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New website launched to lift the lid on how CBL was failed by the RBNZ — 5 July 2019

By July 5, 2019No Comments

A new website – – is being launched tomorrow in a bid to lift the lid on how a publicly listed company with cash on hand in excess of $500m and shareholder investment value of $750m was put into liquidation by the Reserve Bank of New Zealand, causing catastrophic losses that affected people in New Zealand and overseas.

The website is being sponsored by Peter Harris, former Managing Director of CBL, and Alistair Hutchison, a former director. Mr Harris and Mr Hutchison are both significant shareholders – the two largest shareholders – in CBL. They believe the public and those directly affected by the liquidations of CBL and its main operating subsidiary CBL Insurance have a right to understand more of what went on behind the scenes.

The launch of the website follows the publication on 3 July of “An Independent Review for the RBNZ of the Supervision of CBL Insurance Ltd”.

The review opens the door on the Reserve Bank’s fitness as the regulator of New Zealand’s insurance industry and finds significant failings in its regulatory oversight of CBL over a four-year period, through an inadequate level of insurance expertise and lack of resources; however, it is based only on interviews with RBNZ employees and RBNZ documents and court files. On that basis it glosses over fundamental questions around the decision-making process and the strength of analysis used by the RBNZ and its adviser McGrathNicol to justify liquidation. In addition, it is silent on the oversight and independence of McGrathNicol, which, among other things, made decisions and announcements that in the first few days of the interim liquidation were responsible for burning up more than $150m worth of CBL going concern assets and valuable CBLI lines of business – eg. by announcing it would not be paying claims or honouring in-force obligations for the foreseeable future.

Unanswered questions

The review fails to address the key question as to whether CBLI could have been saved, particularly as its parent CBL Corporation had the ability to raise additional capital, had announced it would do so along with divesting its French construction assets, and had appointed advisers to carry this out. CBL’s unaudited FY17 results (excluding its French construction business) had produced $326m in revenue and $75m in net pre-tax profit – a viable business by any standards.

The review does not critically examine the disconnect between an assurance given CBL and its Actuary by RBNZ Deputy Governor Geoff Bascand on 21 February 2018 and the Bank’s action to seek the interim liquidation of CBLI just two days later. Mr Bascand’s letter of 21 February stated that “The Reserve Bank has determined that CBL is not yet required to prepare a recovery plan” (emphasis added). The following day the RBNZ’s Head of Prudential Supervision Toby Fiennes rang the CBL Chair to request a phone call the next morning. In that call Mr Fiennes stated that if CBL did not appoint a voluntary liquidator by 2pm that day (23 February), the RBNZ would be filing a 66-page (pre-prepared) affidavit applying to put CBL into liquidation.

The review does not seek to assess the merits of commercially compelling and sensible alternatives already under way to deal with a dispute between CBL and the RBNZ over reserving for CBLI’s French construction insurance business. (In fact, RBNZ made it very clear that it had no obligations to make commercial decisions – it only made regulatory decisions.)

It also does not question how the RBNZ and McGrathNicol got things so wrong in saying that CBLI’s reserving (as recommended by Appointed Actuary PwC), was between $175m and $295m too low based on two highly divergent external reports. This needs to be assessed, alongside the fact that the reserves in question were offered to be acquired by Elite Insurance of Gibraltar all through 2018; and have now been acquired by Elite, with the presumed consent of the RBNZ and McGrathNicol, its liquidator, at the value booked in CBL’s balance sheet. 

Elite was smart enough to acquire all of those liabilities (at the CBL/PwC values), and to also convince McGrathNicol and RBNZ to agree that CBLI should pay Elite an equivalent sum of cash and assets to satisfy its debt as a creditor. The commercial details of the agreement remain a secret. Why so? Where is the transparency of that deal to CBLI’s other creditors and policyholders left out in the cold? Why is Elite Insurance the only creditor to be paid in full? No other creditor or claimant has been paid at all.

Meanwhile there is a stark contrast between the RBNZ’s handling of its dispute with CBLI and the way the regulator in Gibraltar (the Financial Services Commission) is dealing with Elite, which was affected by the liquidation of CBLI. In Elite’s case, creditors are being invited to consider a Solvent Scheme of Arrangement that would enable an orderly run-off of the company’s business and avoid the appointment of a liquidator. (See Elite letter dated 4 June 2019.)

RBNZ has glossed over the fact of its approval of CBL’s IPO in 2015 by ignoring it and saying that it was not responsible to investors. This is not good enough, and is not accurate anyway. CBLI and PwC worked through a number of issues raised by the RBNZ to get its signoff, without which the IPO would not have proceeded. The IPO was a very vigorous process and will stand up to any scrutiny, and RBNZ was part of that .

Each of the matters outlined above is deserving of further investigation and explanation. In particular, the RBNZ’s focus on liquidating CBLI without considering the alternatives needs to be explained to creditors and NZ policyholders, and to CBL shareholders.

Mr Harris and Mr Hutchison were involved in building CBL over more than 20 years – driving its international growth from NZ$2m revenue per year in 2000 with one employee in one office in Auckland, to become an international group with a strong investment grade rating, 540 employees in four continents, $420m per year in profitable revenue and significant foreign exchange earnings for New Zealand… and tens of millions of dollars paid in tax in New Zealand each year. It listed on NZX and ASX in 2015 and ultimately was ranked in the NZX 50.

CBL had a strong, experienced board comprised of directors with a wide range of international insurance knowledge and business experience. All of CBL’s policies and process were well documented and available to the RBNZ. The board was majority independent. Every one of its subcommittees was majority independent and headed by an Independent Chairman. All correspondence from and to the RBNZ was immediately copied to the Board of Directors. Copies were also shared with the Actuaries and Auditors.

Mr Harris and Mr Hutchison feel duty-bound to provide the many people who put their trust in CBL and its board a fair and proper explanation of what happened, backed up by correspondence and documents not provided, or asked for, in the course of the “independent review.”

Given the RBNZ’s role it cannot be the only voice heard on this matter,” Mr Harris says. “CBL former directors and staff, PWC (CBL’s independent Appointed Actuary), Deloitte auditors, clients, NZ policyholders… they all need a say. NZ cannot afford to have this matter swept under the carpet.

There are many aspects to this affair. It can’t be dealt with from one side only, or in small soundbites. Over the coming months our aim will be to provide a summarised history of it, and more detail for those who want to ponder and puzzle over it.

The launch of is to be a conduit for this to happen. We are not arrogant enough to say that it constitutes an ‘independent review’, but it will be well-informed and soundly-based, and will present another side to the RBNZ ‘independent review’ and to the RBNZ’s website on the matter.”