CBL shares has fallen to $3.32, a drop of about 12%, after the financial risk insurer said first-half profit dropped by more than a third.
According to a report from the
NZCity, the company’s operating earnings fell by 36%, largely due to a $16.5 million increase in CBL Insurance's reserves, although revenue grew by 29%.
"The decision by the board to strengthen reserves in certain lines is seen as a prudential and appropriate approach and takes into account advice from CBL's external actuarial consultants," CBL chief executive
Peter Harris told the
NZCity.
According to the report, Harris said the move wasn't a restatement of existing reported and open claims but rather was “an adjustment that CBL's independent actuaries consider is prudent to make to our future claim forecasts.”
The $16.5 million adjustment to reserves represents a strengthening of 7.2% of CBL’s total net claims reserves of $229 million, Harris said.
Forsyth Barr senior equities analyst
James Bascand told the NZCity, that the market reaction was not "totally unfounded.”
He said Forsyth Barr suspects a portion of the increase in reserves was due to claims frequency on one of their products deteriorating a little as well as the continued low-interest-rate environment in Europe, which is likely seeing the discount rate applied to reserves lowered.
While the growth is positive, "it could be at lower margins under that assumption. This is likely the challenge the market is grappling with," Bascand said.
CBL’s internal operating profit was at $22.5 million in the six months ended in June, down from $35.1m from a year ago. This was $17.5m below expectations, Auckland-based CBL said ahead of its first-half results, the report said.
Its gross revenue was $205 million in the first half, up 29% from the same period a year ago.
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