The liquidators of failed New Zealand insurer Western Pacific have cancelled its insurance policies after failing to sell the business.

They are now seeking reinsurance payouts for earthquake claims and clients’ funds held by brokers.

Directors of the Queenstown-based insurer appointed the liquidators on April 1 when they became concerned they could not meet all claims as a result of the February 22 Christchurch earthquake.

The first liquidator’s report lists $NZ2.6 million ($1.9 million) of premiums held by brokers as an asset of the business, but it seems unlikely that brokers will willingly hand over the funds when Western Pacific is not providing cover.

But liquidators David Ruscoe and Simon Thorn of Grant Thornton say they will be pursuing brokers for the money.

“The brokers are debtors of Western Pacific,” Mr Ruscoe told insuranceNEWS.com.au, saying their clients have become unsecured creditors. The funds will be used to pay them out.

Insurance Brokers Association of New Zealand spokesman Phil Snookes told insuranceNEWS.com.au that brokers contacting the association for advice have been told their first priority is to get their clients insured and to sort out any issues with the liquidators later.

Western Pacific had 7000 policyholders and about half its South Island business is in the Christchurch area.

The status of earthquake claims is unclear while the liquidators call on reinsurance contracts, but Mr Thorn says the reinsurance payouts probably won’t be sufficient to pay out creditors. 

He says the liquidators cancelled the policies once they determined the company could not respond to any more claims.

In a letter to policyholders, they say that under the NZ Companies Act they “disclaim the insurance policies as onerous property. The effect of this is the cancellation of all insurance policies you hold with the company effective immediately.”

The liquidators have arranged for Tower NZ to become a preferred supplier for policyholders who have been referred to the insurer for consideration.