CBL – What went wrong?

It was a proud moment for CBL boss Peter Harris (pictured).

Over 17 years, the kiwi businessman had grafted hard to grow CBL Corporation from a tiny office in New Zealand to a billion dollar global-listed business with 550 staff.

And in October last year, his achievements were crowned with EY’s 2017 Entrepreneur of the Year award.

But just a four months later, it has all gone so horribly wrong. The business is on the brink of total collapse.

Amid gaping holes in its reserves, CBL’s insurance businesses are in interim liquidation on orders from the New Zealand and Irish insurance regulators.

Dublin-based CBL Insurance Europe’s brokers across the UK and Ireland have been scrambling around for new cover in property, solicitors’ professional indemnity, airline insolvency and construction surety.

Meanwhile angry shareholders, who were lured in by stellar growth in the insurance business, demand answers.

One retail investor on the sharetrader.co.nz forum said: “Disappointed – I thought better of Peter Harris – the so-called ‘entrepreneur of the year 2017’! Just wondering whether he returns his award?”

Worrying signs of problems

Few people saw the collapse coming, but looking back, there were worrying signs all over the business.

The first signs of trouble emerged when Elite, a controversial, unrated Gibraltar carrier, collapsed with solvency problems in September 2016.

According to Elite’s solvency filings, CBL was reinsuring 80% on one of its most significant lines.

Following Elite’s demise, CBL shifted the Elite business into its European arm, CBLIE.

That helped CBLIE grow gross written premiums 772.1%, from NZ$11.1m in 2016 to NZ$96.8m in 2017.

Elite’s collapse triggered investigations from the New Zealand Reserve Bank since at least mid-2017, but the market was kept in the dark for confidentiality reasons.

More hints of problems emerged when CBL revealed in its August 2017 half-year results that it needed NZ$16.5m of reserve strengthening.

The liability tail was beginning to sting.

CBL Insurance Europe was heavily exposed to surety and credit liability in the French construction sector, a volatile and unpredictable class of insurance.

There was also the fact that the company was underpinned by an unusual and highly risky structure in which CBL Corp acted as the reinsurer for CBL Insurance Europe and subsidiaries.

It was all too much for some shareholders who saw the chance to get out while they could, and the share price had plummeted 25% by mid-September.

But the once unrated CBL had earlier in the year received a top financial strength rating from AM Best.

Many investors shrugged it off as a blip and the share price recovered strongly.

Then in January, Luxembourg’s insurance regulator fined CBL Corporation €5,000.

The market was left largely in the dark on details, other than CBL’s admission it was “operating outside certain aspects of its insurance authority”.

It proved shareholders’ last chance to get out.

In February, the Irish Central Bank discovered a NZ$100m reserves hole in CBL Insurance Europe.

From there, the insurance business quickly fell apart in days with the share suspension and eventual liquidation order.

UK brokers have seen it all before

Back in the UK, brokers are barely batting an eyelid at yet another failing passported insurer.

Independent, Quinn, Gable, Lemma, Millburn, Balva, Elite, Enterprise, Aldgate – the offshore insurer graveyard is crowded.

Brokerbility boss Ashwin Mistry says the soft market, Brexit and insurance premium tax mean brokers will “fish off the shores of the UK” for business.

“We don’t seem to learn from the lessons of the past. In the pursuit of competitive edge, brokers are getting riskier with placement because they want to gain commercial advantage,” he says.

IIG founder Mike Smith says: “For some reason, the industry seems to be drawn purely to price without any consideration for the true protection of their clients.

“It’s about time brokers and MGAs seriously reviewed the stability of their capacity before legislation starts to restrict the way we transact business within our market.”

The speed of CBL Insurance’s demise may have stunned its New Zealand shareholders.

But for UK brokers, CBL is an all too familiar story of an offshore insurer growing too fast, with too little money.