Bank and Arumdree Asset Management over its refusal to pay a 24 billion won ($20 million) insurance claim submitted by the latter, according to industry officials, Monday.
The Chinese insurer was supposed to fully cover Arumdree for possible losses on two private equity funds (PEFs) worth 24 billion won and 23 billion won, respectively. These funds had been invested in accounts receivable that Singaporean commodity trader Agritrade International was supposed to receive from its buyers.
Arumdree was in charge of the management of the funds, while Shinhan "sold" contracts that attracted 90 wealthy customers including 10 corporations, after promising them a 3.7 percent annual return. Each customer invested at least 300 million won in the funds.
The 24 billion won fund matured in May, but no redemption was given as Agritrade had declared a moratorium in February. The moratorium came after many of the company's buyers raised questions over the authenticity of the accounts receivable.
Shinhan and Arumdree had guaranteed that their customers would get their money back through an insurance claim. The Korean firms had expected to get the money from Taiping in August, given that insurance companies generally pay their policyholders 180 days after a claim is made.
Taiping, however, refused to pay out on the policy, attributing Arumdree's losses to alleged fraud by Agritrade. The insurer said it was difficult to check whether Agritrade had made actual transactions with its buyers. If trade finance funds are embroiled in fraud or contract disputes, insurers do not have to cover their policyholders for losses.
Shinhan refuted this, saying it has yet to be ascertained whether or not Agritrade was directly involved in fraud. According to the bank, Arumdree plans to take legal action against Taiping, Agritrade and its buyers, after hiring a local law firm in Singapore. Some sources said the asset management firm may attempt arbitration which takes less time and money.
Although Shinhan will not be a litigant, the bank said Arumdree will share the specifics of the progress of the envisioned lawsuit to allow it to check on whether the asset management firm is coping with the matter properly.
"As the seller of the fund, we are doing our best to retrieve the money," a Shinhan Bank official said.
The 23 billion won fund will mature in December. Taiping has already rejected full coverage on its loss for the same reason. If the Chinese insurer wins the legal battle with the Korean firms, investors here could collectively lose 47 billion won.
