The Earthquake Commission (EQC) expected a hardened market for its reinsurance negotiations in 2006 following last year’s hurricanes in the United States.
With the Natural Disaster Fund sitting at over $5 billion, EQC an insurance company itself, needs to spread its risk by taking out insurance with other insurers. This allows it to maintain cover for events that would exceed its capital and reserves.
In the event of a large earthquake in Wellington which could cost EQC as much as $7 billion, the reinsurance allows the Commission to pay out more than it has in reserve before calling on government guarantees. It also provides a buffer against a reduction in funds caused by an increase in earthquake activity over a period of time.
This year’s negotiations, which were held in May, saw slightly increased prices for EQC’s reinsurance arrangements as reinsurers diversified their portfolios to include risk outside the United States and risks unrelated to hurricanes and storms.
[source: Earthquake Commission newsletter “Ru Whenua – Land in Motion” August 2006.]