Earthquake Commission secures reinsurance worth $6.2b for the next 12 months

Tuesday, 4 June 2019

A highly critical report of EQC suggests it is hamstrung by disorder and dysfunction and calls for ministerial intervention to resolve outstanding claims. (Video first published in June 2018)

International reinsurers will provide the Earthquake Commission (EQC) with $6.2 billion worth of cover this year.

The amount, for the year from June 1, is up from $5.55b for the past year, and $4.83b the previous year.

Reinsurance is used by EQC to pay out on claims for very large events such as earthquakes, tsunami and volcanic eruptions.

EQC has about 2000 claims outstanding from the Canterbury earthquakes.

EQC paid a $179 million premium for the reinsurance cover last year and $165m the precious year, but was unable to say how this year's cover will cost.

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Chris Chainey, chief financial officer of EQC, says the latest reinsurance shows confidence in the organisation.

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EQC Minister Megan Woods held talks with both Aon and reinsurer Swiss Re while visiting London in April.

* Crown may need to bail out EQC as funds exhausted by November 2016 earthquake**

The reinsurance cover carries an excess of $1.75b, the same as last year. It was arranged through London-based brokerage Aon.

Dame Silvia Cartwright is the head of the EQC inquiry.

EQC's payouts under the excess amount are funded through New Zealander's natural disaster fund, which is funded by levies on homeowners' insurance premiums and can be topped up by a Crown guarantee.

In April this year EQC Minister Megan Woods held talks with both Aon and reinsurer Swiss Re while visiting London, according to her ministerial diary.

EQC's chief financial officer Chris Chainey said the latest cover showed international reinsurers' confidence in the organisation.

Chainey said that because New Zealand had a high risk of natural hazards, EQC and Aon had to work hard 'to build confidence in New Zealand and maintain access to reinsurance'.

'New Zealand is a very small player in the international reinsurance market in terms of premium spend, however, EQC buys one of the largest catastrophe programmes in the world,' Chainey said.

'Our reinsurance programme is critical to providing cover to New Zealand homeowners for big events like the Canterbury earthquakes, so we're very pleased our reinsurers continue to back us.'

Since the Canterbury earthquakes, EQC has more than doubled the amount of reinsurance cover it buys. So far, EQC has only used the reinsurance for the Canterbury earthquakes.

Of the $10b to $11b EQC expects to pay out to claimants for the earthquakes, reinsurers are expected to contribute about $4b.

According to its performance report for the year to March, EQC has 2181 outstanding claims from the Canterbury earthquakes, with 564 officially in dispute. These figures do not include claims being managed by private insurers.

EQC's natural disaster fund before the earthquake was worth $6.1b, and the commission is aiming to build it back up to $1.75b by 2030.

In November, with the disaster fund heading towards zero, the Government made its first-ever top-up of $50m.

The guarantee is paid for over time from EQC's annual payment to Crown from the proceeds of investing the disaster fund.

From July 1 this year, EQC will boost its cover on New Zealand homes from $100,000 to $150,000, not including GST, and will stop providing cover for contents.

At the same time the levy insurance companies pay EQC from each home premium will increase to $325, from an existing $230 for owner-occupied homes and $276 for rental and holiday homes. The $40 contents levy will cease.

A public into EQC's handling of claims from the earthquakes is underway now, with inquiry chairwoman Dame Silvia Cartwright due to report back by the end of the year.