Ansvar fallback scheme worries
Hundredsof churches, schools, community groups and individual policyholders are holding their breath– and probably praying– that their insurer, formerly Ansvar, NOWACS(NZ), will have enough cash to settle their claims. Will it pass a strictnewsolvency tes
Aleading insurer of churches and historic buildings, Ansvar New Zealand was set up in 1982, and bought in 1998 by Britishbased Ecclesiastical Insurance Office, also the insurer of the likes of Westminster Abbey and St Paul’s Cathedral.
To an Ansvar policyholder in Canterbury, it would have seemed like they were in good company. But September 4, 2010, and February 22, 2011 earthquakes in Canterbury changed that.
Ansvar had 2800 commercial policies and 17,700 domestic policies in New Zealand. Nearly 2000 of those policies were in Christchurch.
The insurer had its own disaster on its hands as it was inundated with hundreds of millions of dollars’ worth of claims for the broken churches, schools, heritage buildings and homes of policyholders in Canterbury.
By September last year the insurer announced it would no longer offer earthquake cover in New Zealand. Two months later it said it was withdrawing from the New Zealand market altogether, effective December 31 last year.
That left its customers running for cover, and wondering whether their claims would be met.
In February Ansvar changed its name to ACS (NZ) to avoid confusion with its immediate parent company Ansvar Insurance Ltd (Australia), and also, it said, to reflect the fact that it was no longer writing insurance policies, but was simply managing claims as it withdrew from the New Zealand market.
In April it announced it would ask policyholders to vote on a scheme of arrangement – in other words a plan for paying out claims if the company went under.
The plan comes into effect if a ‘‘trigger event’’ occurs – basically, if ACS becomes insolvent.
Directors of ACS promoted the scheme as a way to ensure a less disruptive, more orderly and more costeffective process for settling claims if the company effectively became insolvent.
But a key reason also was for Ansvar to remain in control of its own wind-up rather than falling into the hands of a liquidator.
To persuade policyholders to vote for the scheme parent company, Ecclesiastical Insurance Office committed to contribute $22 million, if the scheme was approved.
And so on a cold and rainy June 12, policyholders shuffled into the Hagley Park events village in Christchurch and duly voted in favour of the scheme.
Policyholders had a lot of questions for ACS’s directors however, including why the company seemed to be in a rush to vote on the scheme when reports from KPMGand the Reserve Bank had been released only a few days before.
The Reserve Bank report raised red flags over the fairness of the scheme for policyholders that took longer to settle their claims.
It also raised concerns about the solvency of ACS, highlighted by an independent report by KPMG which indicated a 25 per cent risk of ACS not being able to
Concerned:
Offering reassurance: settle the hundreds of millions of dollars of earthquake claims.
Come June 30, ACS will be subject to legislated solvency requirements – the Solvency Standard for Non-life Insurance Business in Run-off – which requires a higher solvency buffer than the Companies Act test.
The higher threshold requires the company to have additional capital so that the chance of insolvency is reduced to 10 per cent.
ACS maintains it is currently solvent under both the Companies Act test and the Reserve Bank test. It said its own actuarial analysis showed it would be able to meet the new standard until all claims would be settled, though it was still ‘‘carefully considering’’ the implications of theKPMG report.
Policyholders also want to know why EIO can’t stump up with more cash if ACS’s coffers start looking a bit bare.
Why can’t ACS ask its parent formore pocket money?
At the meeting ACS chief executive Andrew Moon said Ansvar Australia and EIO had made already a considerable financial commitment to the company in New Zealand – more than $70m.
‘‘I know that there are those of you who will say that we are morally obliged to provide this support. Whatever your view, I can tell you that . . . in my 35-year career with many multinational organisations, and having a great deal of experience in the insurance industry, there are few companies that would have made even a fraction of that commitment.’’
That contribution – ‘‘a contribution made not out of guilt or concern’’ – had ensured solvency, Moon said.