CBL ordered to cease business in Ireland

CBL Group managing director Peter Harris.

Tim Hunter on CBL's latest woes.

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It keeps getting worse for insurer CBL [NZX:CBL]. With its shares suspended and its core business shredded in France, CBL told the stock exchange today that its Irish subsidiary had been ordered to cease writing new business immediately.

The order was issued by the Central Bank of Ireland, CBL said, and covered its Ireland-registered subsidiary CBL Insurance Europe Dac.

CBL said it has taken legal advice and instructed lawyers to ask for the CBI to lift the order.

“Failing this, CBLIE reserves its rights to take any action it deems necessary to protect its interests,” it said.

The announcement adds to a horror start to the year for CBL, which issued a profit warning on February 5 citing major problems in its French construction insurance business.

CBL shares have not traded since February 1 and were suspended by the NZX on February 8. NZX Regulation said at the time it was concerned not all material information was available to the market.

“Furthermore, NZXR understands the FMA and other regulators have raised concerns relating to the completeness and veracity of information that has been released to the market by CBL.”

On February 13 CBL announced it would exit the French business, a process that would take 90 days to complete. It described the move as “a significant and positive decision.”

The company is due to release its results for the year to December on February 27.


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13 Comments & Questions

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Who was the sharebroker who sponsored this company into the stock exchange?

How much DD did they do and that also applies to the NZX

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The joint lead managers in the 2015 float were UBS and Forsyth Barr. The investigating accountant was KPMG, the auditor was Crowe Horwath and the financial adviser to CBL was Bancorp Corporate Finance, according to the product disclosure statement.

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And Mr Wells ( not Newsboy but his Dad) - ex Bancorp principal is the Chairman. Possibly a position he now regrets accepting.....

This disaster has more to run yet I reckon

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This is not a great position for any business, and most certainly not a position envisaged I am sure!

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If France made up 48% of CBLs business how much did Ireland make?

It doesn't leave much business left and probably what's left won t now be profitable

With a market cap if $770m pre these issues coming to light, the loss of shareholder wealth will be massive if and when the suspension is lifted. Based on this scenario it will be a SFO issue to investigate.

But maybe not as there are a few blue bloods implicated

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Thanks for your comment Scribe. My understanding is that the Ireland subsidiary was focused on insuring risks in Europe, particularly in France, and not in Ireland specifically. 

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The reasonable inference to be drawn from Tim Hunter's excellent investigations of what has happened here, and more importantly what exactly the CBL "Entrepreneur of the Year" business model might be made up of, is this:-

CBL may have been involved in writing and underwriting, with little or no ultimate reinsurance, both sides of the same risk - DO and DL construction insurance liability in France, where it is compulsory to have such insurance. One insurance insures the home or project owner, the other the builder. Claims made by owners have to be paid immediately and the insurers (CBL?) then seeks recover from the builders insurer ( in this case CBL itself?).

If this is an accurate summary then CBL has secured market share by doing something its not allowed to and at a dangerously low price for such a double whammy risk. This will likely have upset competitors who will have dobbed them in. When fined and told to stop, it has kept doing it through an Irish subsidiary or associated entity? The EU has read the information and explanations on line and joined the dots and said stop issuing any such policies in/from either Ireland or France ( or anywhere in the EU?)

If all the above is true, and it is up to CBL now to explain why it is not, then the FMA and NZX must also forbid CBL from issuing any new capital in NZ to make up the losses from these likely illegal activities.

Likewise, one lesson to be learned from Feltex, is when the explanations given don't stack up, and the underlying business was possibly never real from day one, the shares should never be allowed to trade again as they are likely worthless. Forget the $3.45 or $3.17 think zero.

To relist these shares ( NZX take note) without a very full explanation and understanding, signed off by someone taking liability to current and new shareholders for that assessment, will be, in my opinion, to take on some of the responsibility for the inevitable new losses that will be inflicted on uninformed or misinformed bargain hunters.

These are the lessons from Pike River and Feltex, lies beget lies.

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Good analysis Tony. And yes agree lessons from other companies. Looks like Sir John is going to follow Sir Ralph as regards their legacy reputation.

Poor governance decisions will eventually catch up with you.

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With insurance you always have to remember that $100 through the door could potentially be $1000 in claims alone before expenses etc. You don't take on long term liabilities like the French DO and DL business without some serious thought into the actuarial modelling of future claims. Their auditors and appointed actuary have to answer to this too.

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I dodged a bullet with this one. I stayed away because the prospectus financial statements showed increasing restatements from prior year claims.

In the context of GWP growing through acquisitions, the restatements were actually a massive proportion of prior year profits. Once growth stopped, the prior year restatements would like quite frightening as they were no longer hidden by artificially large profit numbers.

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Look carefully at who is on this Board, and then at those individual director's prior commercial disasters or disputes. I wonder how much of each director's history was available to the DD Committee? Was there full honesty and transparency about prior activities? And if not, was this a factor in the failure? I suspect the minutes of the DD Committee will be a fruitful place to start the search for litigation material.

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I'd also be comparing DD Committee minutes from individual directors to disclosures by each director to CBL's own D&O insurance underwriters. Are the disclosures consistent? If they are, I suspect both the Committee and the Underwriter have been misled. Once the D&O underwriter investigates, I suspect there is a good chance the D&O insurance will be invalidated. Making the CBL Board very nervous indeed.

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The surface has not even been scratched here. The RBNZ knew back in 2013 and 2014 about CBL's (Contractors Bonding Limited as they were known back in the early 2000s) fraudulent activities in the USA stae of Georgia. They weren't intrested. The FMA knew back in September 2015 that CBL had told lies in their Product Disclosure Statement, and they weren't interested. In my humble opinion, this whole situation could/ would have been avoided if the RBNZ, who knew first, and the FMA, who knew second, had taken action when they were first made aware

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