Investors have welcomed recommendations made in a review of the Reserve Bank's handling of failed insurer CBL but remain concerned about the level of disclosure to the market since 2015.
The issue of disclosure is now with the Financial Markets Authority, which along with the Serious Fraud Office is investigating the conduct of CBL Corporation and its directors prior to the failure of subsidiary CBL Insurance last year.
Yesterday the Reserve Bank's senior officials accepted that as prudential regulator it should have acted more forcefully and at an earlier stage, amid a range of concerns about CBL Insurance dating back to August 2013.
But ultimately, they said, the failure wasn't the Reserve Bank's fault, it was CBL's failure.
"We can be more vigilant, more intrusive, challenge and escalate issues more … but company directors are responsible for running their business prudently and with the appropriate commercial probity," deputy governor Geoff Bascand told a media briefing, citing a High Court judgment that referred to a lack of commercial probity and a preparedness by management to manipulate records on which third parties, including the regulator, relied.
"We cannot guarantee and protect every institution from companies own failings," Bascand said. "We can do our job better which is what we agree to, commit to and accept."
The central bank commissioned an independent review by John Trowbridge and Mary Scholtens QC to examine its supervision of CBL Insurance, spanning its pre-licensed state in 2011 through to its eventual collapse in early 2018.
During the pre-licensing and licensing phase in 2012 and 2013, the report found the Reserve Bank's processes were sound. However, from 2014 to 2016 - a period that included CBL's initial public offering - they found the RBNZ gave the insurer the benefit of the doubt too often and should have acted more decisively about its solvency concerns.
"The bank can be seen to have exhibited a mixture of timidity or great caution on the one hand and leniency or lack of commitment on the other," the report said.
CBL Insurance formed part of CBL Corporation, whose shares listed on the New Zealand sharemarket in October 2015 at $1.73. The stock rose to more than $3 two years later, valuing the company at nearly $750 million before its insurance units were forced to wind down, rendering the company worthless.
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CBL failure a 'dramatic' example of need for stronger supervision
The independent report referred to a KPMG report delivered to the Reserve Bank in 2013 that raised questions regarding a range of aspects including potential under-reserving of claims.
Those suspicions were eventually recognised in late 2017, sending the alarm bells ringing at the central bank.
Andrew Bascand of Harbour Asset Management, which holds shares in CBL, says disclosure of information to the market remains a raw issue for shareholders.
"My position is that if the RBNZ had doubts as far back as 2014-2016, and repeated these doubts with the company, then someone had a requirement to disclose those doubts.
"It is a substantive issue that I would gauge will have more discourse on …. The RBNZ knew that the company was preparing for an IPO and an early discussion with parties then could have projected concerns and potentially resolved some of the matters that subsequently unfolded. The report highlights that in hindsight the RBNZ should have acted more decisively about its solvency concerns."
However, the problem for the Reserve Bank was balancing confidentiality with the NZX's continuous disclosure regime.
Asked whether the bank could have done more to keep shareholders better informed, Trowbridge and Scholtens said the legislation around this issue is very strict and the Reserve Bank acted appropriately.
Their report found the Reserve Bank was right to maintain confidentiality despite the tension with continuous disclosure obligations under NZX rules.
"While the legislation does give the bank discretion to disclose in certain circumstances that is in the context of some very significant obligations," Scholtens explained.
"In this case it did seem to me that it was very prudent of the bank to maintain confidentiality until it had the information confirming its concerns it was under reserved.
And of course, that information when it came in it was a scale that was surprising. They didn't have that information until it came in."
The Reserve Bank's Geoff Bascand confirmed the bank was assisting the FMA and the SFO in their investigations, but wouldn't comment specifically on CBL director's obligations.
"I can't comment other than those obligations are for the directors to uphold, not for us."
The Trowbridge report recommended an expansion of the supervisory resources of the bank for the supervision of licensed insurers and associated policy development.
The level of extra support required needs more investigation, as well as a review of the supervision philosophy, and central bank and government policy as to how far supervision should go, the authors said.
Harbour's Andrew Bascand said he would welcome the Trowbridge report particularly if it called for the Reserve Bank to act more decisively in using its powers when it had concerns about the insolvency of a company.
"What we know now is more often than not you don't need 100 per cent of the information to act decisively."
Michael Midgley, chief executive of the New Zealand Shareholders Association, said the Trowbridge report made it clear that it was appropriate for CBL Insurance to get a license but with hindsight should not have been listed on the sharemarket.
Midgley said it the report agreed with the court findings that CBL Insurance had been trading while insolvent and should not have been and had been for some time.
He noted the interesting aspect of the report was the clarity around how much CBL pushed back against the Reserve Bank's investigation and quest to find out more about its reserve levels.
"That is very telling," he said.
It also showed the difficulty the Reserve Bank had in handling the lines of communication between itself and the insurer.
But Midgley said regardless of the findings of how the Reserve Bank had handled the situation it did not take the spotlight off CBL.
"It is the company that did this. It is the company that continued to trade while insolvent."
Former CBL managing director Peter Harris said the review showed the Reserve Bank lacked the experience and resources to carry out its role, but said the review was flawed by not seeking input from him, the CBL board, ratings agency AM Best, or the appointed actuary, PwC.
"As a consequence of these and other flaws, in our view, the review falls dramatically short of being a document that would provide confidence to the public and international financial community that the regulation of NZ's insurance market is in capable hands."
- Additional reporting BusinessDesk