Concerns disaster insurance lacking

Richard Thomson.
Richard Thomson.
The Dunedin City Council is relying on guaranteed access to a $200 million loan in the event a natural disaster strikes, it has been confirmed.

That was despite concerns from some councillors worried the council was not doing enough to insure itself, and instead relying on a guaranteed loan that could represent a financial risk to the council.

The issue emerged as Cr Richard Thomson questioned insurance arrangements during a debate on the council's 2014-15 draft budget on Monday.

The council was left without insurance cover for $2.4 billion of infrastructure assets in 2011, after international reinsurers refused to cover underground assets and the council refused to pay inflated premiums for above-ground assets.

The council instead opted to rely in part on self-insurance, using $250,000 in premiums it would have paid to create a new fund to help pay for its share of any repair bills.

The council had to cover 40% of any repair bill that eventuated to obtain 60% support from the Government.

Cr Thomson told the meeting it appeared the fund had remained untouched since 2011, apart from interest accruing on the initial sum, which left him with ''a discomfort''.

He had expected the fund to be added to each year, otherwise the initial contribution of $250,000 was pointless.

Council financial controller Maree Clarke confirmed when contacted yesterday it was correct the fund's total remained untouched, except for interest, which had pushed the total up to $265,000.

She told Monday's meeting the intention had been to add to it, using any surpluses and money that would have been spent on premiums, but that had not happened, ''so it's just sat at that level''.

Yesterday, she told the ODT adding to the fund was ''probably in the back of our minds'', but the arrangement was a ''holding pattern'' until more work on the risk and options the council faced was completed.

Due to a lack of resources, that work had not been carried out, but a review of all insurance arrangements was expected to get under way later this year, she said.

In the meantime, the council's self-insurance arrangements included access to a line of ''pre-arranged debt'', worth $200 million, which was guaranteed in the event of a major event, council chief executive Dr Sue Bidrose told Monday's meeting.

Cr Lee Vandervis worried the arrangement could itself represent a financial risk to the council, if the debt - and borrowing costs for ratepayers - meant the Government was less likely to step in to help.

''Surely having this $200 million extra on-call actually represents a risk to Dunedin, in case of an extraordinary event, that the Government would not then have to step in.''

Dr Bidrose said the money would be available even in a major event - such as a international financial crisis or a major natural disaster - when the Government might not have the funding to step in everywhere.

International credit agency Standard and Poor's and Dunedin City Treasury both considered the arrangements ''prudent'', she said.

However, the arrangement came with no holding costs in the meantime, and would require council approval before being accessed, she stressed.

It was not money to ''play with'', and would not be used on a $200 million capital project - ''I give you my word'', she said.

chris.morris@odt.co.nz

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