New Zealand – CBL Insurance goes into liquidation
New Zealand’s prudential supervisor, the Reserve Bank of New Zealand, in February 2018 placed CBL Insurance under “interim liquidation”.
CBL is a P/C insurer specializing in credit surety and financial risk, such as builders risks, sureties, guarantees and contractor bonds. It operates worldwide and in particular in Europe and Scandinavia through an Irish subsidiary, CBL Insurance Europe Designated Activity Company (DAC). It does not underwrite employee benefits or workers’ compensation; HR managers with operations in New Zealand need not to be concerned by CBL’s demise.
Prior to the liquidation, CBL Insurance had enjoyed a “Secure” financial strength rating of B++ (Good) with negative outlook from AM Best. Its last published solvency ratio stood at a decent 132% as of June 30, 2017.
Apparently, prudential regulators in New Zealand and in Europe questioned the adequacy of reserves for its French construction insurance division. CBL is opposing an order from Irish insurance regulator, the Central Bank of Ireland, instructing it to stop writing new business immediately, to write to all appointed insurance brokers and distribution partners to inform them of the direction and to inform policyholders.
Reserves for French construction insurance “garantie décennale” products (ten-year warranty insurance) are notoriously hard to determine as a substantial portion of claims are made near or soon after the end of the ten-year warranty period. Therefore, they are prone to under-reserving and regulators tend to be extremely cautious.
According to CBL Insurance Europe’s Solvency and Financial Condition Report for 2016, “the Company has performed extremely well over the reporting period with strong GWP (gross written premium) growth and a profit after tax of €1,762,236”. Crucially, several key governance functions were outsourced, in particular the actuarial, compliance and risk management functions (to an Irish firm); the internal audit function to parent company CBL Insurance in New Zealand. Nevertheless, “considering the nature, scale and complexity of the risks inherent in the business, the Company is very satisfied with its assessment of the adequacy and appropriateness of its system of governance.”