Chris Chainey, Chief Financial Officer of Toka Tū Ake EQC, has said that he does not expect the recent flooding and cyclone events that impacted New Zealand to trigger its reinsurance protection.
Source: AP
Speaking to our ILS-focused sister publication, Artemis, Chainey acknowledged that the devastating events would be “significant” for the insurance industry, but added they are “extremely unlikely” to activate EQC’s reinsurance arrangements.
EQC is a New Zealand Crown entity that provides insurance to residential property owners, and is also involved in natural disaster research and education investment.
Currently, the EQC Scheme has some $7.2 billion of reinsurance cover in place for natural hazard damage, but Chainey seems confident that this cover won’t be tapped for last month’s flooding and Cyclone Gabrielle at least.
The Auckland and North Island areas of New Zealand faced severe flooding in January, followed by destructive winds from Gabrielle in February, which together caused significant property damage and some loss of life.
Already, Suncorp and IAG have said they expect to make recoveries under their reinsurance programs due to the flooding, while the Australian Reinsurance Pool Corporation says its cyclone cover was triggered by Gabrielle.
While the NZ EQC seemingly will not make recoveries for the events, Chainey did acknowledge the impact that climate change and growing weather losses are having on the reinsurance pricing environment, and suggested that the organisation may be looking at alternatives when it comes time to renew its program in June.
In comments to Artemis, he highlighted that reinsurance markets globally are “responding to the challenges of climate change and severe weather events, which is impacting pricing of reinsurance,” and said EQC could potentially look to the cat bond market for more favourable coverage terms this year.
“For the past few years, the Government has encouraged Toka Tū Ake EQC to look at the potential opportunity to access risk financing from global capital markets,” Chainey said. “With this permission and the reinsurance market context noted, we have been considering options to expand and diversify our sources of risk capital while continuing to protect the Crown’s balance sheet.”
“Any additional or alternative source of risk capital would need to be competitive with our traditional markets, complement our core reinsurance programme and demonstrate value for money to Toka Tū Ake EQC,” he explained. “Alternatives, such as a catastrophe bond, may be a valuable source of additional and separate long-term capital.”
“In line with previous years, we are currently structuring our reinsurance renewal programme and will soon be entering negotiations with the goal of ensuring natural hazard insurance remains available and affordable for insured residential homeowners in New Zealand.”
