The directors of Western Pacific Insurance (WPI) asked the New Zealand Government for urgent support in March, but Treasury officials recommended against helping the company because they expected it to fail.

Western Pacific appointed a provisional liquidator on April 1, blaming Christchurch earthquake claims. However, NZ Treasury staff believed the earthquakes were not the cause of the insurer’s troubles.

“The underlying cause of WPI’s probable failure is not considered to be the Christchurch earthquakes, but more its undercapitalisation and its cashflow business model which has now been exposed through the failure of an insurance broker,” officials said in a briefing to the Government on March 31.

The statement was in a collection of documents released under the Official Information Act relating to Western Pacific and Government support for the Christchurch-based insurer AMI.

The documents included a letter from WPI CEO Jeff McNally to Finance Minister Bill English on March 11 asking for access to a $NZ500,000 ($373,000) government bond that WPI had in place with the Public Trustee and a $NZ5 million ($3.73 million) government guarantee for five years.

Mr McNally said these were necessary “to meet cashflow requirements and to keep reinsurance funds of $NZ62 million ($46 million) available to the people and businesses of Christchurch”.

Treasury officials told Mr English and Earthquake Recovery Minister Gerry Brownlee that the company was at high risk of failure shortly after March 30 when its reinsurance premium was due.

They said although failure would have significant implications for 180 firms and households with outstanding claims, they did not recommend support because the impact on the Christchurch recovery would be small; there would be limited impact on the insurance market; WPI was not well-capitalised; it did not have a sound business model “and there are not reasonable prospects for the business to continue as an unsupported going concern in future”.

The officials said a bailout for WPI would send a poor signal about the Government supporting weak insurers.

And apart from that, they said the Reserve Bank of New Zealand would probably not license the company when it takes over prudential regulation of the industry, and at that point the $NZ500,000 insurance bond will be available for policyholders.

In a briefing on April 7, the Treasury officials said WPI was unable to meet its reinsurance premium of around $NZ6 million ($4.5 million). They expected the company to breach its reinsurance cover by a substantial amount, which meant WPI’s shortfall was not just in reinsurance recoveries but also in amounts above the reinsurance ceiling.