Bevan Killick, who has served on the board of Southern Response since 2012, has questioned whether FMG has adequate reinsurance cover. Photo / supplied.
Bevan Killick, who has served on the board of Southern Response since 2012, has questioned whether FMG has adequate reinsurance cover. Photo / supplied.
An industry veteran vying for a place on the board of Farmers Mutual Group is raising concerns about the insurance company's reinsurance cover and questioned whether directors have the necessary skills to run an insurer.
Later this month FMG, which announced in 2019 that it had a greater than 50per cent market share in rural insurance in New Zealand, holds its annual shareholder meeting in Tauranga.
Among the 10 candidates vying for just three positions is Bevan Killick, an insurance industry specialist who worked for more than a decade at Lloyds of London.
Killick has also been on the board of Southern Response, the government entity set up to settle the claims of policyholders in AMI, which collapsed following the Canterbury earthquakes.
He said part of the problem at AMI was a lack of reinsurance, as he pointed to a relatively small amount of reinsurance held by FMG compared to Medical Assurance Society, Tower, IAG or Suncorp.
While FMG had strong reserves, Killick said having adequate cover was especially important for mutual insurers which did not have access to shareholder capital or debt like privately-owned rivals.
"The risk is that there's another catastrophe, that the reinsurance cover is inadequate, as we saw with AMI," Killick said, pointing to FMG's loss after the Kaikoura earthquake. "The financial results of entities that have low levels of reinsurance are more variable."
Although FMG had more of a diverse regional spread than AMI, which was focused on Christchurch, Killick pointed to IAG having both far more reinsurance, more regional spread than FMG and recourse to shareholder funds.
"If the Alpine Fault goes it doesn't matter whether your assets are spread across the country or concentrated in a city. It's the same outcome."
As part of expressing an interest in joining the board of FMG Killick had showed an interest in joining FMG for several years and had met with directors "where I've probed the board members' understanding of reinsurance and to try to get an understanding of the reinsurance arrangements," he said.
"The answers I've had are fairly lightweight and I didn't get the feeling that there was a great knowledge around the board of the reinsurance arrangements or catastrophe modelling that they have in place."
Killick pointed to a lack of insurance experience on the board of FMG and that while the individuals all appeared to be suitable, collectively it lacked the necessary experience.
A rural insurer formed more than a century ago, FMG is a major brand in provincial New Zealand, holding the naming rights for FMG Stadium in Hamilton. Photo / Jesse Wood
"Collectively, the board is lacking many of the collective skills that I would expect to see on the board of an insurer," Killick told the Herald.
Earlier in his career Killick assessed the suitability of boards as a regulator for Lloyd's of London, a leading insurance market which dates back to the 17th century.
This would include looking for experience in underwriting, claims adjusting, someone with insurance and compliance qualifications or a chartered accountant.
"None of that is evident on the board of FMG," Killick said, adding that he believed one of the proposed directors was a chartered accountant.
"It wouldn't be one that would be approved to run an insurance company in the Lloyd's market."
FMG chairman Tony Cleland rejected the criticism about the board's skills and maintained that the board was solvent and had a robust process for measuring its reinsurance needs.
He said one of the current board members who is standing down has insurance industry experience as do two special directors joining the board.
FMG could also call on outside help, Cleland said. "On a business like that, with the complexities of the insurance industry, there is a lot of external experts that come in and give advice that is used as well."
The company took independent advice on the make-up of the board and had regulatory oversight. "The Reserve Bank, they oversee that, and monitor that as well," Cleland said.
FMG was in a strong financial position - with a solvency ratio 2.21 times the minimum required by the Reserve Bank - and Cleland believed it had adequate reinsurance cover.
"FMG is a mutual and one of the most solvent insurance companies in New Zealand. We have got excess reserves there to the requirements and to what others do, and then, on top of that, we do buy to one-in-1000-year events in reinsurance," Cleland said, adding that FMG had a robust catastrophe modelling process which included using outside experts.
"I think the real difference is the risk that FMG has is different to others, in that we are a rural insurer and the concentration of risk is significantly different with that."
As chairman he had travelled to London to meet reinsurance experts to discuss the company's needs.
"They see, and we see, that that is such a big difference that it's probably not understood by people with a snapshot, but people involved with the business and insurance actually understand how different that makes it."
On Killick's decision to discuss his concerns in public, Cleland said that "we are all entitled to our own strategies".
This week FMG revealed its profits for the 2019/20 financial year dropped by more than two thirds to $6.1 million, despite a growth in clients to 94,300 as its share of the rural market grew to 51 per cent.
Chris Black, who has been chief executive of FMG since 2008 having previously been a director, said the profit would be added to the company's reserves which now total $263.5m.
The FMG shareholder meeting will see 10 candidates vying for positions on the board of the mutual.
This includes four candidates being recommended as "most suitable" by members of the board, including two current board members, even though there are only three board positions available.
