Reserve Bank destroys $750 million of NZ & Australian Wealth
Yet they are immune from Prosecution
CBL had cash on hand in excess of NZD$500m+, when RBNZ, after giving only 4 hours’ notice, applied to place this expanding, profitable, significant foreign exchange-earning New Zealand established and listed insurance company into liquidation.
On the 23 February 2018, CBLI was solvent and could pay all its current debts.
There was an actuarial dispute going on about the estimated future claims that could be expected to be received over the next 10-12 years for one sector of CBLI’s business – French construction insurance business, and therefore how much the company should reserve aside for those future claims. A few weeks before, CBLI had decided to materially strengthen its reserves as at 31 December 2017, on the recommendation of its statutory Appointed Actuary (PwC) despite PwC signing off on the reserves for future claims being adequate just 6 months earlier. For additional conservatism a 25% buffer (“risk margin”) was added on top. Claims for all other short-term core business were expensed and paid as they were received, and all were up to date. The entire actuarial dispute was about reserving (provisioning) that might be required in 10-12 years’ time, for one sector of the company’s business!
But RBNZ considered it knew better, and believed that the French Construction reserves should have been increased by another $200m or so, based on its own analysis it did in August 2017, but chose not to tell CBL about. Instead, RBNZ called in an insolvency consultant (McGrathNicol) to prepare a report for it on CBLI’s reserving, and to investigate any other matters it considered appropriate. McGrathNicol had little or no experience in CBL’s business, so it called in a French actuary and an Australian actuary to help prepare the report.
CBL always strictly followed actuarial advice and PwC was CBLI’s independent statutory Appointed Actuary from 2014-2018.
After liquidation, a subsequent sale with undisclosed details of the largest portion of CBL’s ‘French Business’, was reached sometime in February 2019, based on an offer made in April 2018, whereby Elite Insurance agreed to take over the bulk of CBLC’s European business using the values carried in CBLI’s balance sheet – effectively proving that PwC were correct in their assessment of the future liabilities to provision for, and that the RBNZ and its advisers were over conservative.
The actions of the Interim Liquidator on the 23rd February 2018, in immediately stopping all business, irrespective of profitability and refusing to pay any claims, or acknowledge any obligations, within a few days of appointment, burnt up 100s of millions of business value in New Zealand and overseas.
RBNZ has recently carried out an “independent review” of its actions relating to CBL. It is hardly an “independent review” when conclusions reached are based only on interviews with RBNZ staff and their views, suppositions, internal documents and court files.
The terms of reference were focussed on the past and did not ask whether RBNZ should have given CBL the opportunity to negotiate a recovery program or to allow CBL to obtain additional capital to meet the additional provisions that RBNZ wanted. In fact, RBNZ confirmed to CBL on 20 February 2018 that despite the fact that it had concerns about CBLI’s financial position, it was not yet at the stage that it required CBLI to table a recovery plan, something the RBNZ Deputy Governor had told the CBLI board that it would do to help it work through its situation, whatever the result of the Actuarial Review.
Efforts to raise additional capital (to meet possible future claims in 10-12 years) were scuttled by the RBNZ, which refused to confirm to the arranging broker that the $180 million target raise would satisfy their new requirement or even confirm the amount of additional capital they required.
For nine months during 2018 the RBNZ and its adviser McGrathNicol resisted the attempts made to take over and pay out all NZ policyholder insurance risks and claims, and the attempts to invest funds and put together a solvent DOCA to bring the company out of interim liquidation.