Interim liquidation disrupts builders’ policies

CBL Insurance LTD (CBL), which underwrote a number of building insurance specialist Builtin’s policies, has been placed into interim liquidation, during which time no claims can be paid

The New Zealand insurer is responsible for underwriting Builtin’s liability and indemnity policies, while Builtin also distributed CBL’s Homefirst Builders Guarantee. Builtin was CBL’s sole representative in New Zealand for these policies.

What happened to CBL?

Following an application to the High Court from the Reserve Bank of New Zealand, CBL has been placed into interim liquidation following concerns about its solvency.

This application was made because, during the Reserve Bank’s investigation into its solvency, CBL made payments worth $55 million to companies within its European division – a direct violation of the Reserve Bank’s orders.

As a result, the company was placed into interim liquidation on 23 February by the High Court.

Citing the liquidation, CBL informed the NZX it will not be releasing its preliminary results announcement for the year ended 31 December 2017, which were due on 1 March. Its rating has also been downgraded from an A to an E.

In its 2017 half-year result, the company reported cash and cash equivalents of $445 million and actual solvency capital of $160 million.

Independent insurance broker CBA Insurances also issued a clarification to its customers last week after some customers mistook the issues with CBL Insurance Limited as affecting their broker. According to its statement, CBA Insurances is not affected by the interim liquidation of CBL Insurance Limited as it has arranged alternative cover for affected clients.

What does it mean for Builtin customers?

Many Builtin customers affected by the interim liquidation of CBL Insurance Limited are already covered by an alternative insurer, but the company is encouraging anyone who is concerned or unsure to contact them to allay their fears.

Builtin marketing manager Ben Rickard said that advice from the interim liquidators stated that CBL was still accepting and processing claims, but that no payments would be made until the interim liquidation was resolved. In the meantime, the team at Builtin has been working hard to arrange alternative cover for its customers.

“We’re doing our best to make sure our customers are covered while this process is worked through,” said Mr Rickard. “CBL was an A-rated insurer and we had no reason to doubt its reputation, nor had we received any notice that they were being investigated by the Reserve Bank.”

For those who have renewed or taken out a liability or indemnity policy in the past few weeks, an alternative arrangement had already been made with The Hollard Insurance Company Pty Limited (rated A-).

Other policyholders wanting to arrange immediate cover for the remainder of their policy period will need to pay an additional premium to the new insurer and should contact Builtin to arrange it. Customers whose policies are due for renewal will be automatically placed with Hollard Insurance.

Mr Rickard said they will be requesting a credit from CBL for those who cancel their policy, the amount of which will be dependent on the outcome of the interim liquidation.

Homefirst Builders Guarantee customers with houses still under construction or within 12 months of completion can apply for a new ten-year guarantee, which is backed by Lloyds of London (rated A+). Again, the possibility of a credit from CBL will depend on the outcome of the interim liquidation.

Mr Rickard said that they are currently working to find a solution for people with policies on a house that has been completed for longer than 12 months.

He said that people who have claims pending with CBL would be unable to transfer those to another insurer and will have to wait until the interim liquidation is resolved to receive any potential payment.

He stressed it was important to note it was only an interim liquidation, which is when liquidators are appointed to preserve the company’s assets pending determination over whether or not to place the company into final liquidation.

In this case, the Reserve Bank took the step to ensure no more assets or cash could be distributed overseas. It is not yet clear how long it will take to resolve the process, or what the ultimate result will be. Were the company to be placed into final liquidation, Mr Rickard said policyholders with outstanding claims would be treated as unsecured creditors.

Visit Builtin’s website www.builtininsurance.co.nz/cbl-update/ for more information.