Up to 12,500 household policies affected in CBL case

The High Court has appointed a provisional administrator to the Irish arm of troubled New Zealand specialist insurer CBL Insurance Ltd.

It is believed the insurer has about 12,500 Irish household policies on its books and also provided cover against insolvency on Ryanair's travel insurance policy. The airline previously said its travel insurance partner Europe Assist, is seeking to source an alternative provider.

The appointment was sought by the Central Bank in an urgent early morning application today, a week after the bank ordered CBL Insurance Europe DAC (CBLIE) to stop writing business.

The application was made ex parte (one side only represented) by Paul Gallagher SC, for the Central Bank, and Mr Justice Brian McGovern agreed to prohibit any reporting of it until 1pm.

The judge said he was satisfied from the evidence to appoint Kieran Wallace as provisional administrator to CBLIE and returned the petition to March 12th.

Central Bank concerns

In its petition, the Central Bank said it was particularly concerned to have learned last Friday the High Court of New Zealand had the previous evening granted an application by the Royal Bank of New Zealand to appoint an interim liquidator to CBL Insurance Ltd (CBLNZ) for reasons which are subject to confidentiality orders of the New Zealand courts.

The Central Bank sought a provisional administrator after opposing suggestions by CBLIE, with registered offices at Fitzwilliam Street Upper, Dublin, of pursuing examinership.

The bank said its concerns include that the manner in which the insurer’s business has been conducted has failed to make adequate provision for its debts, including contingent and prospective liabilities, and the insurer is unable to meet its Solvency Capital Requirements.

An onsite inspection by the bank into the governance of CBLIE’s business exposed an “entirely deficient framework”, given the size and nature of the business, which “deviates significantly” from the requirements of the 2015 EU (Insurance and Reinsurance) Regulations, the petition said.

Specialist insurer

CBLIE specialises in construction related credit and financial surety insurance, professional indemnity insurance, property insurance and travel bonding and is authorised to write business here and several other European countries .

Shares in CBLNZ were suspended on the New Zealand stock market earlier this month after regulatory authorities said it needed to raise capital to shore up claim reserves in its French construction insurance business, which make up most of its operations.

Earlier this month the Central Bank commenced a supervisory engagement process in relation to CBLIE, directing it to strengthen its capital base, reserves and reinsurance security, and also commissioned a report into its French business. CBLIE has said it intends to quite the French business, reported to account for more than 60 per cent of its gross written premiums.

Opposition

On Monday, Mr Justice McGovern was told the board of the company had voiced its opposition to a provisional administrator as the directors believe it has a reasonable prospect of survival and examinership is the best option for its policyholders and shareholders.

The Central Bank opposed examinership for reasons including its concerns the insurer is possibly insolvent.

Mr Gallagher said it was not anticipated the provisional administrator’s appointment would have a major impact on the State’s Insurance Compensation Fund for reasons including many of its risks are located abroad.

The Central Bank had discussed a range of concerns with the insurer, including about the rapid growth of its business with turnover rising from €20m to €139m in just over a year, the level of reserves and about its corporate governance, counsel said.

Positive engagement

The “critical” recent development was the appointment of an interim liquidator to CBLNZ which caused the Central Bank great concern, because of the relationship between CBLIE and CBLNZ and the fact the latter is the reinsurer, about the final position and solvency of CBLIE.

Mr Gallagher said the insurer had engaged positively with the Central Bank but had been critical of particular requirements imposed and had sought the bank’s support for examinership, insisting the business is solvent but would be vulnerable if demands for payment were made.

The Central Bank had queried whether the insurer was solvent, noting a condition for examinership is that a company is insolvent in that it is unable to pay its debts as they fall due.

The Central Bank also queried whether the insurer could realistically dispose of its French construction insurance business within the 100 day examinership period