EQC review delays leave reinsurers in limbo

EQC review delays leave reinsurers in limbo | Insurance Business

EQC review delays leave reinsurers in limbo
Two of EQC’s 55 reinsurers, Munich Re and Swiss Re have spoken out about the uncertainty caused by the Government’s delay in reviewing the future of the Earthquake Commission (EQC).

With insurance penetration in New Zealand being high at 80%, as EQC largely takes care of personal insurance, the reinsurers said the review findings were essential for them to undertake accurate modelling.

The purpose of the review, launched in September 2012, was to focus on the types of property EQC insures, the extent of cover, pricing and the financial management of the Crown’s risk exposure, reported Scoop.

Head of structure and RI & head property UW Asia at Swiss Re, Mike Mitchell, said they still wanted a better understanding of building construction quality, which creates uncertainty in terms of vulnerability, but how it all ties in together was still a major unknown.

“The mechanism between the value of risk, the claim being presented, and the cheque you write at the end – there’s fundamental challenges that we face in New Zealand that make it very, very difficult for us in the existing environment to have certainty,” Mitchell told a briefing in Wellington last week.

“That’s an area around policy, around EQC, the interaction between EQC and the commercial insurance sector which various industry representations have made and there’s been a lot of discussion about whether the model the EQC has is the most sustainable in the long term.”

Munich Re’s regional manager Martin Kreft says he’s asked the Government whether it wants to adopt a ‘social’ or a ‘capital protection’ model when it comes to insurance, interest.co.nz reported.

By ‘social’ he meant what we have at the moment where EQC can put everyone in an average house after an earthquake.

By ‘capital protection’ he meant EQC essentially becomes a reinsurer to protect the Government’s funds.

“If your primary driver is a social model – social protection of society – then the response of EQC, the response of insurers and the response of reinsurers will be very different to if the pure objective is to protect the Government’s balance sheet,” Kreft said.

“We can respond either way, but it’s not up to us to dictate to New Zealand which way it should go.”

Earthquake Recovery minister Gerry Brownlee is reported to have said the review is almost completed with a report likely to go before Cabinet in the next month or two, with only minor changes likely to be recommended.