NZ Earthquake Commission taps non-traditional reinsurance market

by Artemis on June 23, 2014

The New Zealand Earthquake Commission (EQC) has utilised an element of non-traditional, or alternative, reinsurance capital within its recently completed $4.5 billion reinsurance programme renewal, a spokesperson confirmed to Artemis.

As we wrote here last week, the NZ Earthquake Commission has benefited from softer catastrophe reinsurance pricing in its latest renewal, allowing it to buy more cover while rates were down approximately 10%. In 2014 the EQC has purchased $4.5 billion of reinsurance cover, compared to the $3.25 billion it purchased in 2013, as the global softening of catastrophe reinsurance rates helped it to maximise its protection.

In our article last week we wrote that it stands to reason that there would be an element of non-traditional capital in the EQC’s reinsurance programme, given the size of the renewal and the increasing reach and influence of alternative reinsurance capital.

A spokesperson from the EQC told Artemis that as part of the 2014 reinsurance renewal a ‘small component’ of non-traditional reinsurance capital was used.

This non-traditional reinsurance capital is likely to be fully-collateralized, so providing the EQC with a diversification of its sources and types of reinsurance capacity. For buyers of large reinsurance programmes this is a key feature of ILS and collateralized covers as it can offer a way to escape becoming over-exposed to traditional reinsurers balance sheets.

The providers of this non-traditional reinsurance capacity are likely to be the usual suspects, or ILS managers with assets of $1 billion plus under management. Of course this means that the ILS market will probably have increased its exposure to the diversifying peril of New Zealand earthquake risk thanks to a participation in the EQC’s reinsurance renewal.

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