Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


EQC reinsurance costs treble, leaving Crown vulnerable

EQC reinsurance costs treble, leaving Crown vulnerable in big event

By Paul McBeth

Dec. 5 (BusinessDesk) - The Earthquake Commission's reinsurance premiums have more than tripled since the Christchurch earthquakes, leaving the Crown vulnerable to a big bill if the country's hit by another major event.

The government-backed natural disaster insurer is paying annual reinsurance premiums of $140 million, up from about $39 million before the spate of Canterbury quakes. Premiums now have to be reviewed annually as opposed to every three years, chairman Michael Wintringham told Parliament's finance and expenditure committee.

The new deal lifted EQC's cover to $3.25 billion from $2.5 billion previously, and raised the excess to $1.75 billion from $1.5 billion.

"The price we are paying for our cover at the moment reflects the uncertainty of the Christchurch events, and the longer we go on without another one, the memory of the market fades," Wintringham said.

The government has opted for cover where it pays the first $1.75 billion and anything beyond $5 billion in a major earthquake, with Wellington still seen as the most likely candidate. The Crown's insurance liability for EQC property damage was $8.33 billion as at Oct. 31, and $1.96 billion for the former AMI it took on, according to Crown accounts published today.

"This is not a decision which the board and management of EQC decided to take alone," Wintringham said. "We took that decision after sounding out from the government and government advisers about the degree of fiscal risk the government was prepared to take. There is a significant cost in terms of our reinsurance."

The annual EQC levy was hiked to $207 from $69, while private insurance premiums had only doubled, based on anecdotal, chief executive Ian Simpson said.

Wintringham said affordability of private insurance depends on the ability of insurer to offset its risk with reinsurers.

"We're seeing a significant step up in pricing - maybe famous last words, but my judgement is that's peaked and we will start pulling back from that," he said.

Canterbury Earthquake Recovery Authority chief executive Roger Sutton, appearing at the same hearing, said New Zealand's level of insurance is very high, with 99 percent of people in the Canterbury's 'red zone' covered.

Because many policies meant cover was uncapped, that surprised many insurers with how much they had to pay out, he said.

When asked whether the changing market dynamics may lead to underinsurance, Sutton said "we as a society need to think carefully about what they want to be covered for - do they want to be covered for trivia or things that really matter."

EQC's Wintringham said these questions are a fundamental part of the government's review of the EQC Act, which was announced in September.

The Treasury-led review will cover what the EQC insures, including the layer of loss covered, which natural disasters are covered, how multiple events should be treated, which types of property should be covered, the coverage of land, building and contents, what caps should be on the scheme, and whether it should be voluntary or mandatory.

CERA's Sutton told politicians that being able to get reinsurance money has been "extraordinarily important" in getting the rebuild underway.

His focus for the coming year is to accelerate the residential reconstruction and the anchor projects in the central city, and to bring private investment into the city, he said.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Postnatal Depression: 'The Thief That Steals Motherhood' - Alison McCulloch

Post-natal depression is a sly and cruel illness, described by one expert as ‘the thief that steals motherhood’, it creeps up on its victims, hiding behind the stress and exhaustion of being a new parent, catching many women unaware and unprepared. More>>


DIY: Kiwi Ingenuity And Masking Tape Saves Chick

Kiwi ingenuity and masking tape has saved a Kiwi chick after its egg was badly damaged endangering the chick's life. The egg was delivered to Kiwi Encounter at Rainbow Springs in Rotorua 14 days ago by a DOC worker with a large hole in its shell and against all odds has just successfully hatched. More>>


Trade: Key To Lead Mission To India; ASEAN FTA Review Announced

Prime Minister John Key will lead a trade delegation to India next week, saying the pursuit of a free trade agreement with the protectionist giant is "the primary reason we're going" but playing down the likelihood of early progress. More>>



MYOB: Digital Signatures Go Live

From today, Inland Revenue will begin accepting “digital signatures”, saving businesses and their accountants a huge amount of administration time and further reducing the need for pen and paper in the workplace. More>>

Oil Searches: Norway's Statoil Quits Reinga Basin

Statoil, the Norwegian state-owned oil company, has given up oil and gas exploration in Northland's Reinga Basin, saying the probably of a find was 'too low'. More>>


Modern Living: Auckland Development Blowouts Reminiscent Of Run Up To GFC

The collapse of property developments in Auckland is "almost groundhog day" to the run-up of the global financial crisis in 2007/2008 as banks refuse to fund projects due to blowouts in construction and labour costs, says John Kensington, the author of KPMG's Financial Institutions Performance Survey. More>>


Health: New Zealand's First ‘No Sugary Drinks’ Logo Unveiled

New Zealand’s first “no sugary drinks logo” has been unveiled at an event in Wellington... It will empower communities around New Zealand to lift their health and wellbeing and send a clear message about the damage caused by too much sugar in our diets. More>>


Get More From Scoop

Search Scoop  
Powered by Vodafone
NZ independent news