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International reinsurers have agreed to provide approximately $5 billion of cover to the Earthquake Commission (EQC) following the conclusion of 2018 reinsurance negotiations.
According to EQC chief executive Sid Miller, the reinsurance premium for 2018/19 is at $179 million and the reinsurance placement insures the Crown for the cost of claims from insured homeowners in large natural disaster events.
“The ongoing support of international reinsurers shows they continue to have confidence in EQC and their support underpins New Zealand’s insurance market,” Miller said.
EQC said it works hard with reinsurance brokers to build confidence in New Zealand and maintain access to affordable risk capital. It conducts researches on earthquake, volcanic eruption, tsunamis, landslip and hydrothermal hazards. It also uses its Minerva earthquake impact estimation tool to work out what the likely losses from earthquakes would be.
“Our reinsurance is a bit like a very large house insurance policy — we pay an annual premium for a ‘sum insured’ with a certain level of loss retained under an ‘excess,’ Miller explained. “In EQC’s case, reinsuring for all insured homes in New Zealand, the excess is $1.75 billion.
“This means that most of the time we are paying claims out of the Natural Disaster Fund rather than recovering from the reinsurance programme,” he added.
EQC expects to spend $10-11 billion managing and paying claims for the Canterbury earthquake with $3.5-4 billion of that recovered from reinsurers.
“All our reinsurance comes from overseas,” Miller said. “New Zealand is exposed to high levels of natural hazard and contributes a tiny percentage to international insurance premiums.
“The reinsurers have a choice every year about whether they continue to give us cover, so we maintain a strong programme of consultation, long-term investment in relevant science research, hard data and information so they choose to continue covering EQC,” he added.
