AM Best has placed New Zealand local government insurer Civic Assurance under review with negative implications.

While the ratings agency has affirmed Civic’s B++ (good) financial strength rating and its bbb+ issuer credit rating, it says the review actions “largely reflect Civic Assurance’s potential dispute with its reinsurers”.

“Although the company’s balance sheet was enhanced by a capital injection in February 2012, the prospective risk-adjusted capitalisation could be stressed by the possibility of some of its reinsurance recoverable balances being uncollectible,” AM Best says.

But Civic CEO Tim Sole says there is no dispute with the company’s reinsurers, and given the size of Canterbury earthquake payouts, it is not surprising that reinsurers want to check all payments are correct.

Civic’s reinsurers declined to renew cover from July 1 last year after incurring most of the insurer’s earthquake losses, leaving them with a bill of more than $NZ600 million ($463 million) and Civic with a retention of only $NZ10.8 million ($8.3 million) of losses last year.

AM Best says there could be a downgrade if there is a sizeable decrease in Civic’s net assets.