Collapsed Queenstown-based Western Pacific Insurance Ltd, which now owes about $41.1 million, held thousands of policies covering more than $10 billion.
Insurance insiders are questioning how such a small company, with just a $500,000 bond and which was initially tipped into liquidation over just $6 million of liabilities, was able to offer insurances with a total liability of $10.25 billion.
That liability includes commercial property insurance to the value of $476.1 million around Canterbury.
"You would have to ask what percentage of that $476 million is directly related to Christchurch's CBD," an insurance source said on condition of anonymity yesterday.
Liquidators Grant Thornton estimated this week Western owed more than $40 million to quake insurance claimants and creditors, including Christchurch quake claims from September and February of $35.2 million.
AMI, the country's second largest residential insurer, has a 35% share in the Christchurch market. It has estimated its exposure at more than $600 million, and the Government pledged a $500 million back-up package, if required, to AMI about a month ago. However, the Government declined a back-up package for Western because it did not have a sound business model.
Western had at least 7000 clients, including many multiple policy-holders.
Western, with just 15 staff and offices in Queenstown and Auckland, offered policies on business interruption, commercial property, house and contents, private and commercial cars with "total sums insured... all countries" being $2.36 billion, plus policies for professional indemnity and public liability "all countries" totalling $7.89 billion, according to the liquidators.
The liquidators declined to comment yesterday on the extent of the "total sums insured", but insiders have claimed they are "very aware and surprised" about the $10 billion exposure, and once their claims and assessments are "under control" intend to turn their attention to the total sums insured.
"They [the liquidators] want to determine how this [insurance structure] was set up and what decisions were made by the directors," one source said.
In the creditors' report, liquidator Simon Thorn said: "The company accepted risks outside the scope of its reinsurance policies and chased premium income from numerous countries, including Australia, Abu Dhabi, Chile, Fiji, Rarotonga, Samoa, Singapore and Vanuatu."
Brokers' commissions, often between 20% and 25%, meant Western got only 40% of its premium income to cover operating costs and meet claims not covered by reinsurance, he said.
Reinsurance was "costly", and that also amounted to about 40% of total premium income.
"The company's affairs indicate a significant lack of capital and an aggressive approach to winning market share which may have led to its failure.
"It was simply incapable of meeting the claims," Mr Thorn said.
The company was placed in liquidation by its directors, Graham Smolenski, of Queenstown, and Jeffrey McNally, of Australia.
Liquidators estimate they may be able to get back about $32 million of the $41.1 million owed from reinsurance companies.
