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.

(BusinessDesk)

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>

ALSO:

Houses (& Tobacco) Lead Inflation: CPI Up 0.3% In March Quarter

The consumers price index (CPI) rose 0.3 percent in the March 2014 quarter, Statistics New Zealand said today. Higher tobacco and housing prices were partly countered by seasonally cheaper international air fares, vegetables, and package holidays. More>>

ALSO:

Notoriously Reliable Predictions: Budget To Show Rise In Full-Time Income To 2018: English

This year’s Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to “put all of this at risk” by changing the government. More>>

ALSO:

Prices Up, Volume Down: March NZ House Sales Drop 10% As Loan Curbs Bite

New Zealand house sales dropped 10 percent in March from a year earlier as the Reserve Bank’s restrictions on low-equity mortgages continue to weigh on sales of cheaper property. More>>

ALSO:

Scoop Business: Chorus To Appeal Copper Pricing Judgment

Chorus will appeal a High Court ruling upholding the Commerce Commission’s determination setting the regulated prices on the telecommunications network operator’s copper lines. More>>

ALSO:

Earlier:

Cars: Precautionary Recalls Announced For Toyota Vehicles

Toyota advises that a number of its New Zealand vehicles are affected by a series of precautionary global recalls. Toyota New Zealand General Manager Customer Services Spencer Morris stressed that the recalls are precautionary. More>>

ALSO:

'Gardening Club': Air Freight Cartel Nets Almost $12 Million In Penalties

The High Court in Auckland has today ordered Swiss company Kuehne + Nagel International AG to pay a penalty of $3.1 million plus costs for breaches of the Commerce Act. Kuehne + Nagel’s penalty brings the total penalties ordered in this case to $11.95 million ... More>>

ALSO:

Crown Accounts: Revenue Below Projections

Core Crown tax revenue has increased by $1.9 billion (or 5.0%) compared to the same time last year. However this was $1.1 billion less than expected and is reflected across most tax types, continuing the pattern of recent months. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news