We wrote the other day that reinsurance rates were expected to increase by as much as three times at the 1st July renewals due to the extent of claims caused by the recent earthquakes and the perceived increase in catastrophe risk in the region. Reports are emerging that some have been paying more than twice as much for their reinsurance but they have had the money to renew and in some cases extend their reinsurance cover.
Not so some of New Zealand’s councils who are now operating without insurance leaving billions of dollars of infrastructure and assets uninsured against any further earthquakes or aftershocks that strike the region after their insurer, Civic Assurance, failed to renew its reinsurance cover.
Christchurch City Council alone has around $2.8 billion of above and below ground assets which no longer have material damage insurance.
It seems, according to news reports, that Civic Reinsurance has been refused renewal rather than being unable to pay.
Given the large price increases in reinsurance cover and the costs that insurers in the region are now having to bear to renew it’s possible that catastrophe bonds could become a more viable and attractive option for New Zealand’s primary insurers, particularly as a mechanism to secure their top layers of reinsurance cover at a fixed multi-year cost. This has to be an opportunity for the risk transfer market to step in and demonstrate its usefulness for difficult to place risks.