Insurance scheme approved
The High Court at Auckland yesterday approved an amended scheme of arrangement for the settlement of claims of former Ansvar policyholders.
The churches and heritage buildings insurer, now known as ACS (NZ) Limited, withdrew from the New Zealand market after it was flooded with hundreds of millions of dollars' worth of Canterbury earthquake claims.
Policyholders last week voted in favour of a contingency scheme put forward by ACS for settling their claims if the company goes under and ACS applied to the High Court for approval of the scheme yesterday.
Justice Venning in his judgment said he was satisfied the scheme was one "an intelligent and honest person in business might reasonably approve" and that finding was supported by the significant level of support for the scheme at the creditors' meeting last week in Christchurch.
However several policyholders, as well as the Reserve Bank, had filed notices of appearance or notices of opposition.
The central bank said that based on an analysis by KPMG, there was a real issue whether ACS would be able to meet new, more stringent solvency requirements by a June 30 deadline, and it could shortly be placed into liquidation.
The bank is the new regulator of insurance companies.
The KPMG report suggested there was a 25 per cent chance of ACS failing to meet that solvency test.
However the court said KPMG itself had said the estimate of solvency was complex and the results of the report should not be interpreted as providing a range of possible outcomes.
The KPMG report acknowledged the matter would need to be reassessed over the coming months as further information emerged.
The Reserve Bank raised concerns also about the disparity between the voting policyholders' assessment of their claims of $934.6 million and the value ACS attributed to those claims of $445.8 million.
But Justice Venning said it was fair to say that "one would not expect the claimants to have understated their claims" and no doubt during the claims process the parties would have to revise their estimates.
The Reserve Bank has earlier said ACS's British parent has not injected enough cash into ACS to support claims.
The judge noted the bank's concern over possible unequal treatment of policyholders but said that while claimants paid before a trigger event – ACS becoming insolvent – may recover more than claimants paid after the event, that was the practical position that would apply in the event of a liquidation if the scheme was not approved.
The bank also said it was concerned if the scheme was broad enough to enable a reduction in the percentage paid to claimants, but the court said it accepted ACS's argument that scheme administrators were likely to adopt a conservative approach assessing outstanding claims.
It was likely they would pay out less than they anticipated might ultimately be payable, rather than initially paying out the maximum percentage assessed as payable and then reducing payouts later.
Justice Venning said he was satisfied, on balance, that the bank's concerns were answered by the provisions of the scheme.
Church Property Trustees of the Anglican Diocese of Christchurch had filed a notice of opposition but after assurances from ACS, including undertakings and an agreement to amendments, the trustees had voted in favour of the scheme.
The Arts Centre, and the ACS Client Support Group, which also filed papers, said they would abide by the decision of the court.
Rangi Ruru School had voted against the scheme and had filed a notice of opposition but yesterday said it would abide by the decision.
An amendment sought by the Roman Catholic bishop of the diocese of Christchurch had been agreed to by ACS.
ACS chief executive Andrew Moon said the company believed it was solvent and was likely to remain so.
The scheme is effective from today.
FINDINGS OF THE KPMG REPORT
The ultimate cost of claims is "highly uncertain".
Best estimate: ACS has claims for February 22 of $574 million.
ACS has about $570m reinsurance for Feb 22.
A 25 per cent risk that claims could total $614 million.
A 10 per cent risk claims could total $650m.
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