Standard & Poor’s has suggested that primary insurers based or operating in New Zealand could see some of their reinsurance rates as much as triple for property catastrophe reinsurance cover as reinsurers hike prices to claw back losses experienced throughout the first half of this year. Reinsurance capacity is available, Said S&P, but the reinsurers are holding all the cards as far as price negotiation goes.
The 1st July renewals will see reinsurance rates increase across the board for New Zealand only placements, said S&P. NZ only reinsurance placements are likely to more than triple in price while combined Australia, New Zealand placements are likely to double.
The knock-on effect for consumers is already being felt with many primary insurers having increased rates by at least 20% already.
Reinsurers are likely to insist on higher retention levels for primary insurers in New Zealand as well as putting rate increases in place.
New Zealand insurer Tower Ltd. has announced that they expect to pay at least $30m for their reinsurance cover this year, an increase of between $7m to $11m.
Meanwhile, some New Zealand councils have been told that their earthquake cover won’t be renewed after the 30th June, leaving the government to say that it would be down to taxpayers and government funds to pay for rebuilding costs from any future quakes. It’s hoped that this will only be for a year as reinsurers back away from the huge loss they’ve suffered.
Standard & Poor’s closes its report saying that there has been no significant withdrawal of reinsurers from New Zealand after the earthquakes and in fact they believe that given the prospect for improved pricing New Zealand’s attractiveness to reinsurers may actually increase.
Given the reinsurance rate rises it may become more cost effective for a major global reinsurer to hedge some of the risks they assume in New Zealand via the capital markets using a catastrophe bond. If they are receiving three times as much for the same cover levels as before then suddenly issuing NZ earthquake risk in cat bond form becomes a much more attractive option.