S&P says NZ sovereign rating unaffected by Christchurch earthquake, but city's rating on negative outlook

Ratings agency Standard and Poor's has reassured foreign lenders that New Zealand's AA+ sovereign credit rating is unaffected by the Chrischurch earthquake because the government has relatively low debt.

S&P also left the Christchurch Airport's A- rating unchanged, but it has put the Christchurch City Council's AA+ ratings on CreditWatch with negative implications.

"Despite the extensive damage to property and infrastructure, overall credit quality in New Zealand should remain relatively stable over the short term," S&P said.

See more on the economic impact of the 7.1 magnitude earthquake here.

S&P said it was still too early to assess the overall impact of the disaster on the economy.

"While we expect an immediate hit to economic growth, extensive reconstruction efforts are likely to bolster economic activity thereafter," it said.

"There is likely to be a negative impact on government finances, but we believe that the Crown’s very low debt burden (a ratio of central government net debt to GDP of about 14% in 2010) provides it with some room to absorb increased spending on reconstruction."

S&P said it believed New Zealand’s financial system remained operational and that its payment system was working.

"We cannot fully determine the impact of the earthquake on asset quality at this stage, but we believe that the nation’s banks are adequately provisioned and capitalised to face some deterioration in their loan portfolios," it said, adding that the damage was localized and that the impact on creditworthiness for rated companies would be small and largely offset by insurance.

"We assess the earthquake as a significant event for the insurance sector, with already more than 4,900 claims lodged with the Earthquake Commission (EQC, rated ‘AAA’) and likely equal or more with private sector insurers. In our view, the financial impact on the insurance sector, while material, is easily covered by current resources and reinsurance arrangements. "

S&P said much of the event would be borne by the Earthquake Commission (EQC), which had substantial assets, reinsurance programs, and a Crown guarantee.

"The EQC will cover residential dwelling and contents losses up to certain limits. The balance of insured residential losses, as well as insured commercial losses, will be borne by the private sector, with the scale of the event likely to trigger reinsurance layers. "

S&P said Insurance Australia Group, which owns State Insurance and NZI, and Suncorp-Metway, which owns Vero, have reported the financial impact on their groups was limited with the costs borne substantially or capped by reinsurance arrangements.

"It appears that much of the damage in terms of infrastructure, services, and government buildings will not generate claims on the insurance sector. With fortune, the event has had little or no impact on the life insurance and private heath insurance sectors."