There is evidence that claims from the New Zealand earthquakes continue to impact insurers and be passed on to reinsurance capital as a result, with IAG and Suncorp both reporting more claims coming in from Canterbury and Kaikoura quake events.
The Canterbury earthquakes are now a distant memory for many in the reinsurance industry, but for those exposed to losses through major primary insurers there continues to be a reminder as loss totals creep further upwards.
We’ve written before about the lengthening tail on the Canterbury New Zealand earthquake loss from 2010/11, and insurer experience continues to demonstrate that earthquakes are often not a short-tail catastrophe event.
IAG said this week that it continues to be passed over cap claims from the New Zealand Earthquake Commission (EQC), leading the insurer to increase its reserves for the 2011 earthquakes again in recent months.
While IAG has increased its gross reserves for the Canterbury earthquakes, it said this “falls to the account of IAG’s reinsurers, with no earnings impact to IAG.”
As a result of the increase in earthquake reserves, IAG said that it has “utilised approximately 10% of the NZ$600m adverse development cover in excess of NZ$4.4bn on the February 2011 event.”
That adverse development reinsurance came from Berkshire Hathaway.
Additionally IAG said that it continues to settle claims from the Kaikoura earthquake, but does not mention hardening reserves, so it’s assumed these remain within expectations.
Suncorp meanwhile, said that claims from the Kaikoura earthquakes are now being covered by its reinsurance provisions, so no longer impact its results and that while it still has exposure to Canterbury it is also fully covered by reinsurance, while some claims payments continue to be made.
Suncorp said that, “higher than expected development on small commercial business” drove a $4 million increase in ultimate net losses from the Canterbury quake, but that its reinsurance arrangements meant the impact to its profits was minimal.
The experience of these insurers shows that reinsurance coverage for earthquakes can often keep being tapped into for years after the event, making adverse development coverage important and also showing that negotiating early settlements, as was seen after Canterbury for a number of ILS fund markets, can be a smart move.