General Prosecutor's Office: Euroins bankruptcy, caused by fraudulent management, embezzlement and money laundering

The bankruptcy scandal of the insurance company Euroins Romania returned to the spotlight yesterday, after the Public Ministry announced that prosecutors from the Prosecutor's Office attached to the High Court of Cassation and Justice are conducting searches and investigations in a criminal file in which the main charges brought against those in the management of the company in question are embezzlement with particularly serious consequences, fraudulent management with particularly serious consequences, money laundering and the presentation, in bad faith, of untrue data on the economic or legal conditions of the company or the concealment, in bad faith, in whole or in part, of such data.

The action carried out by the Prosecutor General's Office in force in 12 locations in Bucharest and 2 locations in Târgu Mureş took place almost 1000 days after the Financial Supervisory Authority withdrew, on March 17, 2023, the operating authorization of the company Euroins Romania, after ascertaining the company's insolvency, which led to the court being notified to open bankruptcy proceedings.

We recall that at that time, the ASF was led by Nicu Marcu, who, during his term as President of the Authority, nonchalantly managed two bankruptcies that seriously shook the insurance market, especially the RCA market, in our country: City Insurance, in 2021 and Euroins Romania, in 2023.

The attitude of Nicu Marcu and his subordinates - Cristian Roşu, ASF Vice President for the Insurance Market, and Valentin Ionescu - Head of the Strategy and Financial Stability Department within the ASF, after the bankruptcy of City Insurance in September 2021, was rather conciliatory towards those at Euroins Romania for two years, a period during which the Authority refrained from applying fines for the non-compliances found or from notifying the criminal investigation bodies.

This attitude also emerged following the bankruptcy of Euroins Romania, before the parliamentary committee that heard the entire ASF management at that time. Before the parliamentary committee, Nicu Marcu stated: "After the City bankruptcy, two large companies took over market shares because they were sure that we were doing the job and that we were trustworthy. The cause of the bankruptcy is that these companies (editor's note - City Insurance and Euroins Romania) committed fraud. Our usefulness is that we detected them. They were sitting with files under the table, unregistered and with court files that were not reported. We found hidden files, computer systems that they were making non-functional. We filed criminal complaints because we were unable to access the computer systems. If we do not have real-time information, through reports, nothing good will happen in the market.”

In other words, Nicu Marcu needed a year and a half after the bankruptcy of City Insurance to withdraw the operating authorization of Euroins Romania, although he had indications that the company was defrauding the insurance market in our country, and moreover, according to his words, he had filed criminal complaints with the Prosecutor's Office because the company's representatives did not allow ASF employees to check the computer systems.

Taking into account Nicu Marcu's statements from March 20, 2023 and referring to the searches carried out yesterday by the prosecutors of the General Prosecutor's Office, a question arises: what did the magistrates who had the criminal complaints filed by ASF against Euroins Romania, as well as those who filed their own complaints after the company went bankrupt, do during all this time?

The practice of judicial investigations is quite clear: searches to gather evidence are carried out promptly after an event such as the bankruptcies of City Insurance and Euroins Romania, and not over 1000 days after them.

It seems that, just like at the ASF led by Nicu Marcu, the Euroins investigation at the Prosecutor General's Office dragged on. Not a year and a half, but two years and eight months. In the meantime, Nicu Marcu was rewarded with the position of head of ORNISS. I wonder what distinctions will the prosecutors who took a thousand days to order searches receive?

• What prosecutors say about the Euroins Romania embezzlement case

According to the press release issued yesterday by the Public Ministry, the searches took place at the homes of 10 individuals who worked at the senior/executive management level of the insurance company, Euroins Romania, as well as at the headquarters of some legal entities currently controlled by the company's Bulgarian employers, i.e. the Bulgarian shareholders of Euroins SA.

The Prosecutor General's Office specifies that the investigation targets the activity carried out between 2017 and 2023, a period in which, according to prosecutors, the decision-making factors at the level of the Euroins Romania company's employers, as administrative and financial administrators, acting with the support of senior/executive management and affiliated entities, allegedly created, designed, applied and coordinated various mechanisms to defraud the company's financial resources, acting in collusion with the declared purpose of the investigation: decapitalizing the company by drastically reducing its cash and assets.

The first level of the mechanism described by the prosecutors concerns the reduction, undervaluation and abusive non-payment of obligations to policyholders. The resources collected from clients by Euroins Romania were in fact redirected to other entities under the control of the Bulgarian shareholders, simultaneously with the abusive non-payment of compensation to policyholders, in the context of a "systematic policy of not establishing technical reserves at an adequate level" and of submitting "false reports to the Financial Supervisory Authority so that it would appear unrealistic that the company was complying with its contractual obligations".

The systematic policy of not establishing adequate technical reserves was grafted on the way in which the indirect majority shareholders and the executive management of Euroins designed and coordinated the insurance activity on the RCA line. The prosecutors show that the structure of the types of insurance brokered by Euroins was significantly different from the market trend: in the company's portfolio there were premiums written for motor third party liability (RCA) in a weight of over 95% of the portfolio, while the rest of the insurance companies recorded an average increase in RCA insurance of no more than 50%. Through the policies promoted, supported and implemented by the management of Euroins, the combined claim rate for class 10 (RCA) had a high weight and exceeded the threshold of 100%, which made the company pay more for claims and expenses than it collected from premiums. This structure led to a structural imbalance of the activity and persistent technical losses, with a direct impact on solvency and insolvency risk.

The Prosecutor General's Office claims that the decision-makers at the company's management level, with a major decision-making role, did not take measures to remedy the company's policies in order to prevent or reduce losses, but continued to implement an underwriting policy that generated increasingly large losses, creating a state of affairs that allowed the continuation of the sale of RCA policies, even though Euroins no longer had the financial capacity to cover all claims for compensation made under the insurance contracts.

In the statement, the Public Ministry states: "From the corroboration of all existing documentary material, it results that the main reason why the decision-makers at the ER SA management level (with a major decision-making role) ordered the continuation of the activity under these conditions (the scheme through which they sold RCA policies at low prices, in order to collect as much money as possible, without any intention of ensuring the payment of compensation) was to dispose of the company's assets at their discretion by outsourcing its financial resources to external entities under their control."

• 5800 claim files rejected by Euroins Romania, without any analysis of them

The prosecutors also show that the reduction of obligations towards the insured was achieved through a whole chain of practices: closing claim files with unfounded rejection of compensation, failure to make payments to the insured in the event of losing litigation resulting in forced execution decisions, failure to report the real situation of claim files and litigation to the ASF, as well as failure to record them in their own records, failure to inventory or inadequate inventory of litigation regarding claim files, which allowed the transmission of unrealistic reports. According to prosecutors, an inspection carried out by ASF for the period 2020-2021 revealed that the former director of the Claims Department within Euroins Romania unfoundedly rejected over 5,800 claim files, with obligations of over 60 million lei, without a thorough analysis of each file. ASF also found that there were unreported litigation for 36,707 files, of which 20,268 were foreclosures and 16,439 were for claims and requests for compensation. In the causal chain described by the investigators, the systematic policy of reducing and undervaluing the claim reserve determined the non-payment of claims to the beneficiaries of insurance contracts; the failure to fulfill the compensation obligations determined the filing of court actions; the perpetuation of the policy of not establishing the approved damage reserve for pending cases resulted in the non-payment of compensation established by final court decisions; failure to pay these compensations on time generated penalties of 0.2% per day of delay and the initiation of enforcement procedures forced execution, which entailed additional enforcement expenses. The conduct of the forced execution procedures led to a significant decrease in the company's assets through the accumulation of penalties and enforcement expenses in addition to the main damages to be paid. Thus, the estimated amounts in the category of penalties resulting from the inventory of the damage files pending in the courts at the date of the bankruptcy opening amounted to over 301 million lei, and the amounts paid in the category of enforcement expenses were over 40 million lei. In this context, the continuation of the activity aimed mainly at obtaining consistent liquidity in the short term, in the interest of the majority shareholder: only the income from gross premiums written in the period 2020-2023 was 6.9 billion lei, but the volume of damages and related costs burdened the company additionally.

• General Prosecutor's Office: Bulgarian shareholders of Euroins Romania made decisions with the aim of devaluing the company

A second level of the mechanism described by the prosecutors concerns the reinsurance program, transformed, according to the accusations, from a protection instrument into an instrument for embezzlement of assets. In the period 2020-2023, the activity of Euroins SA was the subject of eight control actions by the ASF, and on the occasion of the last seven it was found that the company did not have sufficient capital to cover the legal requirements for operation. ASF issued decisions imposing measures to remedy the deficiencies, granting deadlines for restoring the indicators. According to the 2023 Final Control Report of the ASF, a capital deficit of 2.19 billion lei was identified necessary to ensure solvency. Prosecutors say that, following the submission of the report, which for the management of Euroins Romania foreshadowed the imminent withdrawal of the operating authorization and the declaration of insolvency, the company's Bulgarian shareholders, with the support of their subordinates, allegedly implemented a mechanism through which they managed to outsource the financial resources that were still available to the insurance company. The purpose of the mechanism, according to the investigation, was to appropriate and secure the company's resources in the interest of the majority shareholder and to the direct detriment of the entity's policyholders and creditors. Prosecutors claim that the Bulgarian shareholders coordinated and implemented, in a very short period of time, a new reinsurance agreement with an affiliated company that they indirectly controlled, an agreement that constituted the justification for the transfer of financial assets from the assets of Euroins Romania to the affiliated company. The reason for accelerating the operation was the anticipation of insolvency and the loss of control over the financial resources of Euroins SA.

"The fraudulent intention to outsource the company's financial resources results without any doubt from the inclusion in the new reinsurance contract of an abusive contractual clause, which provided for the full retention by the reinsurer of the reinsurance premiums and their non-reimbursement to the company, in relation to the foreseeable actions that the competent Romanian authority was going to take," the prosecutors show, emphasizing that the reinsurance contractual treaty implied, unusually in practice, the full advance payment of the insurance premium and regulated, in bad faith, an abusive clause regarding the termination mechanism.

The third level of the criminal scheme described by the prosecutors consists of concluding financial operations regulated in bad faith, through contractual clauses that aimed at the transfer of assets or the non-recovery of significant amounts representing the company's working capital. Prosecutors show that between December 2020 and 2023, although the insurance company was clearly unable to pay all its obligations, in the context of deteriorating liquidity and solvency indicators, the company's accounting records contained cumulative amounts of tens of millions of lei mobilized for granting loans, the repayment of which was no longer requested, or for the establishment of provisions for the price of uncollected assignments, respectively the non-recovery of receivables for amounts paid in advance for unperformed contractual services. All these operations were carried out with affiliated entities under the direct or indirect control of the same associates. Through these operations, serious damage was generated to the company Euroins SA with a total amount of over 75,000,000 lei, for the purpose of acquiring patrimonial benefits by affiliated companies.

• Media sources: Prosecutor's Office searches triggered by the appearance of "Euroins clones" on Romanian territory

Meanwhile, the media in our country revealed what prosecutors should have done a long time ago. A journalistic investigation started in early 2023, carried out by Libertatea, documented how Euroins, with capital from Bulgaria, had come to account 31% of the RCA market in Romania, with two million insured, while, internally, a system operated through which employees did not report damage files to the ASF. The number of lawsuits filed by uncompensated insureds against Euroins was 100,000 in four years, an unprecedented figure in the history of insurance in Romania. These investigations showed how, after "some sent the money to the Caribbean and escaped", referring to the City Insurance case, "they did the same scheme, with even less effort: they took it to Sofia".

In an article published yesterday by HotNews it is shown that the Financial Authority in Great Britain had identified a possible theft of documents from inside Eurohold Bulgaria, published in March 2023, showed that 1.58 billion lei were transferred to Sofia at that time, after the case had come to light and under the eyes of the ASF and the Romanian judiciary. The cited source states that it is about the money of companies and individuals in Romania, and this amount overlaps with the huge figures now circulated by prosecutors.

The market size of the Euroins bankruptcy continues today through what official sources, cited by G4Media, call the "Euroins clones". The Bulgarian insurance company Euroins would try, according to these sources, to re-enter the Romanian RCA market through three clone companies, all targeted by yesterday's searches carried out by the Prosecutor General's Office. These are the companies Phoenix MGA Services, BSS Insurance and Afes International. The cited source shows that, according to data published in the Official Gazette, Phoenix MGA Services SRL is owned by the company Euroins Insurance Group AD from Sofia, Bulgaria. BSS Insurance SRL from Târgu Mureş was founded in 2023 by Stamov Bozhidar and Simona-Eugenia Sala, and Afes International SRL is owned by Afes AG from Vaduz, Liechtenstein, with Desilava Krasteva, a German citizen born in Sofia, as its authorized representative.

"The 3 clone companies took over Euroins staff and are in the process of reauthorization to re-enter the RCA market in Romania. For now, they have started issuing general insurance policies,” official sources told G4Media. "The scheme is the same: they come with the lowest prices, quickly gather a large portfolio of clients, and when the claims start and they have to pay, they decapitalize the company and bankrupt it,” the same sources described the modus operandi of the Euroins clones.

In this context, the Euroins scandal is not just a story closed in criminal files and reports, but a current threat to the RCA market and the millions of drivers who are inevitably looking for cheap policies in a market already traumatized by the bankruptcies of Astra, Carpatica, City and Euroins.

Against this background, the searches carried out yesterday by the prosecutors of the General Prosecutor's Office come "in force" approximately 1,000 days after the money left our country, that is, quite late.

The political and international dimension of the Euroins scandal cannot be ignored. We recall that the International Center for Settlement of Investment Disputes (ICSID) in Washington rejected, exactly one month ago, the Government's request to terminate the arbitration proceedings initiated by Eurohold Bulgaria AD and Euroins Insurance Group AD, regarding the revocation of Euroins Romania's license and the declaration of its insolvency by the Romanian authorities. While, internationally, a legal battle for reputation and money is being fought, in Romania, the Prosecutor General's Office is going down to the field, in apartments, offices and company headquarters, to seize documents, servers and phones in a criminal investigation in which the crime of presenting false data in bad faith regarding the economic or legal conditions of the company stands alongside serious accusations of embezzlement, fraudulent management and money laundering.