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CBL Corp says full-year net loss was $75M-$85M on French reserves strengthening

Monday 5th February 2018

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CBL Corp said it will post a full-year loss because of an increase in the future claims reserve for its French construction insurance business and a write-off of receivables in that business. As a result it is planning to raise more capital.

The loss was $75 million to $85 million in calendar 2017, the Auckland-based credit surety and financial risk insurer said in a statement. It is the second downgrade of its full-year guidance.

The company said it expects to make a future claims reserve strengthening adjustment of about $100 million to reserves in respect of its long-tail French construction insurance business, and a one-time write-off of receivables of about $44 million "arising from broker/insurer/reinsurer reconciliations and related differences arising from a detailed post-acquisition examination of SFS throughout 2017."

CBL acquired 71 percent of Securities and Financial Solutions Europe SA (SFS), France’s largest specialist producer of construction-sector insurance and CBL’s largest single client, and IMS Expert Europe, SFS's claims management operation, for 94.5 million euros in January last year. The two companies had worked together since 2005.

"The reserve strengthening is required and although disappointing, clearly the recommended levels of reserving for our French products have been too low in the past," said CBL chief executive Peter Harris. "The better visibility over our data from this long-tail business provides more certainty and allows better focus on optimising levels of capital deployed to write this business."

Harris said CBL "performed well" during the second half of 2017, "with all companies showing significant and profitable growth in existing markets, expansion into new markets, focused on short tail business enabling a greater balance in our portfolio".

The company said revenue grew more than 35 percent last year, above the previous guidance of 12 percent to 15 percent. Gross written premiums rose about 35 percent to $440 million. New business originated in Spain, Italy, the US, Mexico and Australia generated more than $5 million a month in new annual premium, it said.

The reserves adjustment on its French business followed a four-month review with actuary PwC.  "The data exercise backs up the overall profitability of the French construction business, but at lower levels than recommended or reported in the past," it said.

The review was sparked by CBL Insurance’s originating insurer, Elite Insurance Co, going into what is known as "solvent run-off" in July 2017. "Questions arose around Elite’s reserving on its French construction business," CBL said. CBL "put together a task-force including its own and independent actuaries to cleanse, analyse and report on nearly 10 years of policy data and claims incurred and paid data on this business."

As a result of Elite being placed in solvent run-off, the Reserve Bank of New Zealand has commissioned an independent report by a skilled expert, CBL said. "We are unaware of when that report will be available. We believe that this report will support CBL’s decision to materially increase future claims reserves."

Of the $100 million of non-cash FY17 reserve strengthening, about $10 million relates to FY17, and about $90 million relates to prior years, it said.

The company didn't give details of any capital raising plans. It remained positive on the outlook for 2018 and expected to provide guidance on underlying operating profit and more details of its reserve strengthening in future announcements.

The shares last traded at $3.17 and have declined 18 percent this year.


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