Reinsurance fee rises 'likely past peak'

ALAN WOOD
Last updated 05:00 14/02/2013

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The Earthquake Commission expects to pay up to $160 million this year for reinsurance, four times as much as before the earthquakes.

However, the steep increases appeared to be over, said Earthquake Commission chief executive Ian Simpson.

Though it was hard to predict an outcome from negotiations, the costs for New Zealand could be about $150m to $160m for the year running through till the next set of negotiations in April 2014, he said.

In 2012 the taxpayer-funded commission stumped up $130m for reinsurance cover.

Before September 4, 2010, it was paying about $40m a year for reinsurance. That figure doubled to $80m in 2011 then more than tripled from the original amount to $130m in 2012.

Each year EQC negotiates a payment with reinsurers and that payment is split over the next three years.

That means that the yearly cost of reinsurance includes prices from the previous two years negotiations and a new price.

Simpson is due to undertake a three-week "roadshow" to talk to reinsurers in the northern hemisphere in April.

Reinsurers started increasing their charges after a damaging Chilean earthquake, followed by Christchurch's destructive February 22, 2011, earthquake, then the Japanese earthquake and tsunami soon afterwards.

The United States-based Superstorm Sandy added concern in 2012.

Simpson said he planned to talk further with reinsurers in Bermuda, the United States, Britain and Europe. EQC has a panel of 50 or so reinsurers, including giants Swiss Re and Munich Re.

"The feedback we're getting, and we've had a couple of early conversations with people, is that rates have peaked internationally. There have been substantial increases across New Zealand since the September earthquake," he said.

"I'm not necessarily predicting huge declines, but we shouldn't see any more increases over what we've seen so far."

The amount EQC paid would probably rise to between $150m and $160m this year.

The costs of the reinsurance were paid for out of premiums from New Zealand homeowners. Since the Canterbury earthquakes this annual amount had trebled to about $270m a year.

So far EQC had drawn down about $1.3 billion from "supportive" reinsurers, an increase from the November total of $1b. Eventually they would contribute $4.5b to $5b to the rebuild cost.

"We claim as they pay," Simpson said of the process that would last through 2014-15.

Some reinsurers had even considered making pre-payments of what they would be due to pay, but get paid interest on that supplied money.

In total, EQC would contribute about $11b of funds to the Canterbury rebuild - both from reinsurance coffers and its own fund.

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It has been estimated the Crown would add another $800m to $1b to that figure for a total of $12b.

Rising costs: Rising reinsurance costs the Earthquake Commission has paid to cover New Zealand property in natural disasters. Total paid for:

2010 - $40 million

2011 - $80m

2012 - $130m

2013 - $150m-$160m (forecast)

- © Fairfax NZ News

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