The Earthquake Commission has been able to increase its
reinsurance cover after securing better terms in its latest
annual round of negotiations.
The commission will spend $150 million or around 63 per cent
of its levy income in the financial year just ahead buying
cover from around 50 overseas reinsurers.
"The pricing we achieved this year for the equivalent cover
we bought last year was down 10 per cent," said chief
executive Ian Simpson.
The commission has used the saving to buy an additional $1.25
billion layer of reinsurance, lifting the total to $4.5
billion. In 2010, prior to the first of the Canterbury
quakes, it spent $40 million for $2.5 billion of reinsurance
The first $1.75 billion of the commission's liability to
earthquake victims is borne by the taxpayer. After that the
layers of reinsurance kick in.
The combined $6.25 billion from the first tranche of
taxpayer's liability plus the $4.5 billion of reinsurance
compares with a median estimate of $7.5 billion for what the
commission's share of the cost of a major earthquake hitting
Wellington would be.
Simpson said the improved terms the commission has been able
to secure this year partly reflected an increase in the
capital available to the global reinsurance market as the
likes of US pension funds seek higher-yielding investments.
"Also EQC is one of the few insurers with a significant
exposure to Canterbury that has been able to introduce a
slight reduction to its liability [relative to earlier
estimates], which went down very well," Simpson said.
"Now that we are 80 per cent of the way through all the
building claims we are dealing with actual data rather than
the conservative assumptions made earlier on."
The latest (December 2013) estimate of the commission's
Canterbury liabilities was nearly $400 million lower than the
previous one in June last year. The benefits of the revision
are split roughly equally between the Crown and the
Whether a dedicated fund, like the $6 billion Natural
Disaster Fund cleared out by the Canterbury quakes, should be
reinstated and "reseeded" is one of the issues for the
Treasury-led review of the Earthquake Commission Act which
has been under way for nearly two years.
- Brian Fallow of the NZ Herald