Insurance sector hit with another company failure as Queenstown's Western Pacific goes under

Queenstown-based Western Pacific Insurance Limited, with around 7,000 customers, has gone out of business although claims (including those from the Christchurch earthquake) continue to be processed.

Liquidators Grant Thornton said policy holders were in the process of being contacted through their brokers and that insurance policies were being reviewed to determined their validity.

"We know people will be worried about their situation and so we're urgently working through these issues,'' said liquidator David Ruscoe of Grant Thornton in a news release.

Reasons for the company's failure were not disclosed pending further inquiry.

"Until we carry out our review and look at further options for the business, we are not in a position to make further comment,'' said Ruscoe.

Western Pacific was established in 2005. It is described as "principally a broker brand that offers a wide range of commercial, domestic and specialty products as well as programmes for affinity groups, underwriting agents and preferred brokers.''

Liquidation proceedings commenced last Friday after company directors Jeffrey McNally and Graham Smolenski signaled concerns about the company's solvency.

Exact numbers were not released but Grant Thornton indicated Western Pacific had an exposure to the residential market in earthquake ravaged Christchurch.

It is believed there are 78 claims from the September 4 quake and another 77 from the more damaging February 22nd incident.

Ruscoe said priority for claims would be given to those customers.

Western Pacific is the second insurance industry casualty in recent months.

Last month Auckland-based insurance broker Herbert Insurance Group, with some 6,000 customers, was placed into receivership. (See original story here). That company is being investigated by the Serious Fraud Office over allegations of withholding premium payments from insurers. (For interview with CEO Grant Herbert click here.)

The Reserve Bank, prudential supervisor of the industry, was "monitoring the insurance sector closely, especially for the impact of the February Christchurch earthquake,'' said a spokesperson.

"As our licensing regime is getting underway, we are getting information from the sector, and our assessment so far is that the bulk of the mainstream industry is sound and functioning well.''

For Standard & Poor's "R" rating downgrade see details below:

Western Pacific Insurance Ltd. Ratings to ‘R’ On Appointment of Liquidator Melbourne, April 5, 2011—Standard & Poor's Ratings Services said today that it has placed its insurer financial strength and counterparty credit ratings on New Zealand insurance company Western Pacific Insurance Ltd. (WPIL), to ‘R’ for regulatory action, as the company was placed into liquidation effective April 4, 2011. The rating was ‘B’ (effective January 2009), denoting weak financial security characteristics. The outlook on WPIL was stable, while the outlook on the New Zealand non-life insurance industry was negative, reflecting the earnings impact of the recent earthquakes around Christchurch. WPIL was placed into liquidation following the material financial impact of the Christchurch/Canterbury earthquakes of September 2010 and February 2011, where the insurer had significant exposure given its South Island base. WPIL’s limited capital resources were overwhelmed by two catastrophe reinsurance program net retentions of NZ$1 million in a short period of time, and the shareholders’ failure to inject sufficient capital to maintain solvency at a time of stress. Standard & Poor’s had always acknowledged WPIL’s inherent weaknesses in a small absolute capital size, exposure to operational and small business risks, and limited financial flexibility of entrepreneurial private ownership, but the reinsurance program was viewed as good for a company of this profile. The financial flexibility of its shareholders to support the company in need, which supported the ‘B/Stable’ rating at the time of the earthquakes, proved not forthcoming beyond an interim injection of around NZ$500,000 late 2010. Upgrades with Standard & Poor's rating