News Non-Life 28 Feb 2018

New Zealand:Credit surety insurer placed into interim liquidation

28 Feb 2018

The High Court has placed CBL Insurance into interim liquidation, following an application by the central bank, Reserve Bank of New Zealand (RBNZ). The order was issued last Friday.

CBL Insurance describes itself as the largest and oldest provider of credit surety and financial risk in New Zealand. It focused on financial risk products, builders risks, sureties, guarantees and contractor bonds. It is a subsidiary of CBL Corporation (CCL) which is a specialist insurer and reinsurer focused on credit and financial risk. It has eight offices spread across 25 countries and employs almost 550 people.

CCL, which is listed in New Zealand and Australia, said in a stock exchange filing on 5 February 2018 that it expected to make a future claims reserve strengthening adjustment of around NZ$100 million (US$73 million) to the reserves of CBL Insurance in respect of its long-tail French construction insurance business, and another one-off write-off of receivables of approximately NZ$44 million arising from broker/insurer/reinsurer reconciliations and related differences arising from a detailed post-acquisition examination of Securities and Financial Solutions Europe SA (SFS) throughout 2017. On 13 February, CCL said it would exit its capital-intensive French construction insurance business as it shifts focus to more profitable core businesses.

Last Friday, CCL placed itself in voluntary administration in a bid "to execute strategies that preserve the CBL group's various operating units", administrator Brendon Gibson from KordaMentha said. On the same day, CBL Insurance was  interim liquidation by the High Court in Auckland.

Meanwhile, A.M. Best had been closely monitoring the activity surrounding CBL Insurance. since taking an earlier rating action on 6 February. The ratings of CCL and CBL had been downgraded and placed under review earlier this month with negative implications following CCL’s announcement that CBL’s insurance reserves for its long claim-tail French construction insurance business needed to be strengthened, and due to the resulting capital strain and pending the completion of an intended capital raise within weeks. Since then, the 23 February court order has seen A.M. Best downgrade CBL Insurance’s financial strength rating from B++ (Good) to E (Under Regulation Supervision). It also removed the Issuer Credit Rating of CCL.

The RBNZ has been reviewing CCL's reserving since at least the middle of last year and has required it to set its minimum solvency at 170%, and consult on any non-business as usual transactions worth more than NZ$5 million.

The Financial Markets Authority has also raised concerns around “the completeness and veracity” of information CCL has released to the market.

The Central Bank of Ireland on 20 February instructed another subsidiary of CCL, CBL Insurance Europe, to cease writing business.

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