Sharechat Logo

Civic Assurance risks downgrade as stoush with reinsurers looms

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.

BusinessDesk.co.nz



  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:

RBNZ steps up BNZ supervision after capital calculation breaches
Beehive lobbied for revised StuffME deal
Ebos shares fall 9.5% as biggest shareholder sells at a discount
ComCom unmoved by warning on fibre investment in draft regime
BREAKING: Govt adds vital infrastructure to overseas investment test
Judges recommend changes to help Chinese litigants
Napier Port beats FY forecast; monitoring log export outlook
A2 shares surge on stronger margin outlook
A2 raises operating profit margin expectations
Arvida on track as first-half profit climbs 47%

IRG See IRG research reports