The New Zealand Earthquake Commission (EQC), the state-owned residential property disaster insurance entity, has successfully placed its $6.2 billion reinsurance renewal flat in terms of size with the prior year, citing reinsurers ongoing confidence in the country.
The New Zealand Earthquake Commission (EQC) has been buying reinsurance since 1988, as a way to augment its financing and reduce the potential financial burden on the countries taxpayers when major disasters such as earthquakes or volcanic eruptions strike.
“International reinsurers have again shown their ongoing confidence in New Zealand and the Earthquake Commission with this year’s agreement which commenced on 1 June 2020,” explained the NZ EQC’s Chief Executive Sid Miller.
“Reinsurance is similar to a large household insurance policy,” Miller added. “The difference is that EQC takes out this cover across the whole country, for the more than 90% of New Zealand homes that are covered by EQC through their private insurance policy.”
The NZ EQC has only had to claim on its reinsurance program the once, for the Canterbury earthquakes.
The reinsurance market is expected to have contributed around $4.6 billion of the more than $11 billion of claims that the NZ EQC expects to pay out to homeowners for that earthquake event, once all claims are settled.
“The placement of the reinsurance programme is always a significant milestone for EQC and I am very pleased that we have managed to secure our full programme while managing the global impact of the COVID-19 pandemic on our process and partners,” Miller commented.
The NZ EQC worked with reinsurance broker Aon to secure its renewal placement.
Access to reinsurance and continuity in that access is key to the NZ EQC, as the property insurer requires the financial support to enable it to write more business and provide protection to New Zealand’s population.
Miller further explained that the, “EQC’s ongoing investment in natural hazards research and modelling to estimate the financial impact of events all help provide reinsurers with a high level of understanding of the risks that they are underwriting.
“Our reinsurance programme is critical to providing cover to New Zealand homeowners for big events like the Canterbury earthquakes, so we’re very pleased our reinsurers continue to back us.”
The reinsurance renewal was for the same size program as the NZ EQC secured in 2019.
It’s not known at this stage whether any insurance-linked securities (ILS) funds participated, but it is likely they did given their focus on peak catastrophe risk zones, such as New Zealand earthquake risks.
However, the EQC has a mandate to explore alternative sources of reinsurance capital with the assistance of its broker Aon and has been doing so more consistently in the last year or so, we understand.
As a result, it would not be surprising to see some of the larger ILS funds participating in this renewal, either through rated reinsurers they own, or fronted by another party.
Last year the NZ EQC paid $181 million for its $6.2 billion reinsurance program. The Commission has not revealed the cost for its renewal.