EQC a better bet than the U.S. economy, says S&P
Aug. 16 (BusinessDesk) – New Zealand’s Earthquake Commission has maintained its AAA financial strength and issuer credit ratings from the international credit rating agency, Standard & Poor’s, which downgraded American sovereign debt to AA+ from AAA less than a fortnight ago.
However, the EQC faces a more difficult time securing reinsurance cover for major disasters, with one major contract going to annual review rather than the previous three year term, the Australian website, InsuranceNews, reports.
The commission has four reinsurance contracts, two of which now renew annually, while the remaining two are three-year contracts which fall due in 2012 and 2013.
Premiums on the latest renewal were double those charged in the past, reflecting the massive losses and uncertainty created by the string of earthquakes to hit Christchurch since last September.
S&P said it was affirming the AAA rating, with a stable outlook, because it was “almost certain” the government would stand behind the EQC if it suffered financial stress. New Zealand’s sovereign debt rating is the same as the U.S. post-downgrade, at AA+.
“The EQC’s standalone creditworthiness benefits from an entrenched and mandated competitive position, strong reinsurance support, and material capital resources,” said S&P, although that was moderated to an extent by uncertainty about EQC’s position should there be any further major catastrophes.
EQC expects to take a $3.5 billion net hit to its reserves from the Christchurch earthquake, leaving the Natural Disaster Fund with some $2.5 billion in hand, and $2.5 billion of reinsurance for future events.