RBNZ acted properly in CBL’s liquidation process
An under-resourced, inexperienced, and, at times, impotent Reserve Bank (RBNZ) could have done better in handling the failed CBL Insurance group, but still acted properly in pushing the company into liquidation, according to a review.
The RBNZ asked Australian insurance expert John Trowbridge and commercial lawyer Mary Scholtens to look at its involvement with CBL Insurance, from when it sought a licence in 2012 through to the forced liquidation last year.
The review has found the RBNZ had concerns about CBL Insurance's finances, in particular the reserves it held to cover potential future claims, even before the company was licensed, which it put aside to be dealt with later.
However, it said these and other issues were not properly addressed, because the central bank was timid and unsure of its ground, did not have resources to follow through, and was put off by the company's strong rebuff.
The report said that it was not until 2017/18, when concerns about CBL Insurance were being raised by foreign regulators, that the RBNZ started to get to grips with issues, such as solvency levels (ability to pay off its long-term debts and financial obligations), which culminated in the the company being put into liquidation.
"During this period the Bank acted firmly and decisively and, in our view, properly within its powers," the report said.
The report notes the laws covering the insurance sector had changed, the RBNZ did not have enough experienced people to supervise the sector, was more involved in the issues raised by the Canterbury earthquakes, and lost sight of CBL Insurance because its business was mostly oversees.
It's recommended the bank be prepared to act decisively early and make full use of its powers to tackle doubts about a company's finances.
It said supervision of insurance companies will need to be strengthened and the RBNZ will need better resources to do that
The report has also called for new rules, and if necessary law changes, to require insurance companies to have stronger financial structures.
The RBNZ said the report largely backed its handling of CBL Insurance, that its concerns were valid, and its actions reasonable, although it as not without fault.
"We acknowledge the review's finding that our supervision was overly-lenient towards CBL and should have addressed concerns about its reserving and management more urgently," deputy governor Geoff Bascand said.
He said the bank accepted and would implement the review's recommendations.
However, two directors of the failed group, Peter Harris and Alistair Hutchison, called the report "self serving", and omitted key issues involving RBNZ actions.
They said the report lacked analysis of RBNZ actions, left major questions unanswered, had failed to question CBL directors or outside experts.
"The review falls dramatically short of being a document that would provide confidence to the public and international financial community that the regulation of NZ's insurance market is in capable hands," Harris said.
"Did the RBNZ therefore get it wrong? The effective answer is yes."