Wednesday 18th July 2012
|Text too small?|
Local government insurer Civic Assurance faces a "potential dispute" with its reinsurers over $700 million-plus of reinsurance claims generated by the Christchurch earthquakes, leading credit rating agency A.M. Best to announce a "review with negative implications."
While A.M. Best reiterated Civic's current rating of B++ for now, it said the insurer's $4.2 million capital raising in February could be insufficient, depending on the size of any dispute with its international reinsurers.
Civic had uncapped catastrophe insurance with global reinsurers, who discovered their premiums were far too low in relation to the destruction of local government infrastructure and assets caused by the series of earthquakes that has rocked Christchurch since September 2010.
"The prospective risk-adjusted capitalisation could be stressed by the possibility of some of its reinsurance balances being uncollectable," said A.M. Best, which specialises in global insurance industry credit ratings.
Civic Assurance's annual report for the year to Dec. 31 shows total reinsurance recoveries receivable at that date of $702.7 million, of which $626.8 million were incurred in 2011. At balance date, reinsurance payments received had totalled $4.5 million.
Notes to the financial statements in the Civic annual report say "all claims have been assessed by loss adjusters who have expertise in this area. We understand that there is no reason to believe that there is any systemic under or over estimation of reported claims."
The financial statements also disclosed credit risk "relating to the ability of the reinsurers to pay the gross reinsurance recoveries receivable."
Civic lost all its reinsurance cover after the biggest 2011 quakes, and wasn't immediately able to obtain new reinsurance arrangements because it had faced "logistical issues detailing the exposures that were to be written due to a lack of detailed information being readily available on the local government assets," notes to the 2011 accounts say.
However, Civic said at the time it was hopeful both of a credit rating upgrade to "at least A- (excellent) in the near future", and of being able to obtain new reinsurance to allow its re-entry into the insurance market from June 30 this year. Civic is understood to have offered local governments cover on a small proportion of their risk in recent weeks.
A.M. Best said it would "revisit the under-review status once more information becomes available."
Civic chief executive Tim Sole is offshore and did not immediately return calls.
No comments yet
NZ dollar mixed after strong Australian employment data
Energy efficiency key to lowering cost of renewables push - EECA
Paper recycling costs rising 35% as export markets collapse
First Union leading rivals for biggest average pay claims, says bargaining firm
Fonterra to go coal-free 11 years ahead of schedule
Huawei committed to NZ even if govt doesn’t come around on spy fears
Mercury points to peaking gains as FY production drops 10%
Asset Plus sells Heinz Watties distribution centre for $29.1 mln
18th July 2019 Morning Report
COMMENT: RBNZ's key political omission in its bank capital proposals