Changed Outlook for New Zealand’s Reinsurance Future

22 September 2011

Changed Outlook for New Zealand’s Reinsurance Future

Continuing 100 percent reinsurance cover for natural disasters such as earthquakes and major climate events is not a future certainty for New Zealand, the Insurance Council warned today.

Insurance Council Chief Executive, Chris Ryan, said the world’s major reinsurers had reassessed the risk for New Zealand and the future reinsurance outlook was uncertain.

“While it is a fact that all the major insurers in New Zealand currently have reinsurance cover for at least the next twelve months, beyond this 100 percent reinsurance cover is not a guaranteed feature of the insurance landscape in this country.”

For the past half century New Zealanders, through their insurance companies, have enjoyed reinsurance cover at very reasonable rates but the next fifty years will see a change to what we have experienced in the past, Chris Ryan said.

At the heart of the reinsurance considerations for New Zealand was this country’s volatility as a seismic risk and the very small percentage share of the world’s earthquake and natural disaster premium market. Both these issues were now forcing the world’s leading reinsurers to review their long – term reinsurance commitment to New Zealand.

“With only zero point two percent of the world’s earthquake premium market to attract buyers here plus the fact New Zealand is now a well defined seismic risk, these factors represent the biggest threat to sustainable and long term reinsurance cover for this country,” Chris Ryan said.

However New Zealand’s major insurer’s will continue their efforts to secure reinsurance cover for natural disaster events beyond the 12-month reinsurance cover that currently exits.

“Insurers are providing the information reinsurers need to decide the level of risk they want to invest in. That means New Zealand based insurers are looking to provide scientific data and modelling to reinsurers to demonstrate the level of seismic risk that exists here. Only when reinsurers have this level of information will they seriously commit to ongoing reinsurance cover for New Zealand but it’s not a guarantee.”

Chris Ryan said the evidence for the trend showing reinsurers reassessing their future here could be seen in other places like Australia, the United States and Japan.

“These jurisdictions have all suffered similar large–scale natural disaster events, earthquakes, major flooding and tsunami events. If reinsurance has returned to these markets it has been at the expense of traditionally cheaper premiums. What has happened in these places is a forerunner of what may happen here with reinsurance cover and ultimately dearer premiums for earthquake and natural disaster coverage,” Chris Ryan said.

ENDS

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