NZ Earthquake Commission lifts reinsurance to almost $7bn at renewal

The New Zealand Earthquake Commission (EQC), the state-owned residential property disaster insurance entity, has secured its largest reinsurance program tower in history at the renewal, securing almost $7 billion of protection for the 2021/22 financial year.

The New Zealand Earthquake Commission (EQC) has been buying reinsurance protection from thee market since 1988, augmenting its financing and reducing the potential financial burden on taxpayers in New Zealand when a major disaster, such as an earthquake or volcanic eruption, strikes.

This year, the NZ EQC has opted to upsize its reinsurance tower by more than 12%, having purchased $6.2 billion of reinsurance a year ago.

This year the EQC hailed securing “a record-high reinsurance cover of nearly $7 billion on the international reinsurance market,” meaning it is better protected than ever before.

“We are extremely pleased we have been able to increase the cover for New Zealand homeowners despite the tougher international reinsurance market due to the impact of Covid-19 and several major natural disasters,” explained the EQC chief executive Sid Miller.

Miller went on to say that the reinsurance negotiations this year have “demonstrated the trust the international reinsurers have in the EQC’s scheme and the loss modelling and research which supports it.”

“Creating trust at a personal level with the key people in the reinsurance market is vitally important,  but due to travel restrictions, the negotiations had to be done through countless late-night video calls, so to end up with such a good outcome speaks volumes to the reputation EQC has built over many years and the outstanding support provided by our reinsurance broker, Aon,” Miller explained.

The 12.5% increase in cover, for an 11% increase in total premiums, is “good value for the Crown and New Zealanders” Miller said, despite the current challenging state of the global reinsurance market.

The reinsurance also supports New Zealanders in making more affordable home insurance accessible and available to them.

“It is also pleasing to see that around two-thirds of this cover is provided by the same reinsurers who covered the damage from the Canterbury earthquakes, so again, it shows the reinsurers continue to trust our ability to manage the impact of natural hazards in New Zealand.  We thank them for their ongoing support,” added Miller.

The EQC invests more than NZ $17 million every year into natural hazard research and modelling, thee organisation said, with mitigation strategies, such as better engineering solutions, also explored.

“All of that research feeds into loss modelling that EQC shares with its reinsurers to provide a New Zealand view of the natural hazard risks the scheme covers.

“This modelling enables New Zealand and the international insurance market to understand and quantify the risk underwritten by the scheme and provide confidence in underwriting any potential damages after an event,” Miller explained.

In addition, the EQC’s Research and Resilience programme sees it supporting the work of geologists, seismologists, volcanologists, engineers, statisticians, risk modellers and other experts at universities and agencies in New Zealand.

“This research helps us to understand the risk our natural hazards pose, but more importantly, helps us to prepare and manage the impact of these natural hazards,” Miller said.

We assume that some fronted capacity from insurance-linked securities (ILS) funds will have been involved in the NZ EQC’s reinsurance program again, as had been the case a year ago.