Southern Response needs $500m top-up
Southern Response expects to need more than $500 million of taxpayer support to complete its $2.36 billion of claims.
The crown entity was set up in 2012 by the Government to manage and settle the claims of the failed Canterbury insurer AMI Insurance. It is almost halfway through, having settled $1.067b of the estimated total claims bill of $2.364b, the latest estimate in its just released annual report for the June 2014 year.
For claims, Southern Response has the money paid by IAG for the "good part" of the AMI business, plus AMI's reinsurance money and its investments.
Southern Response expects to call on more than $500m of taxpayer funds to meet those obligations. So far the Government has contributed $100m to Southern Response's coffers - in April 2012 - as part of an initial agreement to provide $500m. A second agreement provides another $500m if needed.
"We will probably certainly use pretty much all of the first $500 million and we've got that $500 million of uncalled capital available as back up," Southern Response chief financial officer Tony Feaver said.
He was coy on how much of the second $500m Southern Response might require.
"Only a small part is our current thoughts," Feaver said.
Southern Response's statement of performance expectations shows the company estimates it will use another $50m of the second $500m available from the Government, in the June 2017 year.
As part of the Government support Southern Response must invest its funds in Government debt.
The annual report shows it has invested $579m in Treasury bills and Government bonds in the June 2014 year and a similar amount the year before.
Feaver said these were low risk and liquid investments that Southern Response could get quickly when the money was needed.
The annual report says Southern Response has $400m more in cash and investments than expected because of slower progress in settling claims and rebuilding and repairs than budgeted. Feaver said the company had drawn down about $100m of the $579m in the last month for claims handling costs and settlements.
The company expected to use the $579m through to mid next year and then start drawing on the $400m available under the first agreement with the Government.
It had used all its reinsurance for the February 22 earthquake but had reinsurance still available for the next two years for other earthquakes, Feaver said.
Southern Response chief executive Peter Rose said the protests by claimants last last year shocked the organisation. It persuaded the organisation to change the way it made some decisions. One of those he called "qualitative easing" where Southern Response took a less hard and fast stance that only its advice was right.
Rose said the number of protesters was only about 200 of about 7000 property claims.
The vast majority of cases had been going through well, he said.
"We're fairly comfortable that our programme is on schedule."
He said Southern Response was a significant contributor to the innovation happening in the industry. The annual report says the whole process of building a house in post-earthquake Canterbury, starting with customers decisions through to design, building and completion was taking 50 per cent longer - about 15 to 18 months - than in a normal environment.
Southern Response has about 7000 property claims. Up until June 30, 493 rebuilds and repairs had been completed and 540 are under construction with another 1167 in documentation stage.
After the protests late last year the organisation has established "a solutions team" to review claims that had become blocked, and set up a dedicated team to help about 500 vulnerable claimants.