The liquidators of Western Pacific Insurance, which failed in the wake of the Christchurch earthquakes, say they’re likely to complete their five-year task in 2016, although quake claims alone may exceed the estimated recovery from reinsurers.
The Queenstown-based insurance company appointed liquidators in April 2011 amid concern the firm may be insolvent. At the time it had about 7,000 policies with New Zealanders, which were subsequently cancelled. Treasury and Reserve Bank papers from the time show Western Pacific had sought a $500,000 government bond and a $5 million government guarantee for five years, but officials advised against providing support on the view that its financial difficulties would have occurred even without the recent earthquakes. The government did bail out larger rival AMI, which had the largest exposure to the quakes, to the tune of $500 million
In their latest six-monthly liquidators report, David Ruscoe and Simon Thorn of Grant Thornton estimate total creditor claims amount to about $75 million, included $58.5 million for the so-called Canterbury Policyholders whose claims relate to the September 2010 and February 2011 earthquakes and are classified, after a High Court ruling, as secured creditors. There is a further $16.5 million in claims from unsecured creditors. All claims have now been allocated to loss adjusters.
The estimated reinsurance recovery, subject to costs, is $32.2 million, the liquidators said.
“We expect that the loss assessment work will be completed on all notified earthquake claims by the end of September 2015,” they said. “Recovering proceeds from reinsurance in respect of such claims is on-going and we expect this to be completed in 2016.”
In its first report to creditors in June 2011, Grant Thornton noted Western Pacific had, on initial assessment, a “significant lack of capital and an aggressive approach to winning market share” that may have led to its failure. “It was simply incapable of meeting the claims from Christchurch earthquakes,” they said at the time.
Reinsurance costs amounted to 40 percent of total premium income, while commissions to insurance brokers were often between 20 percent and 25 percent, leaving the company with just 40 percent of its premium income to cover operating costs and meet claims not covered by reinsurance, the accounting firm said. At the same time, premiums “were priced as low as possible in an attempt to gain market share and grow the business.” Some policies in Christchurch were written “at a price significantly lower” than prices offered by rival insurers.
The company also accepted risks outside the scope of its reinsurance policies and “chased premium income in numerous countries, including Australia; Abu Dhabi; Chile; Fiji; Rarotonga; Samoa; Singapore; and Vanuatu,” it said.