Japan disaster won't cut New Zealand's global reinsurance flows for Christchurch, PM Key says

Japan disaster won't cut New Zealand's global reinsurance flows for Christchurch, PM Key says

By Alex Tarrant

The Japanese and Christchurch earthquakes, along with natural disasters like the Queensland floods, will put stress on the global insurance system, but international insurance payouts for the Christchurch earthquake will not be affected, Prime Minister John Key says.

The earthquake that hit Christchurch on February 22 was tipped as the biggest global insurance event since 2008. New Zealand’s Earthquake Commission is covered by reinsurance of NZ$2.5 billion for an event after an initial NZ$1.5 billion payout from the EQC disaster fund. This was triggered twice in the last six months, with the first being the September 4 quake to hit the Christchurch region.

The EQC has said previously it would have enough in its fund for a third such event, although the costs for replacing its reinsurance would rise considerably.

Following the February quake, Prime Minister John Key said EQC premiums were likely to rise by up to three times current levels of about NZ$60 per policy due to higher reinsurance costs and a desire from the government to replenish the fund to NZ$6 billion within nine years.

Early reports suggest much of the costs of the Magnitude 9 earthquake in Japan, and the subsequent tsunami, will be covered by local companies to a greater extent than the Christchurch quakes.

Bloomberg reported Robert Hartwig, president of the Insurance Information Institute, saying, “A larger share of losses are likely to be retained by domestic Japanese insurers and reinsurers than was the case with recent earthquakes in Chile and New Zealand.”

'It'll cope'

Asked on TVNZ’s Breakfast this morning whether he thought the Japanese quake would hit international insurance payouts for the Christchurch quake, Key said he thought the global insurance industry would cope.

“But there’s no question that it’s putting quite a lot of stress on the system,” Key said.

“If you think about the way insurance works, we all pay out premiums and the actuaries go away in those companies and work out what’s the probability of us paying out. They know they’re going to pay out some, but they don’t expect to pay out all of their premiums and their reserves,” he said.

“The Christchurch earthquake was the largest single insurance event in 2011, and one of the largest predicted insurance payouts in the world. People say, ‘how can that be the case,’ but of course countries like Haiti and Chile, they haven’t been insured to the degree that we have," Key said.

“So it certainly puts stress on the system, but of course, it’s a very large system with great capacity to pay.”

Key said he did not think the Japanese disaster would affect New Zealand’s ability to access its reinsurance funds.

“If you think about EQC, they go and buy reinsurance from big insurance companies like the Swiss Re’s of the world, so we lay off the risk [and] are not holding it all ourselves – they’ve got huge resources and they’re a very, very large companies. So no, it won’t affect them,” Key said.

Economic impact

Meanwhile on Newstalk ZB, Key said the Japanese quake did not help the global economic picture as the Japanese economy was one of the biggest in the world.

“It’s certainly a very, very big economy. We tend to discard it sometimes because it hasn’t grown much in the last decade or two, but it’s a wealthy economy and they consume quite a lot even if they sell a lot to themselves, so it has a big impact,” Key said.

“I guess like Christchurch there’ll be a massive rebuild, but in the short term, you have this significant economic contraction,” he said.

On Radio Live, Key said the a worrying factor was the Japanese economy was much bigger than people realised.

“We spend a lot of time commenting on the fact that Japan hasn’t grown much in the last 20 years, but it’s still a very large wealthy economy, so yes it has an impact,” Key said.

“I guess ultimately like Christchurch these things also have a double-edged sword. There’s the short-term contraction in economic activity, and then there’s the very large stimulus which comes with the rebuild. But for the short-term that’s not something the Japanese are going to be focussed on – it will simply be trying to get on top of the current situation,” he said.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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http://www.telegraph.co.uk/finance/markets/8379573/London-markets-poised...

On Friday, shares in some of the UK's largest insurers fell heavily as fears mounted their 2011 profits will be damaged by claims from the Japanese earthquake, which follows February's earthquake in New Zealand. UK insurers are estimated to be at risk of up to $5bn (£3bn) of losses as they account for almost 10pc of the global industry. Hurricane Katrina cost the Lloyd's market £2.6bn.

Chaucer, which is in takeover talks with Guy Hands' private equity firm Terra Firma, could be one of the worst 
affected because it specialises in insuring nuclear power plants and is one of the world's biggest insurers of nuclear risk.

Analysts at stockbroker Collins Stewart said Catlin, which is listed on the FTSE 250 index, is likely to be highly exposed to the disaster. Other companies facing losses include Amlin, Beazley and Hiscox. They are also all listed on the London stock market.

A lot of the costs from the Japanese earthquake are also likely to be absorbed by the world's largest reinsurers, such as Munich Re and Swiss Re. AIG, the oldest and biggest foreign insurer operating in Japan, yesterday pledged to pay claims from the earthquake "in a timely manner".

And we all know what a great company AIG is.

 "The Chinese Embassy has asked the Government to give special compensation to Chinese families who lost children in last month's Christchurch earthquake...........Because of China's one child policy New Zealand should make special arrangements for added economic assistance, on top of provisions like ACC, Chinese Embassy disaster relief head Cheng Lei said." Herald

It is not the fault of NZ that China had a one child policy. The ACC payments are equal for all. It should be a lesson to Mr Cheng Lei that Chinese nationals visiting NZ or anywhere else inside China or outside China, need to have travel insurance.

Is this something his govt has failed to provide?

Mr Cheng Lei fails to see the same risks exist for NZ families where an only child travels to China.

Alex

Please find out for how AMI for instance can insure 30% of Christchurch residential property (according to your reports) which conservatively after deducting EQC's cover could expose them to over $5b in liabilities, but only take $600m out in disaster reinsurance?

Also ask them (or perhaps the Insurance Council?) why after 6 months from the Sept 4 quake, properties with significant damage, which had private insurance company assessors visit in the first week after the quake still have not had any information or discussion with owners on settlements on UNdamaged land.  It is beyond a joke, that the insurance companies intend to just delay and not pay saving them hundreds of millions in interest and in their hope of being able to beat down desperate claimants once all their cash reserves have run dry.

Action needs to be taken against these insurance companies RIGHT NOW.  They need the threat of BIG PENALTIES for not settling claims in a timely manner.

How can someone with a wrecked house expect to wait several years for an insurance company to rebuild it, without compensation for the intervening losses?  In the first 6 months after Sept 4 only about 2 or 3 home rebuilds (according to some reports) had started.

The insurance industry are in effect running a scam with no ability or intentions to meet disaster losses in a timely manner.  John Key needs to give answers now, these private insurers should have to set aside the funds immediately to meet the claims.  If they can't the Government must intervene.

National's handling of Sept 4 was a disgrace, and Feb 22 looks even more abysmal.  Tearing down buildings without owners knowledge, cordoning areas and preventing access where only a few buildings actually pose any real risk, not discussing with landowners before making outlandish comments about the future prospects of areas, calling for all old building to be knocked down when in fact the biggest loss of life and close calls were in modern buildings  - it all appears we have a DICTATORSHIP, that many NZers will rightly wish to escape.

John Key and Gerry Brownlee need a good racking over the coals to set them straight.  If they think they are doing a good job they are sadly deluded.  (And this is from a fervent National Party supporter).

Chis_J: "how AMI can insure 30% of Christchurch residential property" implies AMI are insurer to 30% of the total residential market.

My "interpretation" of the earlier article about AMI insurance is they claim to have 30% market share of the residential insurance market (ie that which is insured) which is quite different to being insurer to 30% of the total residential market. see my comment on this other thread. http://www.interest.co.nz/news/52656/christchurch-may-lose-4-its-population-permanently-over-next-year-anz-economists-say#comment-607918

If a property has a mortgage the bank will require it to be insured.

With about a third of residential property rentals, a third mortgaged private homes and a third unmortgaged, then I would expect that close to 2/3 have mortgages and are insured.

Of the unmortgaged I'd expect very few are uninsured, and this will be mainly because the property had little insurable value (ie an old house on land with high land value) or the owner intended to pull it down anyway, or in a few cases it will be because an owner couldn't aford insurance.  I doubt that the number in that case would be very high, as most of the unmortgaged will be relatively well off.  ChCh doesn't have many areas where you could easily buy without a mortgage (even 20 years ago the cheapest houses were starting around $50k) so only the elderly may expect to fall into the category of being mortgage free and uninsured, hopefully this is not too many people.

Back to my point there is a big difference between $600m and $5b (or even $4b if 20% were uninsured), so Alex or Bernard have you an explanation from AMI?

Does no one in NZ care about the current situation?

1/ The building code is grossly inadequate. (Diagonal metal braces just crumpled and bent in the EQ - probably good for one use only!  Plywood shear walls should be mandatory and the total amount of bracing needs to be much higher.  Rules for concrete buildings need completely rewritten).

2/ Insurance companies have inadequate provisions. (As mentioned above).

3/ EQC and private insurers are delaying and were denying claims for damage that the second earthquake proved was caused by the first earthquake.  (eg we had a chimney with a crack in the brick firesurround and were told by the EQC man that is was safe and just needed ground out and remortared, he told us EQC only cover damage that you can see (which is ridiculous - maybe that's why so many buildings with concealed columns like CTV and PGC collapsed) of course the chimney totally collapsed, also we had cracks in foundations that EQC only reluctantly talked of repairing with epoxy, it turned out these were on a fissure that ran through several properties which are all now wrecked).

4/ Civil Defence and Government have lost the goodwill of ChCh business and property owners by shutting them out of their properties in the CBD and demolishing their buildings without consultation. 

EVERYONE IS AS MAD AS HELL AND NOTHING IS BEING DONE AND THE WRONG DECISIONS ARE BEING MADE.

OK, so bear with me here. Take as an example a retired couple whose only income is National Superannuation (or Old Age Pension), own their own home outright, mortgage free, have lived in it for 40 years, are in the 70's. Their home is now worth $600,000, land $300,000 and buildings $300,000. How much is their annual net income, and what is the annual insurance premium to insure their property, plus for interest sake an added contents policy for contents of say $70,000. Can they comfortably insure their assets? Or are they going to skip something? How many home owners would fit into that category?

Chris,

I see what you mean, saying that if every single house in Christchurch was flattened, AMI would have $5bn of liabilities potentially. The reason they have $600mn of reinsurance cover is because they worked out in a very very bad scenario (i.e 22/2) then this is the amount it will need. As you will be aware, there are many suburbs which have escaped so the actuarial calculations would appear to be close to the mark.

With regards to insurers not acting and not rebuilding houses immediately... there are several factors to take into consideration.

1) There were approx 180,000 claims from September 4. All of these require some level of repair and/or rebuilding. How many builders and tradespeople do you think it would take to get all of these completed within 6 months?

2) In the case of houses which require a complete rebuild and were adjudged a total loss, insurers in a lot of cases would have been ready to start work or be able to organise that work very quickly. The issue was, that they were not allowed to proceed on these until EQC, the government and the council had decided what to do with the land, whether the land was to be remediated and if this was a place they were going to allow the rebuilding of houses. As far as I am aware, the large majority of these decisions had not been made.

3) After Sept 4 there were approx 4,000 aftershocks, with a good portion of these inflicting further damage or new damage on properties. So if a lot of these buildings had been repaired or rebuilt, the tradesmen could have just stayed on site continuously repairing what was fixed the previous day.

4) There has been an awful lot of destruction to residential property in Chch, these are people's homes and where they live. We need to get these places fixed. On the other hand, there has been an awful lot of destruction and damage caused to commercial premises. This is where people work and without this work, they don't get paid, without the wage they can't pay the mortgage and then have no house. A lot of time was spent fixing and repairing the commercial buildings as these jobs are bigger, more complex and get more "bang for the buck" so to speak by getting 100 people back to work instead of 2 people getting their driveway repaired (extreme example but you know what I mean).

 

I do work in insurance (but not for an insurance company) and know that the vast majority (over 90%) are working very long hours, 7 days a week, to enable things to move as fast as possible. If you have a way of repairing/rebuilding over 300,000 claims in a short space of time, by all means let us know.

I was also in the middle of the CBD at the time of 22/2 and saw a lot of the destruction in there for myself. I can't see some of those cordons being lifted for quite a few months just based on what I saw as I tried to get out of there.

 

I am politically neutral but I don't think National has done a bad job. I think they have tried their best in a very trying time. I think Labour would have performed similarly. This isn't really about one party or the other, we really need them both to work together on this one and do what they feel is best for us long term.

 

The major thing is..... they need to work on getting Wellington sorted and FAST!  Because when they have a big one, it will make this seem like a drop in the bucket.

Jimmy, $600m is simply insufficient reinsurane cover, the reality is that the 22/2 damage for AMI will quite possibly exceed their total reinsurance and reserves.

Personally I have 25 residential claims in ChCh.  The process from both eqc and the private insurers is a disgrace.  We have one property on stable land that was wrecked on Sept 4 and as it was a substantial property (full replacement $800k plus) the NZI assessor inspected it in the first week.  They have done virtually nothing since, stating that they are too busy, making constant excuses about waiting for eqc (who paid their $115k back in Nov) and just simply giving the runaround.  Discussions with them suggest that they are going to try and pay an indemnity value only despite it being a full replacement policy.  Most of the assessors I've met (and I've met dozens with all the useless eqc people turning up) are unqualified for the job with virtually no estimation experience, no idea how to actually remedy damage and generally just flat out incompetent.

As for insurance company staff, they generally don't care and are more concerned about ending the phone call and making excuses than giving answers.

If you were in the CBD on 22/2 like I was you will know that a lot of buildings aren't particularly damaged.  Probably half have some moderate damage.  The obvious people to get involved in sorting out individual buildings are the building owners they have a vested interest in getting things sorted.  Instead they are being pushed to the sideline by weaselly bureaucrats who want to demonstrate their authority.  I know commercial building owners who have no idea if their buildings are even standing (Manchester, High and Tuam St buildings), no contact and no answers.  The process is as big a disaster as the quake and National has done an abysmal job.

By the way, I'm not politically neutral, I am a National Party supporter and I know Gerry personally (and he knows me).  But I think he has done a terrible job and I will be telling him that personally next time I see him.

I'm not just talking about 22 Feb either, the Sept 4 response is an even bigger reason why I'm so grumpy.

... an underperforming minister, who should be sacked e.g. Pike River.

What is it? 6+ Months since September 4 and we are hearing comments of this nature. Scandalous. (indirectly) Look at the response and resue team from Australia, arrived in Christchurch within 24 hours of 22/2 EQ. That's the benchmark for the type of action that's needed and can be achieved. And there were teams from Taiwan, Japan, USA etc and etc.

At the request of, and under the aegis of the Insurance Council of New Zealand, teams of specialist claims adjusters / assessors / structural engineers from associated organisations in Canada, USA, Australia, UK and so on can be flown in at a few days notice. Do the work, here for 14 days and out. They're not doing anything otherwise at the moment. It can be done. It just needs doing. Complaints should be made to the Insurance Council of New Zealand.

(duplicate deleted).

I remember Lloyds names running around liquidating assets back after 9/11 and struggling. I wonder if they have the same resources today to liquidate after a few years of world wide recession and for much larger claims.

welcome to the wonderful world of the exponential function.

Exponentially more people in spread out in more villages, town and cities, owning more stuff apiece, than ever before.

To keep up with the inevitably bigger insurance incidents, they'd need to either:

1: Increase the number of names exponentially, or

2. be assured the existing names have become exponentially more wealthy.

Doubt either is the case.

 

Are there any insurance companies in Chch who are really helping out their customers quickly and not just screwing them around endlessly?

If there is a decent insurance company I'd like to switch to them.