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CBL ratings downgraded over loss forecast

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Trading in the shares of Auckland-based insurer CBL Corporation remain suspended on the New Zealand and Australian securities exchanges as the company considers a capital-raising of more than $NZ100 million ($92.7 million).

The long-term credit rating of the global credit and financial risk specialist was downgraded by AM Best last week and placed under review following its announcement that it expects an after-tax consolidated loss of $NZ75-85 million ($69-79 million) for the year.

Reports in New Zealand financial media say CBL has engaged First NZ Capital and UBS to manage the capital-raising, and that they have already “been in front of fund managers on both sides of the Tasman”.

AM Best lowered the corporation’s long-term issuer credit rating to bb+ from bbb-, while subsidiary company CBL Insurance’s financial strength rating moved down to B++ from A- and its long-term issuer credit rating dropped to bbb+ from a-.

CBL operates in 25 countries and counts among its companies Sydney-based AssetInsure. It attributes the loss to an expected claims reserve strengthening adjustment of $NZ100 million for its long-tail French construction insurance business and a write-off of $NZ44 million ($41 million).

The French construction business accounted for 61% of CBL’s gross written premium in 2016. The Central Bank of Ireland in Dublin, where CBL has its European business headquarters, is understood to have already ordered the corporation to raise its capital and reserves.

“The rating downgrades reflect the significant deterioration in… operating performance,” AM Best says. “A review of the full-year results, including the associated actuarial and reserving analysis, is necessary to provide… sufficient information to resolve these questions.

“These ratings will remain under review pending the completion of the intended capital raise, an assessment of the adequacy of the strengthened reserves, and the corrective actions taken by management to address the underlying causes of the shortfall in claims reserves.”

CBL voluntarily suspended trading in its shares on February 2, and said today the suspension will remain in force while it considers the timing and scale of the capital-raising. It says a resumption in trading is “dependent on a number of factors including engagement with regulators and potential investors, which are likely to require a number of weeks”.

The corporation will report its full-year results on February 27.