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RBNZ governor denies central bank exerted influence over CBLI creditors

Reserve Bank governor Adrian Orr batted away accusations that the central bank had exerted influence over CBL Insurance’s creditors to support them in its bid for liquidation.

“I have almost lost count of the allegations that have been thrown around,” Orr told the parliamentary Finance and Expenditure Committee at the 2017-18 annual review of the RBNZ.

Orr denied the bank had put pressure on foreign regulators and made inducements to creditors and said the central bank had been “100 percent appropriate throughout the process.”

CBL Insurance, a subsidiary of CBL Corp, was placed in liquidation by the Auckland High Court in November when the directors withdrew their opposition to the RBNZ’s application.

At the time, CBL directors Peter Harris and Alistair Hutchinson said they decided to withdraw their opposition to the liquidation when two major creditors agreed to support it. The two creditors Gibraltar-based Elite Insurance and Alpha Insurance had initially been opposed to the liquidation. 

The directors made significant efforts to guarantee a "fully solvent outcome from CBLI and full payment to its New Zealand creditors and policyholders," Harris and Hutchinson said. 

Those efforts, however, were "scuttled" by the Reserve Bank, which "managed to woo both creditors to support its liquidation application in the High Court," they said. 

Orr said he was "incredibly proud" of the team and how they managed the crisis and said the Auckland High Court judgment "speaks for itself. Very loud and clear." 

The central bank had applied for the interim liquidation of CBL Insurance in February based on the insurer's failure to meet solvency conditions, breaches of direction and ongoing misreporting to the Reserve Bank.

According to information on the central bank's website, the RBNZ sought an explanation from CBLI insurance in mid-2017 when European insurers that were heavily reliant on reinsurance from CBLI started running into difficulties with European insurance regulators, due to not having enough money in reserves. It followed that CBLI’s reserves might also be inadequate. CBLI's response was to criticise the analysis relied on by the European insurance regulators, it said.

In July 2017 the Reserve Bank directed CBLI to maintain solvency of at least 170 percent of the standard minimum. In August 2017 the Reserve Bank appointed investigators to look into CBLI’s European business and whether its reserves were adequate. CBLI was not able comply with the solvency direction and in late 2017, to avoid deterioration of CBLI’s situation, the Reserve Bank directed CBLI to not make payments of more than $5 million without consulting the Reserve Bank.

In February 2018, the Reserve Bank became aware that CBLI had made payments to offshore counterparties, in breach of the regulatory directions. At the same time, its appointed actuary confirmed that CBLI’s solvency ratio was below 100 percent. 

Orr reiterated to the committee that the central bank has commissioned a thorough independent review of the CBL Insurance case to identify lessons for itself and the insurance regulatory regime. 

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