The liquidators of the failed Western Pacific Insurance hope to get $NZ35 million ($26.9 million) in reinsurance to pay Christchurch earthquake claims, but warn it will not be enough to meet claims of about $NZ42 million ($35.3 million).

A report from the liquidators has also raised questions about Western Pacific’s viability prior to the earthquakes, given it wrote more than $NZ10 billion ($7.7 billion) of cover, much of which was not protected by reinsurance.

The report to creditors lists property cover of $NZ2.6 billion ($2 billion) and professional indemnity and public liability cover of $NZ7.89 billion ($6.07 billion).

Liquidators David Ruscoe and Simon Thorn of Grant Thornton say the company “accepted risks outside the scope of its reinsurance policies and chased premium income in numerous countries, including Australia, Abu Dhabi, Chile, Fiji, Rarotonga, Samoa, Singapore and Vanuatu”.

The report says Western Pacific has received $NZ41.2 million ($31.7 million) in total earthquake claims, of which $NZ14.5 million ($11.1 million) relates to the September quake and $NZ20.7 million ($15.9 million) from the February event. The February figure is an estimate only as a large number of claims are still being assessed.

A balance sheet at April 1 gives a book value of $NZ2.6 million ($2 million) for premiums held by brokers, but the liquidators say the estimated realisation is unknown. Western Pacific’s estimated surplus or deficit is also unknown.

Although the company’s books list assets of $NZ4.5 million ($3.4 million), the liquidators say they expect to recover an amount in the hundreds of thousands rather than the millions.

Directors called in the liquidators on April 1 when they became concerned the Queenstown-based insurer could not meet all its claims following the two Christchurch earthquakes.

The liquidators have kept the claims department open and have applied to the High Court for guidance on who is entitled to reinsurance, which they say could take up to six months to clarify. This will determine whether policyholders with claims are entitled to specific reinsurance funds for the two major quakes, or whether all the funds will be available to creditors. 

“Being able to pay the reinsurance premiums was a major milestone as the company has no money and we were appointed on the day that the premiums were due, but we managed to borrow the necessary funds to cover the payments,” they said. The premiums cost $NZ430,000 ($331,000).

Messrs Ruscoe and Thorn are reviewing directors’ actions to see if they can recover funds on the basis of claims for reckless trading, trading while insolvent and certain voidable preference payments.

The liquidators say factors that contributed to Western Pacific’s failure include a high cost of reinsurance – about 40% of premium income – coupled with commissions paid to brokers, which were often 20-25%.

“The company only had 40% of its premium income to cover operating costs and meet claims not covered by reinsurance,” they said.

They also say premiums were priced low, possibly in an attempt to gain market share and grow the business.

“However, in some instances the premiums were too low, with some policies in Christchurch written at a price significantly lower than what is being offered by other insurers.”

The liquidators cancelled all the insurance policies on April 21. They expect to report again by the end of July.