After more than a century serving the Catholic Church, one of Australia’s oldest insurers winds down after abuse claims decimate its reserves
By Wendy Pugh
Measured against its long history, the demise of Catholic Church Insurance (CCI) has been sudden. The insurer celebrated its centenary in 2011, said in 2017 that it had achieved one of its best financial results on record, and a few months ago announced it would write no new business.
On May 30, CCI issued a statement saying the insurer’s board had decided to voluntarily place the organisation into run-off, and “despite every effort” it had been unable to secure sufficient capital contributions from shareholders to enable its business to continue operations in line with regulatory requirements.
“The CCI board and management deeply regret that it has been necessary to make this decision and would like to assure all staff, policyholders and suppliers that it has sufficient assets to meet its commitments as they currently stand,” Chairman Joan Fitzpatrick said.
CCI says the significant number of new claims arising from historic abuse cases drove the need for more capital.
Annual reports show that liabilities were rising following legislative changes and inquiries, including the Royal Commission into Institutional Responses to Child Sexual Abuse.
Chief Executive Officer Roberto Scenna says the board and management considered many options and approaches, received significant external advice and had maintained an ongoing dialogue with the Catholic Church before the run-off announcement was made.
“However, no decisions other than further injection of capital by the Catholic Church would ultimately have resolved the impact of the dramatic increase in claim volumes that have occurred,” Mr Scenna told Insurance News.
CCI is one of Australia’s oldest insurers. Its website says it has delivered certainty for the Catholic community for more than 100 years and that “from insurance and workers’ compensation to managing risk and growing wealth, Catholic organisations have been able to rely on us through good times and bad”.
The idea of insurance for the Catholic Church was first raised in 1862 by Archbishop James Alipius Goold of Melbourne, and became a reality in 1911. The insurer initially focussed on fire and property, and the earliest claim was lodged for £20 in 1912 by the Bishop of Maitland in New South Wales.
CCI has described itself as a different type of insurer, operating under mutual principles and existing to support the mission of the church. It’s registered as a charity and a significant proportion of any operations surpluses have been returned to clients through dividends, distributions and grants.
The insurer has provided cover for parishes, schools and colleges, aged care and welfare and branched out to assist other organisations outside the catholic community. Its range of cover widened over the years, and its departure will have a significant impact.
Broker Gow-Gates said in a June market update that though CCI typically focussed on certain business sectors, the loss of a major insurer will result in major capacity constraints.
“Those insurers willing to underwrite these risks to replace CCI are likely to be subject to premium and cover pressure, which will impact their wider capacity for other businesses,” it says.
“The lessons from CCI’s departure will take some time to flow through and will be a reminder to others about the risk of unsustainably low deductibles and pricing across a portfolio of large exposures.”
Looming problems were clear even in 2017, when CCI reported it had delivered one of its best annual financial results, with the directors’ report providing updates on state and federal inquiries and legislative action around historical sexual abuse within the church.
The royal commission was nearing completion and Victoria’s response to a state parliamentary inquiry had led to changes. Queensland had passed laws removing the limitation period for civil actions for personal injury damages arising from abuse and providing for revisiting of past claims, with historic settlements often now considered inadequate.
The 2020 annual report says Western Australia, Queensland and Victoria had adopted changes on limitation periods and revisiting of past claims, while NSW planned to explore reforms.
CCI reported a $238.9 million strengthening of reserves in fiscal 2020 for abuse claim liabilities, which it refers to as “professional standards” claims, leading to a consolidated $247.2 million loss.
Coverage of the regulatory prescribed capital amount fell to 1.31 times compared to 2.35 times a year earlier. No dividends or Catholic entity distributions were paid.
Nevertheless, the insurer highlighted that parts of the business had shown solid performance over recent years, and the core portfolio achieved an underwriting profit of $3.6 million, with premium revenue of $264.2 million.
“With the exception of the repercussions of professional standards claims, our core business is unquestionably sound,” former chairman Paul Gallagher said.
The group reported another loss of $192 million the next year, with a $213 million reserve strengthening, as a “high volume” of professional standards claims continued.
To support the capital position, it de-risked the investment portfolio to reduce the asset risk charge, selling down most investments in equities, fixed income and property assets to be largely invested in cash at the end of fiscal 2021. It succeeded in securing a $169 million capital injection from the Catholic Church shareholders in June.
Chairman Joan Fitzpatrick described that year as CCI’s most financially challenging to date, and her comments indicate that gaining the additional capital required considerable effort.
“There is much to be said for those who stood shoulder to shoulder with us in this challenging period knowing that the issues arose from managing the liabilities associated with historical abuse claims and in the committed belief that we can never forget those impacted by such conduct,” she said.
Detailed work to examine potential future liabilities was undertaken, including an independent actuarial review as claims kept arriving.
“No decisions other than further injection of capital by the Catholic Church would ultimately have resolved the impact of the dramatic increase in claim volumes that have occurred.”
– CCI Chief Executive Roberto Scenna (right)
CCI undertook two key actions in fiscal 2022 to improve the balance sheet, negotiating retrospective deductibles with some policyholders and initiating a reinsurance contract for adverse development cover on a portion of policies.
“We cannot underestimate the significant task of responding to professional standards claims,” Ms Fitzpatrick says in the annual report. “These claims continue to flow.
“On behalf of CCI, I would like to express our deepest sympathy for members of the community impacted by abuse or other professional standards misconduct that occurred within the church or its institutions and other bodies.”
The annual report points to a high level of uncertainty continuing around the ultimate number of claims, the amounts at which they will be settled and the timings of any payments.
“In addition, the introduction of the National Redress Scheme in 2018 has resulted in a significant increase in the number of reported claims and significant uncertainty in establishing the potential exposure in order to predict the exposure to abuse related claims,” the report says.
“As such there has been limited data (both historical and forward looking), which impacts on the ability of the appointed actuary to model this interaction, which has required considerable professional judgement in determining assumptions around the future number of professional standards claims.”
CCI sounded the alarm on its circumstances with a May 5 media release, advising it was holding discussions with shareholders about ceasing new and renewal general insurance business in the absence of a further significant injection of additional capital.
“Our shareholders have already made a significant contribution to the equity of the organisation in recent times, and we expect to know very soon how we will proceed,” Ms Fitzpatrick said.
The insurer advised in a separate statement that it would close its workers’ compensation division to new business and renewals from June 29, reflecting the significant financial challenges in that area.
Then, at the end of May, CCI said the board would voluntarily place the organisation into run-off and, under the supervision of the Australian Prudential Regulation Authority (APRA), would continue to manage claims from existing policyholders using its capital reserves.
At the time of the decision, it had around 300 employees.
The announcement has raised questions over the pathway of events and how the insurance business operations could have been managed differently to avoid the outcome, with criticisms ranging far and wide in looking at causes.
Mr Scenna, who took over as chief executive in September 2015, has rejected suggestions that CCI may have lacked senior-level underwriting expertise to manage the increasingly challenging environment.
“The reality is that the matters giving rise to claims relate to policies written decades ago, and no current underwriting practice would have affected the policies in place at that time,” he tells Insurance News.
“Additionally, CCI has deep underwriting experience across multiple board directors and has for many years invested in portfolio and underwriting experience, disciplines and systems within its leaders and staff.”
Following the run-off decision, and given claim development uncertainties, CCI has decided to seek approval for a Scheme of Arrangement for the handling of future claims. A vote by policyholders is expected in October.
The insurer says the proposal is a precaution to ensure a fair, equitable and managed regime could be put in place quickly in the event CCI might otherwise become insolvent.
“It is not clear what scenarios may occur if the vote is not successful, however in the absence of an approval of the scheme there are clearly higher risks regarding regulatory intervention that would create a much less preferrable outcome for policyholders,” Ms Fitzpatrick tells Insurance News.
Australian Catholic Bishops Conference President Archbishop Timothy Costelloe and Catholic Religious Australia President Father Peter Jones issued a statement after the run-off announcement, saying that bishops and leaders of religious institutes restated their commitment to responding with justice and compassion to victims and survivors of abuse, and repeating their apology.
The statement also noted that church entities would need to find new insurers and said they were supporting Catholic ministries currently insured with CCI to ensure continuity of cover, and were confident that would be achieved.
APRA has confirmed it will monitor CCI as it enters run-off and continues to respond to claims, while declining to make further comment when contacted by Insurance News.
“APRA’s mandate is to supervise financial institutions so the community can have confidence in those institutions and that they are able to meet their prudential obligations,” the regulator statement says. “APRA will continue to closely supervise CCI.”