The perceived risk of catastrophes occurring in New Zealand has risen so much that reinsurance rates could more than triple for some New Zealand only placements at the 1st July renewals said Standard & Poor’s in a report yesterday. Reinsurance capacity is available but the ball is in the reinsurers court and they are likely to be setting prices very high for renewals.
“New Zealand rate increases have and will be substantial for the current renewal season, effective July 1, 2011, with rates more than tripling in some cases for New Zealand-only placements, although less for joint Australian/New Zealand programs in the order of 50%”, noted Standard & Poor’s credit analyst Mark Legge.
Historically New Zealand has had fairly low reinsurance rates, say S&P, as the country was thought to have a benign climate and relatively low natural catastrophe risk. That perception has gone after the series of earthquakes that have struck the islands.
As a result of the recent losses and reinsurance rate rises, major insurers have started to push price increases of as much as 20% onto consumers, those price rises are likely to increase further after the upcoming renewal season.
S&P say they don’t expect reinsurance to become unavailable in New Zealand and insurers should still be able to secure adequate catastrophe reinsurance at a price, including aggregate cover in some forms. However, they expect reinsurers to be pushing for higher retention levels to continue to operate there. That said, they don’t expect any reinsurers will pull out as operating in New Zealand offers a level of diversity due to climate and seasonal offsets. Indeed, with the increasing rates New Zealand could actually become a more attractive place for reinsurers to do business.
It will be interesting to see whether any capital market instruments, such as catastrophe bonds, are used by reinsurers as a way to offset their New Zealand risks. With rates so high it has to be attractive to write a lot of reinsurance there at high rates and then offload that risk to the capital markets at a fixed, multi-year cost.