Sharechat Logo

CBL expects credit downgrade as it seeks to raise capital after RBNZ, Irish central bank investigations

Wednesday 7th February 2018

Text too small?

CBL Corp is expecting a credit rating downgrade as it seeks to raise cash to deal with a mandated increase to its reserves from the Reserve Bank of New Zealand and Central Bank of Ireland.

The announcement comes after CBL's statement on Monday that it planned to raise capital after posting a full-year loss of between $75 million and $85 million that reflected an increase in future claims reserve and write-off of receivables for its French construction insurance business. Today, CBL said it expects a downgrade to its A- financial strength rating and issuer credit rating from ratings agency A.M. Best, "which will be announced once notice has been received". It would update the market soon on its proposed capital raising. Its stock is halted from trading. 

In the Monday statement, the company said the reserves adjustment came after its originating insurer, Elite Insurance Co, went into what is known as "solvent run-off" in July 2017. It said that the RBNZ had commissioned an independent report into the adequacy of its reserving for the French construction insurance business.  Today, CBL said the directions and discussions it has had with RBNZ have been occurring under strict confidentiality orders prohibiting it from making any announcement to the market, but those orders have now been lifted, so it gave more detail.

RBNZ's review was triggered by the concerns raised by the Gibraltar regulator about Elite Insurance’s reserves, and a report commissioned by its regulator, CBL said.

The Reserve Bank issued a direction on July 27, 2017, setting CBL Insurance’s minimum solvency at 170 percent, by reference to the actual solvency that CBL Insurance reported at that time. On Nov. 22, 2017, it made directions to CBL Insurance, CBL Corp and its subsidiaries, requiring them to consult on any non-business as usual (BAU) transactions greater than $5 million. 

Ireland's central bank has started a similar process in respect of CBL Insurance Europe (CBLIE), its subsidiary which is a regulated insurer in Ireland, given the exposure that CBLIE has to CBL Insurance as a major reinsurer to CBLIE. The Irish central bank has issued a "number of directions and conditions on CBLIE intended to strengthen its capital base, reserves, and reinsurance security, and has asked CBLIE to commission an independent skilled persons report into CBL’s French construction business", CBL said.

"CBL Insurance has been supported in its position by its independent actuary, PwC NZ," the company said. "However, with a view to putting these matters behind it with RBNZ and other regulators, and to allow the business to move forward CBL is looking to increase its capital (and therefore its solvency margins)."

The company's shares are currently in a trading halt, which began on Monday morning. At the time, NZX regulation said the halt would stay in place until an announcement about CBL's capital raising expectations, anticipated on or before Thursday, and the halt will be lifted by no later than market open on Friday. They last traded at $3.17, down 15 percent in the past 12 months.

(BusinessDesk)

  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

Buying off the plans driving down KiwiBuild cost to govt: HYEFU
Fiscal policy to slow growth over next five years, despite surpluses
Treasury forecasting annual wage growth above 3% over next five years
Robertson unveils first ‘wellbeing outlook’ ahead of 2019 Budget
NZSA throws its weight behind Vital’s rebel investors
Food prices ease in November: buy your strawberries now!
Transport strikes averted as TIL Logistics, Air NZ find common ground with unions
Restaurant Brands 3rd-qtr sales rise 4.7% as Australia, Hawaii grow
December 13th Morning Report
Meridian chair Moller to stand down next year, Verbiest to take over

IRG See IRG research reports