In a joint Reserve Bank-Treasury document released yesterday, officials did not recommend providing Western Pacific with support to maintain it as a going concern because its impact on the overall recovery in Christchurch was likely to be small, it was expected to have a limited impact on insurance markets more generally, due to its small size, and it was not a well-capitalised insurer.
The assessment by officials was that Western Pacific 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.
"In these circumstances, support would send a poor signal about the Government's willingness to support weak insurance companies."
Given those points, it was unlikely to be legally possible for the Reserve Bank to grant Western Pacific a licence, officials said.
If the insurer was not licensed, its deposit with the Public Trust would be available to policyholders given its voluntary liquidation.
Western Pacific had two shareholders - Karuell Properties (80%) and G.L.
Smolenski Investments (20%). It had 15 staff with offices in Auckland and Queenstown.
In July 2009, Western Pacific had cash reserves of $1.2 million. When the Christchurch quake hit, those cash reserves had diminished due to cyclone losses in Fiji. The directors put in $620,000 of new capital, a $750,000 overdraft facility was set up and DH Flinders was appointed to raise $5 million in capital on the equity markets.
Western Pacific had $12.5 million of exposure to the September earthquake and when the company wrote to Finance Minister Bill English on March 11, it had estimated it had $12 million of exposure from the February quake.
Western Pacific asked the Government to allow access to its $500,000 bond and provide a $5 million government guarantee for five years.
Government officials advised Mr English that while it was an objective of the Government to ensure the rebuild of Christchurch was not jeopardised by solvency problems experienced by insurers, that must be balanced against the Government's policy to, where possible, have market discipline and commercial solutions drive the outcome for insurers facing any sort of financial stress.
"Western Pacific is an under capitalised insurer which has gone into voluntary liquidation and whose business model does not lead to officials recommending Western Pacific being maintained as a going concern."
