The Review

Here is a link to the full RBNZ report [click here]

We have sliced our comments on the review into four sections:

1. What the Review is not

2. What the Review says about the RBNZ – and what it doesn’t say

3. What the Review says about CBL

4. Key questions


It is vital to recognise that the Review is focused on the role of the Bank in the relevant events. While it also comments on aspects of CBL’s governance and operations, this is only for context as far as the terms of reference are concerned. In any case, we take issue with a number of comments made about CBL [see below under sections three and four].

It is also important to understand the sourcing of information and perspectives used in coming to the conclusions set out in the Review. The Review is built on documents and communications sourced from the Bank, its court files and interviews with Bank staff. The published document contains errors and RBNZ suppositions, and includes an acknowledgment that the authors did not interview ‘external parties.’ We can confirm that no directors or officers of CBL were interviewed.

The lack of CBL’s perspective, information or knowledge in the drafting of the Review presents obvious issues as to both natural justice (in that conclusions are drawn about CBL) and the capacity of the reviewers to acquire a rounded and fully-informed perspective on all the matters mentioned in the Review. We acknowledge that drafts, once written, were given for short periods to individuals associated with CBL for comment; but limited rights of commentary after the Review had already been drafted could never amount to an adequate substitute for the sort of early and equal participation that would normally be expected. As a consequence of the approach taken, the Review cannot be read as a full or definitive report, or as truly independent on matters relevant to CBL and its liquidation by the Bank.

We think it is regrettable that the opportunity was not taken for a more complete review of the relevant circumstances and decisions, including input from CBL, its directors and advisers. We therefore strongly disagree with any suggestion that the Review provides an independent assessment of the events that led to a $750m company being put into liquidation.


Below is our summary of key points from the Review, what it says and what it does not say.

In the commercial world, these types of errors and omissions might be legally actionable; but the Reserve Bank is effectively immune from prosecution or civil suit. Even so, the Review paints a picture of an organisation that has failed its mandate as the regulator of the NZ insurance industry.

What the Review Found


  • The Review effectively found that RBNZ failed in its duty as a regulator.
  • It now says it suspected there were issues with CBL as far back as 2012 but did nothing.
  • In 2015 the RBNZ allowed CBL to IPO even though it now says it had serious doubts – its approach was “less than prudent.” It should have “persevered as strenuously as possible to resolve its doubts,” but the RBNZ considered it had no mandate to look after the interests of investors.
  • In 2016 when approached by the Gibraltar regulator (the Financial Services Commission), with concerns about CBL the RBNZ should have, but did not, engage with either the GFSC or CBL.
  • In fact the RBNZ failed to use its position to interact with fellow international regulators despite 99% of CBL’s business being offshore.
  • It was only in June 2017 that the RBNZ acted after Gibraltar-based Elite Insurance was considered to be severely under-reserved.
  • When the RBNZ did finally take action, it was right to put CBLI into interim liquidation – actuarial reports post this action (delivered in March 2018) determined from a historical point of view that it was likely CBL had been insolvent since 2012.
  • The RBNZ did have statutory powers to take action, but it did not use them.
  • Excuses provided for the failure of RBNZ to take action include:
    •  A reliance on “internal legal advice”
    •  A lack of experience and resources
    •  It only had a “small team” and was “operating a new regime”
    •  The Canterbury Earthquakes were happening at the same time
    •  It did not know how to manage its disagreement with the Appointed Actuary regarding CBL’s solvency margin
    •  NZ was only a small part of the business – less than 1 percent – so it was a low priority
  • Failure to engage with international peers was explained away by the Bank needing to be “cautious as it had a limited established relationship with Gibraltar FSC…”
  •  Failure in communications… In spite of the perceived risks the RBNZ seemed to rely on written communications rather than face-to-face interaction with the Board, senior management and the Appointed Actuary.
  • If the RBNZ had acted earlier (between 2014-2016) the “scope and complexity of the CBL liquidation would have been much reduced compared to the position in 2018.”


Gaps and Shortfalls in the Review


  • The Review relied only on evidence supplied by the RBNZ and interviews with RBNZ employees – so at best it is a one-sided account of what happened, and not a truly independent analysis of the events that led to liquidation.
  • The RBNZ considers that “other regulators” are there to look after investors, but the Review does not identify that the RBNZ has a “working memorandum” with the FMA to share its views and information.
  • The Review fails to provide balance given the ‘strained’ relationship between the RBNZ and CBL and between the RBNZ and the Appointed Actuary – only one side of the argument is heard. For example:
    •   The RBNZ did not share with CBL (kept secret) its “internal analysis” dated August 2017 that was referred to in, but not appended to, the liquidation application on 23 February 2018. In the Review this was described as a 90-page report. It has still never been shown to CBL or any outsiders.
    •   CBLI therefore had no opportunity to discuss or act on it.
  • The Review explores issues around CBLI’s French business, but ignores the other parts of the business and also the strength of the wider CBL group.
    •   Excluding the French construction business the CBL Group FY17 unaudited results showed NZ$326m in revenue and NZ$75m in net pre-tax profit.
    •   All of CBLI’s other business was lower volume, more profitable and short-tail.
    •   CBL had cash reserves in excess of $500m.
  • There is no discussion in the Review about whether CBLI could have been preserved, or the alternatives to liquidation.
    •   There is no mention of CBL’s announcement in February 2018 that it would raise capital and divest its French insurance interests and liability reserves; and that two internationally recognised bankers had been appointed to find a buyer for the businesses and the reserve liabilities, and to raise capital.
  • There is no analysis of the financial strength and history of the group to raise capital.
    •   CBL was listed on both the NZX and ASX, had strong investor support and could have raised the capital required.
  • There is no discussion on the fallout from placing CBLI into Interim Liquidation.
    •   … particularly with regard to policyholders, whose interests the RBNZ is statutorily mandated to protect.
  • The Review favours the Bank’s views and positions in a number of areas:
    •   It is apologetic for the RBNZ – eg. saying it was “under resourced” or was busy with the Christchurch earthquakes.
    •   There is no criticism of the fact it took eight months to get reports from Finity and Milliman and a report from McGrathNicol never arrived; nor that the RBNZ kept its “internal analysis” in August 2017 secret from CBL.
    •   It does not address the difficulties in operating a public company for an extended period in what was effectively a financial strait-jacket.
    •  It does not identify inconsistencies in interactions with CBL – eg. the Bank committing to working with CBL to find a solution while other parts of the Bank were actively seeking liquidation (preparing a 66-page without-notice affidavit to apply to liquidate CBLI, with the result that there was no consideration of any alternatives to liquidating CBLI). This despite CBL having already taken decisive action to announce its intention to raise capital and divest the French construction business, along with the appointment of internationally capable advisers to help carry this out.
    •   The focus on one aspect of the 2013 KMPG report which included ways for CBLI to work to improve its business model, when the report was mandated to report on prudential management ability.
    •   There is no mention that the underlying cause of the entire dispute over French construction insurance reserving was finally resolved as early as April 2018 when Elite Insurance tabled an offer to acquire the reserve liabilities for a sum equal to the sum CBLI had reserved them at – as recommended by PwC and its peer reviewers. This proved in essence that RBNZ and McGrathNicol were wrong, and PwC and CBLI were right. (Small solace to the NZ policyholders, investors holding $750m of now worthless shares, and 540 employees trying to explain to their families what had just happened through the failings of a distracted, inexpert and uncommercial regulator in New Zealand.)
  • Other Inconsistencies
    •   Much weight is given to the PwC UK analysis of Elite Insurance, but there is considerable scepticism about PwC NZ, which was the Appointed Actuary for CBL.
    •   The Review concludes that RBNZ should have worked more closely with its international peers given that Elite’s issue triggered the RBNZ into action – but fails to acknowledge that Elite (which faced “severe under-reserving”) was later allowed to trade out.
    •   The Review does not mention that the co-operative
    way the Gibraltar Financial Services Commission is working with Elite Insurance and its expert owner Armour Re is in stark contrast to the approach RBNZ and its liquidator McGrathNicol have taken to CBL Insurance (see Elite letter dated 4 June 2019).

Other interesting points

  • In 2013 KPMG was mandated by the RBNZ to carry out an investigation of CBLI and determine whether it had the resources and ability to prudently manage its business. As a last condition CBL needed to satisfy the granting of its insurance licence under the Insurance (Prudential Supervision) Act. KPMG produced its report with an up-front statement that, yes, it considered that CBLI had the resources, the ability and the desire to prudently manage its business. RBNZ then granted CBLI its unconditional insurance licence.
  • CBL worked through the issues that RBNZ said it had with CBLI as an important part of the IPO process. The IPO would not have gone ahead had RBNZ not “signed off” on its part of it.
  • CBL had alternatives if it had decided not to IPO and to raise capital elsewhere.


The Review makes a number of claims against CBL without substantiation or evidence – an indication of the limited scope of the review, underlining that it should not be seen as a comprehensive or independent analysis.


The Review Claims We say
That the High Court liquidation judgment outlines “alleged irregular activity” where directors “acted dishonestly” in their dealings with the Bank This is simply wrong.  The High Court did not make any finding of dishonesty against the directors.  Further, the Bank’s liquidation application was ultimately unopposed, meaning the High Court did not hear from the directors and other parties, or consider the evidence filed in opposition.  None of the Bank’s allegations or the evidence were tested or argued, and the directors have had no opportunity to defend them.  The directors completely reject any allegations of impropriety or wrongdoing.


That CBL representatives were “difficult” in dealings with the RBNZ about capital adequacy and solvency CBL has a history of compliance with RBNZ directions. It always complied with the Bank’s directions and timelines, even when these seemed unreasonably short.

Several CBL representatives had dealings with the RBNZ. They found its culture was based on an assumption that it was always correct. CBL’s policy was to remain respectful and professional in response.

The key difficulty was that RBNZ was never prepared to have open dialogue or debate on matters, or to be asked for the basis of a particular statement or view. RBNZ saw any questioning as a sign of lack of prudential management.


That correspondence from the RBNZ might not have been shared with the CBL Board


All RBNZ correspondence sent or received by CBL was immediately copied to every member of the Board as an important matter of company policy.
That CBL appeared not to really understand the nature of the business that it was involved in – long tail insurance, with substantial back-ending of claim liabilities


CBL had been doing business for many years, forging a record of profitable growth and strong business relationships in a demanding financial services segment. It had built an impeccable reputation with companies and individuals who are still prepared to do business with its principals. That record, over that period of time, suggests ample understanding and commercial capability. CBL also had a strong governance regime. Its governance structure and processes were set out in successive annual reports – extensive extracts from the last of these to be published, for the 2016 financial year, are republished on this website.
That the group was insolvent for several years… albeit with some acknowledgement that solvency and capital adequacy are matters of opinion There is no evidence of this, and it would be a breach of actuarial best practice to go back and ‘back-solve’ solvency or reserving.
The assertion of insolvency was not balanced by acknowledgement that the Elite transaction, at a value affirming the reserves held by CBL for the French construction insurance business, has essentially disproven the allegation of insolvency; nor that at the sharp end of the sequence of events CBL was ready to execute a recapitalisation plan.



Could/should the company have been saved?
Yes. There was no reason for liquidation to be the only option – especially given the catastrophic impact on shareholders, policyholders and other stakeholders. Even if it was found to need additional reserves, there was no commercial impediment to this need being met.

Was CBL capable of raising capital to satisfy the RBNZ’s demands?
Yes it was for the following reasons:

  • CBL was a publicly listed company with its shares trading on both the NZ and Australian stock exchanges
  • CBL had successfully raised cash at the time of its IPO and then subsequently
  • It was highly regarded in the investment community – evidenced by its share price trading at record highs, and all share issues had been heavily over-subscribed

It had two highly regarded investment houses and two internally capable advisers willing to support a $180m capital raise.

  • There is no discussion in the Review that addresses this key issue – why a profitable and well established and regarded company was not allowed to take the opportunity to find a solution – and more critically, why the RBNZ would not sign off on the capital raise.

Were the RBNZ’s concerns relating to under-reserving of capital realistic?
No, for the following reasons:

  • A buyer was quickly found for CBL’s French insurance business – the liability that was at the centre of concerns over under-reserving. (Yet over the period since the interim liquidation of CBLI, McGrathNicol and the RBNZ have argued that the French construction liability estimates for the next 10 to 12 years were still substantially under-reserved, with both of them relentlessly focussed on putting CBLI into liquidation.)
  • The price agreed by the acquirer of the French liabilities, Elite Insurance (the largest creditor of CBLI), valued the reserves at the same value recommended by CBL’s Appointed Actuary PWC and adopted by CBLI in its balance sheet.

This is a critical example of the market speaking. It supports CBL’s numbers and puts a line through any other expert theoretical estimates of future liabilities, including estimates that McGrathNicol and the RBNZ chose to rely on in pushing for liquidation. The Review fails to address this although the information was public prior to the Review’s publication.

Was CBL still able to be saved after 23 February 2018, when the RBNZ initiated liquidation proceedings of CBLI?
Yes, probably, but the damage done by filing an application for liquidation in an industry which is built on trust, added to McGrathNicol’s torching of value in the opening weeks, almost put paid to CBLI. And later the RBNZ and McGrathNicol did all they could to ensure that any restructuring plan failed.

First attempt
Former CBLI directors Alistair Hutchison and Peter Harris backed a CBLI Deed of Company Arrangement (DOCA) alternative to liquidation for CBLI by arranging for the investment of $20m and additional securities into the DOCA proposal. The proposal would have seen all creditors and all policy holders (including New Zealand policyholders) paid IN FULL, along with an agreement with two large European creditors (Elite Insurance and Alpha Insurance) to acquire CBLI-reinsured European liabilities including the long-term French construction liabilities.

The CBLI DOCA proposal guaranteed a solvent outcome for CBLI and was supported by the proposed CBLI Administrator, KordaMentha, and CBL Corporation banks, which stood to receive surpluses under the proposal thereby reducing CBL Corporation debt. RBNZ was opposed to the DOCA alternative to liquidation, regardless of the losses to CBLI residual creditors and policyholders, which could be as much as 50c in the dollar.

The two major creditors, Elite Insurance and Alpha Insurance, had since April 2018 supported CBLI Directors in opposing RBNZ; but in the few weeks leading up to the liquidation hearing set down for 12 November 2018 the CBLI directors found that RBNZ had been “lobbying” the regulators of Elite and Alpha to put pressure on them to switch sides and support the RBNZ in its liquidation application instead. It was also discovered that RBNZ had even offered Alpha retention of the €25m payment made to it by CBLI on 16 February 2018 (the payment the RBNZ has used as an excuse for the interim liquidation) if Alpha changed sides and supported the RBNZ.

Consequently, both creditors did not oppose the RBNZ application for liquidation, which led to KordaMentha also withdrawing its opposition.

The CBLI directors reluctantly decided to withdraw their opposition to CBLI liquidation and CBLI was therefore placed into liquidation without a contested hearing held.

Second attempt:
The CBLI directors then turned their attention to working with the CBLI liquidator to get NZ policyholders paid in full, to ensure adequate compensation for employees, to optimise the financial outcome to residual creditors and to move on to structuring a CBL Corporation DOCA proposal for banks and creditors as an alternative to CBL Corporation being liquidated. This would allow them to table a five-point restructuring plan to repay NZ policyholders and provide a viable business for shareholders with the aim of restoring value to their shares over time. Again McGrathNicol and the RBNZ did not engage constructively.

In the end Mr Harris and Mr Hutchison were unable to obtain the agreement of CBL Corporation’s bankers to the terms of the proposed new DOCA; and as a consequence they decided not to oppose an application for the liquidation of CBL Corporation, which was then put into liquidation on May 13 2019.