By Alex Tarrant
The Earthquake Commission currently has less than NZ$1 billion of reinsurance and is going through a process of renegotiating further reinsurance in case of another natural disaster, Prime Minister John Key said.
Asked at his weekly post-cabinet press conference how much reinsurance was in place if another event were to strike tomorrow, Key said New Zealand had "not a hell of a lot."
“Yes we have some. It’s much more limited than it was, but we’re in the process of renegotiating. The way it worked was NZ$2.5 billion per individual event, so we’ve had two events – NZ$5 billion. There’s some residual after that and we’re in the process of renegotiating further reinsurance," Key said.
It was more than a few hundred million dollars "and less than a billion as I understand it," Key said.
Asked how long he thought the process would take, Key replied, "You’d have to take that up with the Minister of Finance (Bill English). He’s the minister responsible and they’re negotiating. He has the warrant for EQC.”
“We want to reinstate the reinsurance risk, and my understanding is that they’re working on that process," Key said.
A spokesman for Finance Minister Bill English's office later told interest.co.nz that EQC chief executive Ian Simpson was currently overseas visiting reinsurers.
"This is the time of year EQC annually renegotiates its reinsurance - this is business as usual. It's too soon to give any indication of the impact of recent earthquakes in Christchurch and Japan on that process," the spokesman said.
Key unsure on impact on EQC premiums
Meanwhile, Key said he had not had any advice on whether the events in Japan would flow through to EQC policy premiums or make it harder to replenish the fund.
“You make a fair point that the reinsurers are taking a hammering at the moment. I don’t know what level of reinsurance risk that the Japanese have, but we can see that the earthquake and the resulting tsunami is likely to have a very substantial cost to Japan," Key said at the press conference.
"What impact that has on the reinsurers, I don’t know. But I think, just the earthquake in New Zealand would unquestionably mean that reinsurance will be more expensive for New Zealand, that is a statement of fact," he said.
Early reports suggest much of the insurance costs from the events in Japan 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.”
Following the February 22 quake in Christchurch, Key said he expected EQC policy premiums could rise by three times from about NZ$60 now to as high as NZ$180. The government wanted to replenish the fund to NZ$6 billion over nine years. If premiums were left at the current rate, it would take until 2025 before the fund was fully replenished.
“I think pretty much all New Zealanders recognise we need to club together here and help and rebuild that fund so we have a high level of comfort so that if some other natural disaster occurs around New Zealand, we’re in a position to be able to afford it,” Key said on February 28.
Later on February 28, EQC officials told interest.co.nz the fund should have NZ$3 billion remaining after it had paid for the two Christchurch earthquakes. EQC initially paid NZ$1.5 billion up front for each quake, and had reinsurance in place for NZ$2.5 billion for each of the two events.
A Sydney Morning Herald report two weeks ago said some global reinsurers may be reluctant to do business with Australia and New Zealand after meeting current obligations because the region had been so fraught with natural disasters over the past few years.
QBE Insurance chief executive Frank O'Halloran said some of the world's biggest reinsurers had taken a financial "hammering" from payouts linked to floods, hailstorms and now earthquakes.
(Updates with video, comment from Finance Minister's office, more Key comments, background.)