News Non-Life05 Mar 2018

New Zealand:Interim liquidation of insurer may hit 10,000 homes

05 Mar 2018

More than 10,000 new home warranties may be worthless as a result of CBL Insurance, the country's biggest and oldest provider of credit surety and financial risk insurance, being placed into interim liquidation.

CBL Insurance, which is a subsidiary of NZX-listed CBL Corporation, was put in the hands of interim liquidators on 23 February after a ruling in the High Court at Auckland.

The move may have left many Kiwis who built homes in the past 10 years exposed, reported New Zealand Herald. Typically, New Zealand builders offer a 10-year warranty for problems and defects in a house, and that warranty is covered by insurance if they go bust or close down.

The interim liquidators said last week that they would not be paying out for claims and advised policyholders to seek advice on getting cover elsewhere.

Mr Jim Rickard, a director of Builtin and CBA Insurances, which sold the policies underwritten by CBL Insurance, said it had made arrangements for builder's liability policies to be transferred to another insurer.

But the situation around the 10-year warranties was still unresolved. He said more than 10,000 new homes in New Zealand were covered by this type of policy, although they ranged in age, with some policies having just six months to run. He said that whether another insurer could take on the warranties was being looked into.

The policies were also sold via the New Zealand Certified Builders Association (NZCBA) until 2016, when the body switched to a product sold by global insurer Lloyds of London.

Mr John Gray, Chief Executive of the Home Owners and Buyers Association (HOBANZ) believes it should be up to the providers — Builtin and the NZCBA — to come up with a solution to the problem. He said consumers had to rely on the organisations which sold the insurance to do the due diligence on the insurance underwriter.

He said that under the Building Act, consumers would still be covered for up to 10 years for any faults or problems with their home, but that relied on the builder still being around to sort out the problem.

He said finding a replacement insurer for CBL Insurance was a very complex scenario and required looking for another underwriter who would take on retrospective cover. He said any company considering taking on the guarantee faced considerable risk, including the claims history of each builder. That meant any premiums would likely be higher to cover the risk.

The Reserve Bank — New Zealand's regulator for the insurance industry — asked the High Court to appoint interim liquidators to CBL Insurance after the company made payments of NZ$55 million (US$40 million) in breach of directions by the regulator. The payments to overseas companies were made amid significant doubts about CBL Insurance's solvency.

The first outward signs of something amiss at CBL Insurance appeared in early February when trading in CBL Corporation's shares were halted and the company announced that it had to strengthen reserves for its French construction business by NZ$100 million, and had made a NZ$44 million write-off, resulting in a likely after tax loss of between NZ$75 million to NZ$85 million. It later emerged that the Reserve Bank had been reviewing the adequacy of the company's reserves for the French construction business and had imposed a direction as far back as July 2017 on its minimum solvency, followed by a further direction in November to consult it on any non-business-as-usual transactions over NZ$5 million.



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