By Hannah Lynch
Government has been forced into another bail-out; this time as the main insurer for Christchurch City Council and Waimakariri District Council.
The local council's existing insurer Civic Assurance said Monday that as of Thursday it would not be reinstating its insurance with the earthquake ravaged regions.
CEO Tim Sole said those two councils would not likely qualify for insurance because of the devastation and costs related to the earthquakes.
"I hope that central government will become the new insurer for Christchurch," he said.
A spokesman for Finance Minister Bill English said Monday that any subsequent damage to "essential infrastructure" in Christchurch and Waimakariri would be repaired with the associated costs picked up by the public.
English's spokesman said it was just "a question of where the balance of costs fall between ratepayers and taxpayers." He said Government was to a certain extent prepared to handle that possibility.
"There is already a provision for this kind of cost sharing in the Civil Defence and Emergency Management Act and the Government has said it will be mindful of Christchurch's reduced ability to pay.''
Civic Assurance, who supplies local government insurance, earlier informed all six local councils in Canterbury that they will not get new earthquake cover.
Sole said he was confident four of the six councils (outside of Christchurch and Waimakariri) would find reinsurance elsewhere because they suffered relatively minor damage.
In the case of Christchurch and Waimakariri, Sole said that if a new insurer came on board it would be difficult to distinguish which claims belonged to Civic or the new insurer in the event of another major earthquake.
Effective Friday, all local councils will no longer be covered unless they find reinsurance.
This means the Government will have to pay if assets such as AMI Stadium, the Town Hall, the convention centre or council buildings suffer further damage.
The Christchurch City Council announced earlier this month that rates would be going up by 7.08% this year to help pay for damaged infrastructure.
The council is facing a budget deficit of NZ$73.8 million over the next three years and is proposing an additional rate of 1.76% to pay for this, over and above the 5.32% rate increase indicated before 22 February.
Christchurch Mayor Bob Parker said most of the NZ$2.5 billion of damage to city infrastructure caused by the quake will be covered by insurance and Government subsidies but the council would still be faced with significant costs.
Labour Party leader Phil Goff said local governments should not be hung out to dry in this situation by central government.
“They’ve got to be able to get reinsurance, that means central government working very closely with local government to try to get a deal to get that reinsurance in place, and that’s what I imagine they’ll do,” Goff told journalists in Parliament on Monday afternoon.
It is estimated that the Christchurch earthquakes have so far cost reinsurers around NZ$3.5 billion.
New Zealand-based insurers currently buy reinsurance from international firms, including Munich Re, Swiss Re and from Bermuda-based businesses.
Reinsurance premiums were forecast prior to Christchurch's February 22 quake and that reality is now dawning.
Those costs have already been reflected in premium increases for some homeowners and insurance policy holders.
Insurance Council of New Zealand communications manager Brett Solvander refused to put a figure on how high insurance policy will rise after July 1st. However, he did say that if figures were too high people would go else where.
Solvander confirmed that he is unaware of any reinsurers withdrawing from the New Zealand market, "they want to do business, without business they can't operate."
"At this time, we understand there has been no significant withdrawal of global reinsurers from New Zealand. Indeed, given the prospects for improved pricing, New Zealand's attractiveness to global reinsurers may actually increase. Nevertheless, it will be challenging for those small New Zealand-only (especially south island focused) insurers to source affordably priced reinsurance cover in the current environment," Standard and Poor's said.
"New Zealand rate increases have and will be substantial for the current renewal season, effective July 1, 2011, with rates more than tripling in some cases for New Zealand-only placements, although less for joint Australian/New Zealand programs in the order of 50%", noted Standard & Poor's credit analyst Mark Legge.
AMI announced in a press release on June 8th that they had received strong support from international reinsurance companies. AIM has not yet released details of a its reinsurance cover which also expires on July 1st. AMI are yet to comment.
*(Updates with comments from AMI, Finance Minister's office, Phil Goff and Civic Assurance CEO, and the Insurance Council of New Zealand).