Liquidators of failed Queenstown-based Western Pacific Insurance have revealed the collapsed company has an almost seven-fold increase in exposure to outstanding insurance and creditors claims - not $6 million as first estimated, but totalling $41.1 million and possibly rising.
Industry sources have said Christchurch's separate earthquakes, events elsewhere, assessment times and the time taken by people to file claims, have all contributed to the unexpected near seven-fold estimated increase.
Western's liquidators Grant Thornton yesterday said they have borrowed money to pay reinsurance premiums in the hope up to $32 million will be available for Canterbury earthquake claims.
However, liquidator Simon Thorn said there would be a shortfall of funds; initially estimating in mid-April $6 million was owed to creditors and insurance claims, but yesterday estimating there was $41.1 million in claims.
The $41.1 million includes more than 150 quake claims of $14.5 million relating to Christchurch's September earthquake and a further $20.7 million from the February quake.
The February estimate of $20.7 million was "very rough", as damage assessments had not progressed far, Mr Thorn said.
It appears Western's directors will be coming under closer scrutiny from liquidators, who said they would be reviewing the directors' performance in regard to taking any action to recover funds for creditors.
"These actions can include claims [against directors] for reckless trading, entering into transactions when insolvent and certain voidable preference payments," Mr Thorn said in a statement yesterday.
Western, which had about 7000 policyholders, was placed in voluntary liquidation by 80% shareholder Karuell Properties and 20% G.L. Smolenski Investments, on April 1, because of insolvency concerns.
Mr Thorn said that being able to pay the reinsurance premiums was "a major milestone as the company has no money".
"We were appointed on the day that the reinsurance premiums were due, but we managed to borrow the necessary funds to cover the payments," Mr Thorn said.
He said in a recent report to policyholders that by paying the reinsurance premiums, the liquidators were hopeful that about $32 million would be available for Canterbury earthquake claims.
While confirming there would be a shortfall in funds, Mr Thorn said the liquidators would not be in a position to make any repayments until all claims had been received and assessed.
"It is important for those who are yet to make claims to do so as quickly as possible," he said.
Western's assets had a book value of $4.5 million, he said, but cautioned the saleable value may "only be in the hundreds of thousands", because fixed assets were not a great value and interests in Australian and Hong Kong subsidiaries "will have no value".
"Unremitted premiums held by brokers may not be fully recoverable; e.g. if they relate to the period after we [liquidators] cancelled insurance contracts," Mr Thorn said.
In late April, Western's 7000 insurance policies were cancelled after the liquidators were unable to sell, transfer or assign the business; offering Tower as as a "preferred supplier" to policy-holders.
Mr Thorn said the liquidators were applying to the courts for guidance, about who is entitled to potential reinsurance proceeds, and it could take up to six months for clarification.
In mid-May in a joint Reserve Bank-Treasury document, officials did not recommend providing Western with support to maintain it as a going concern; as it did for Christchurch-based insurer AMI at the time - offering a $500 million back-up package.
If required, the Crown had the capacity to oversee AMI's operations and governing policies and take control of the board through its option to make a partial payment.
The officials' assessment at the time was that Western did not have a sound business model and there were not reasonable prospects for the business to continue as an unsupported going concern in the future.
Claims
Claims totalling $41.18 million against failed Western Pacific Insurance:
Christchurch: September quake, $14.48 million
Christchurch: February quake, $20.72 million
Other New Zealand: $1.01 million
Australia: $2.86 million
Pacific and other: $2.11 million
