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UPDATE 1-Australia's Freedom Insurance may face liquidity woes on charges

Published 06/12/2018, 01:43 pm
Updated 06/12/2018, 02:00 pm
© Reuters.  UPDATE 1-Australia's Freedom Insurance may face liquidity woes on charges

© Reuters. UPDATE 1-Australia's Freedom Insurance may face liquidity woes on charges

(Adds share movement, background, details from statement)

Dec 6 (Reuters) - Australia's Freedom Insurance Group Ltd FIG.AX on Thursday said it may face a liquidity shortfall in calendar year 2019, as it will pay back customers up to $2.9 million following the securities' watchdog recommendations coupled with no new business commissions, sending its stock to a fresh low.

The beleaguered firm, whose shares have fallen more than 88 percent this year as of last close, stopped new business sales of all direct insurance products in October following damaging revelations at the Royal Commission. September, Freedom said it would to cease outbound sales of term life and trauma insurance as well as accidental death and injury insurance, after the inquiry revealed that 85 percent of its customers who called to cancel policies ended up keeping the same or an amended policy.

The New South Wales-based insurer expects to make a provision between A$3 million and A$4 million ($2.17 million and $2.89 million) in its financial accounts for the period ending Dec. 31, 2018 for customer remediation.

The timing of payments of commission clawbacks coupled with lack of commissions from new business sales may lead to liquidity concerns, Freedom said in a statement https://www.asx.com.au/asxpdf/20181206/pdf/44106fn2sqkq97.pdf,

The company's board completed a strategic review to examine its business structure according to the Australian Securities and Investments Commission's review of the insurance industry.

However, it added that the "board remains satisfied that the company is solvent, based on the funding, efficiency and business restructuring options available."

Freedom was hit by the revelations of widespread misconduct, including selling an insurance policy to a man with Down Syndrome who did not understand what he was doing, raising questions about the company's direct sales method. The firm then refused to accept a request by the man's father to immediately cancel the policy.

Battered by the findings, the insurer said in October it would slash its headcount by over 60 percent to 90 employees, in line with reduced business activities.

Shares of Freedom were trading 49.1 percent lower, in a weaker overall market .AORD .

($1 = 1.3827 Australian dollars)

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