FROM NZCB —
Kevin Sceats NZCB Board Member and Halo Guarantees Limited Chairperson
Six months in and how are we looking?
While 2020 was a challenging journey, we still managed to develop and launch the Halo 10-Year Residential Guarantee product in October to meet the ever-changing needs of our New Zealand Certified Builders (NZCB) members. Along with most of the construction industry, we predicted hard times would follow last year’s COVID-19 Level 4 lockdown. But the industry has boomed. The housing shortage combined with low interest rates has created an almost overwhelming demand for new residential housing (including townhouses and apartments). While there are material shortages, savvy prospective developers and homeowners continue to demand a solid guarantee for their buildings. After the withdrawal of global reinsurers from this market in late 2019 and early 2020, we were fortunate to draw on the experience and knowledge gained from the ‘old’ Halo insurance guarantee product. We have seen competitors enter the market offering their own homegrown schemes or underwritten by agencies with poor credit ratings and we’re confident in the value and competitiveness of our product. We’re surprised many lending institutions are still not demanding building guarantees as criteria for mortgage or funding applications, and we’ll continue to market the Halo Guarantees Limited product as an option.
Guarantee demand We’ve experienced a solid level of demand over the last quarter of 2020, including receiving a good volume of retrospective applications. While we received applications for building types and designs for which the initial product was not ideally suited, we are reviewing our product for further enhancements. For example, we are looking at how the product can work for multi-unit builds because economists predict they will dominate the residential market and growing numbers of NZCB members are constructing them.
Future financials and focus As a recent start-up, we have been mindful of the need for frugal but targeted expenditure, as well as working closely with NZCB to market our product. The initial cost of establishing Halo Guarantees Limited was substantial and not surprisingly we’ve experienced a negative bottom line for its first three months of operation. As NZCB builder members will appreciate, we need to lay a solid foundation to grow our business. Halo Guarantees Limited’s overall investment allocation for unearned premiums is conservatively positioned but
will be enhanced in the second half of 2021. Profitability is not expected in the short term but our customer-centred strategy will provide a unique platform to drive growth and build trust by setting the bar for how a building guarantee “should” be. As of 31 March 2021, we are pleased to report that no claims have been lodged on Halo Guarantees Limited but it’s very early days. Claims expense is recognised when claims are notified. Provision has been made for the estimated cost of claims yet to be incurred but not settled at any balance date. The estimated cost of claims includes direct expenses incurred in settling claims. Halo Guarantees Limited takes all reasonable steps to ensure that it has appropriate information regarding its claim’s exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome in 2021 will prove to be different from the original liability established. To drive long-term value, Halo Guarantees Limited is investing in the business with a focus on technology. We aim to become a ‘digital provider’ by preparing to invest capital funds in software during 2021 to enable new business to be generated more easily through digital processes. This year we plan to hire additional people with financial sector expertise for both Board and operational roles. Together with our independent actuarial experts, we have applied well-founded models and methodologies to develop a clear picture of risk and compared our expectations with established sector knowledge. Funds provided by guarantee holders and collected as premiums are invested by Halo Guarantees Limited. This provides a financial return and ensures Halo Guarantees Limited’s obligations to pay claims and expenses are met. Halo Guarantees Limited plans to appoint a highly experienced and reputable strategic investment adviser to assist the Board in optimising its returns on those funds. I wish to thank the NZCB Board and staff for their valuable work in helping develop Halo Guarantees Limited and the Halo Guarantee product. I’d also like to thank my fellow directors, legal and risk advisors, and the Halo Guarantees Limited team for its efforts since we launched.
Your Halo 10-Year Residential Guarantee is administered by Halo Guarantees Limited, a company owned 100% by New Zealand Certified Builders Association. All Halo Guarantee documentation can be found on the NZCB members’ only Toolshed. If you have any questions, please contact Gabby on 0800 141 490 or applications@halo.co.nz
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