Natural Hazards Commission lays out its long-term investment plans for the Natural Hazards Fund, which has around $670 million

With the Natural Hazards Fund sitting at around $670 million, the Natural Hazards Commission Toka Tū Ake (NHC) has released a document, detailing its long-term investing plans so it can cover future claims for damage.

“The Fund was depleted by the Canterbury and Kaikōura earthquakes. NHC has therefore taken a deliberately conservative approach to rebuilding and managing it in recent years, primarily through cash and short-term bank deposits,” the commission's chief financial officer Chris Chainey says.

Before the Canterbury earthquakes, there was over $6 billion in the Natural Hazard Fund. The Fund was used to cover claims from these events, as well as $5 billion from reinsurance, investment returns and ongoing cashflow from levy income. And as of June 2024, NHC, formerly EQC or the Earthquake Commission, had paid $11.989 billion for Canterbury claims.

On Friday, the NHC released its first Statement of Investment Policy and Objectives (SIPO) which outlines how it plans to approach long-term investing.

“The SIPO sets out how the Fund will be managed and invested to ensure NHC can meet future claims for damage from natural hazards."

Chainey says the NHC will be using a staged approach to diversification “that supports sustainable growth, while continuing to manage risk carefully”.

The commission says its primary long-term objective for the Natural Hazards Fund is to achieve returns that exceed inflation by 2.5% per annum over rolling five-year periods.

And investments will be made “across a range of asset classes, with clear limits to manage risk as the Fund moves further into investment markets".

In its statement the NHC says; “the Fund is primarily invested through collective investment vehicles managed by the Investment Managers”.

“The Investment Managers’ collective investment vehicles typically hold individual securities directly, although may in some instances allocate them to managed funds.”

The statement says the Fund will be investing in listed equity, being equity securities issued by companies on public exchanges, fixed interest, being debt securities issued or guaranteed by governments or corporations, with this in two parts: domestic sovereign fixed interest and other fixed interest.

The Fund would also invest in cash, so investments in short-term and “highly liquid securities” like short-term bank deposits.

Full implementation of NHC’s investment portfolio will be done before June 30, 2027, the statement says.

Chainey says the NHC is confident their investment statement provides; “a strong, disciplined foundation for growing the Fund over time, building financial resilience, and ensuring New Zealand is better prepared to meet the cost of future natural hazards”.

Natural Hazards Insurance Levy

As part of their insurance premium, homeowners pay a Natural Hazards Insurance Levy.

This money goes into the Natural Hazard Fund and is used to cover claims after a natural hazard event. The fund is also used to buy reinsurance from international financial markets, meet the costs of administering the NHC Scheme and goes towards research and education.

For each natural hazard event, the NHC currently pays $300,000 towards rebuilding or repairing a residential home. This is called a building cover cap and currently, the Natural Hazards Insurance Levy is 16 cents per $100 of the insurance cover amount.

In November, interest.co.nz reported the Government was pushing out its decision on whether to increase the Natural Hazards Insurance Levy with Finance Minister Nicola Willis saying at the time insurance was a major cost-of-living pressure for New Zealanders.

The Treasury had been consulting with industry professionals, experts and community representatives to look into the financial settings and levy settings under the Natural Hazards Insurance Act 2023. Options were put forward to maintain the levy at its current rate or to bump it up.

The options put forward for consultation were to maintain the levy at its current rate of 16 cents per $100 of cover, or increase the rate to either 22 cents, 24 cents or 25 cents per $100 of cover. In the consultation document, 24 cents per $100 of cover is considered the technical levy rate.

If kept at 16 cents per $100 of cover, this would be $480 per year. If it went up to 22 cents, it would be $660 per year and $720 if it went up to 24 cents per $100 of cover. For 25 cents per $100 of cover, it would be $750 per year.

The $300,000 building cover cap, the maximum amount the NHC can pay for a building claim, was also looked at, with options to keep it the same or increase it to $400,000.

NHC board chairman Chris Black previously told the Finance and Expenditure Committee that the delay was a decision for the Government of the day.

With the Government focused on its six-month review into home insurance affordability, Black told committee members that he imagined the levy discussion would come back onto the table “but it does need to go up at some stage”.