Insurance failure prompts questions about Reserve Bank monitoring

Wednesday, 14 November 2018

CBL Insurance is not a household name, but when it hit trouble, many KiwiSaver funds lost money.

The review of the Reserve Bank's handling of troubled insurer CBL Insurance will include whether the regulator put too much trust in PWC.

CBL Insurance is not a household name in New Zealand, but it was the third insurer to collapse in recent years, and was the main asset of a $750 million NZX sharemarket listed company, which featured in many KiwiSaver funds.

It did most of its business overseas, but RBNZ, which is tasked with making sure insurers have enough capital and reinsurance to pay claims, relied on assurances from PWC as the 'appointed actuary' of CBL Insurance that the insurer was solvent.

Toby Fiennes, RBNZ's head of prudential supervision, said: 'We are going to look at the whole set-up in the regulatory review.'

**READ MORE:

The Reserve Bank has seen three insurers fail this decade.

* Reserve Bank orders review after CBL Insurance liquidation

* Call to protect KiwiSaver exposed to $750 million CBL insurance failure

* Serious Fraud Office probes CBL

* High Court places CBL in interim liquidation

* Thousands of homes covered by CBL insurance**

PWC is a big name in Auckland finance, but its role as appointed actuary is to be questioned in a review of the Reserve Bank's handling of CBL Insurance, which was put into liquidation this week.

That included looking at the role of the appointed actuary, and whether it was given too much status in the regulation of insurers.

RBNZ runs a 'light-handed' form of regulation, and in the case of insurers, appointed actuaries calculate insurers' solvency positions.

But Fiennes said the in-depth review of CBL Insurance, which ultimately led to it being put into liquidation earlier this week, indicated CBL Insurance 'had been insolvent for some years'.

'When you have the auditor and PWC presenting those numbers, it is difficult to challenge them,' he said.

PWC's involvement as appointed actuary was 'influential', Fiennes said.

'They (CBL Insurance) had on the face of it a credible actuary that was supporting thier view of the world,' he said.

PWC would not comment on Fiennes' statement.

In his brief of evidence at the liquidation hearing, Fiennes said some large exposures CBL Insurance had had not even been disclosed to RBNZ.

The review would be conducted by John Trowbridge and Mary Scholtens QC. Trowbridge became famous in Australia last year with the publication of the Trowbridge Report which caused controversy when it recommended up front commissions be banned from the life insurance industry.

It's not only PWC's role that the review would probe.

CBL managing director Peter Harris has criticised the Reserve Bank's handling of CBL Insurance.

For many months, the news the RBNZ was investigating CBL Insurance was kept from investors on the NZX, at the RBNZ's insistence, leaving shareholders buying and selling shares without full knowledge of the state of the company.

CBL Insurance hit trouble as a result of its French building warranty insurance business.

The company specialised in providing the insurance behind 10-year builders' guarantees that would cover the cost of fixing faulty building work on new homes.

'There have been some questions already on whether we should have done things differently,' Fiennes acknowledged.

'The main question that's been raised… by shareholders is whether we should have revealed to the sharemarket that we were investigating from August last year,' he said.

Three insurers failing since 2011 also raised questions, though Fiennes said AMI and Western Pacific, which both failed in the aftermath of the Christchurch Earthquakes, had done so before insurers were fully licensed by RBNZ.

CBLI director Peter Harris queried the independence of the review.

He maintains the RBNZ failed in its handling of CBL Insurance, and called on Grant Robertson, minister for the Reserve Bank, to appoint a truly independent review.

The review findings should be published publicly, Harris believed.

Harris and his fellow directors attempted to devise a plan to recapitalise CBLI, but failed.

He said the RBNZ had 'scuttled' plans to save the CBL Insurance, which would have been better for creditors of the insurer.

Shareholders of CBL Corporation would be presented with plans to restructure the company, and Harris did not rule out attempting to do a deal with the McGrathNicol, the liquidator of CBL Insurance.

'Putting the litigation behind us now enables us to keep on with our plans for the restructure of CBL Corporation which is expected to go to shareholders late next week,' said Harris, 'and we will work with the liquidator to try and optimise the outcomes for New Zealand policyholders.'