By Alex Tarrant
Insurers will be returning to Christchurch "more rapidly than you think," Prime Minister John Key says, after Minister for Earthquake Recovery Gerry Brownlee returned from a global reinsurance conference saying reinsurers had plenty of capital but were waiting for seismic risks to die down.
Speaking this morning on TVNZ's Breakfast programme, Key said Brownlee's mission at the conference in Monaco was to give reinsurers the best geotechnical information about risks in Christchurch in a bid to get them to recommit to covering private insurance companies writing cover in Canterbury. This came after previous meetings with reinsurers had uncovered they had misinformation about the situation, Key said.
There was evidence, although largely anecdotal, that private insurance companies were writing new cover for existing clients in the region, although were not currently expanding their books, Key said. There is concern in Christchurch that rebuilding will not get underway while insurance companies sit on the sidelines, partly because they themselves cannot get reinsurance cover from overseas.
Key said the government was committed to the rebuild of the city, although there were some short-term problems with some insurance companies holding back.
"But there are other participants coming into the market – so Lloyds of London actually under-wrote some insurance recently," Key said.
"One thing I do know is that as things settle down – and they will settle down in Christchurch - eventually what’s going to happen is a lot of insurers are going to look at that market and say, ‘wow, there’s quite a lot of premium in there,’ and you will see insurers coming back more rapidly than you think,” he said.
'Reinsurers have loads of capital'
Earthquake Minister Gerry Brownlee said on Saturday his trip to Monaco and London was to tell reinsurance companies the government was getting people of the worst land in Christchurch, ensuring strong building codes, and making new land available with higher levels of seismic resistance.
Brownlee and his officials met with the top executives of the world's biggest reinsurers, who had been hit recently by the Christchurch quakes, Queensland floods and Japanese tsunami, meaning they were seeking higher premiums and were more risk averse.
"What I got from them was that there is plenty of capital in the world available for the type of risk that we are looking at. What isn't there at the moment is an appetite to put that money in when the risk is currently so very high," Brownlee said on TV3's The Nation programme on Saturday.
"What we detected strongly was a big tension between the international broking community and the international reinsurance community. The reinsurers saying premiums not just in New Zealand but everywhere, have to go up because it's been such a bad 12 months, and the brokers saying, hang on a minute, you’ve got heaps of capital, you’ve gotta deploy it somewhere, we can have price stability," Brownlee said.
"So just where that argument settles I can't predict. But what I would say is that probably as a separate risk set New Zealand's been under-priced for a fair period of time, and we would expect to see some price rise," he said.
"I'm not setting the price, but what I can talk is some general parameters. So the reinsurance part of any insurance contract is probably round about 20%. If that were doubled that doesn’t double your premium, it puts it up, you know, 10-15%, but not a 100% as some are talking. So insurers themselves have to make a decision about their reserve levels, because that’s another issue entirely," Brownlee said.
Still doing business
In Christchurch, insurance companies were sticking with existing clients but not expanding their books, Brownlee said.
"So if you're going out of a red zone into a new house somewhere, or building a new house, then the insurance company will stick with you through that process. Where it gets a little difficult is the lack of willingness at the moment to expand the book to write new covers, particularly involving the earthquake in Christchurch. Now that will be a transitory period I think," Brownlee said.
"If you look at why that is, it's simply they're saying we've had huge losses here, we don’t know that this event has fully settled, we don’t want to be risking the capital of their particular business out there knowing that they could lose it. And I think they’ve got other obligations that they have to meet as well," he said.
"But I do think that this is a relatively temporary position in the long scheme of things, that as the incidence of seismic activity starts to reduce and they can see that pattern firming, then New Zealand becomes, and Christchurch again becomes quite a good risk. In the whole grand scheme of things, this in Christchurch has been a very very big event, but Christchurch and New Zealand ranks only about eighth or ninth on the list of most risky places to place insurance," Brownlee said.
"For insurance companies, for reinsurance companies big risk based companies, that would almost indicate they have to take a chunk of book here. Earthquakes are not like West Coast wind in the United States where you expect that annually. As this event settles the incidence of return will be very very low indeed," he said.
"What we've got is a heightened risk situation in Christchurch and no one can deny that. And so what we'll be saying to people is we are going to provide the science, we're going to make sure the building codes are stronger so that if you, when you do return to the market then you can be assured that you know what the seismic situation is as far as it's predictable, and you'll be insuring buildings, built property, houses, commercial buildings, that are much more resistant to damage in the future."