Wellington quake unlikely to feed higher reinsurance costs, insurers say

The limited level of damage sustained by Wellington in the 6.5 magnitude earthquake on Sunday is unlikely to result in higher reinsurance costs, according to local insurers.

The swarm of quakes over the past five days damaged just 35 buildings in the capital city, most of it minor, meaning Wellington corporates and the public sector could get back to business yesterday. Because of the limited damage, insurers don’t expect global reinsurers to lift their prices in the same way they did after the Canterbury quakes.

“It’s very early days, and if things remain as they are, it’s unlikely there would be any significant roll-on” by reinsurers, Val Graham, QBE New Zealand marketing and communications manager told BusinessDesk.

Similarly, Vero Insurance, a unit of ASX-listed Suncorp, said in an emailed statement that there have been no reports of damage “that would have a significant impact on insurer or reinsurer profitability.”

That confidence is somewhat undermined by the reluctance of some local insurers to write new policies in Wellington and Marlborough amid the heightened seismic activity in central New Zealand, and GNS Science estimates there is a 19 percent chance of another 6+ magnitude earthquake this week.

And with damage assessments still underway, global reinsurer Munich Re, which generates an annual 28 billion euros in premium income from reinsurance alone, said in an emailed statement it is too early to discuss the impact of the quake.

Christchurch went through a protracted period of insurers limiting their cover for earthquake events, which seeped into the national market and left some earthquake-prone buildings and infrastructure projects uninsured.

Higher reinsurance costs were touted as a major cause for rising dwelling insurance premiums since the Canterbury earthquakes and a string of other major disasters left the global reinsurers facing losses of some US$108 billion in 2011, their second-worst year for disaster losses behind 2005, when hurricanes Katrina, Wilma and Rita struck the US and other Gulf states.

Since the September quarter in 2010, when the first Christchurch quake hit, the price of dwelling insurance has soared 96 percent, more than 16 times the 5.9 percent increase in broader consumer prices over that period, according to government figures.

The price of contents insurance has climbed 22 percent since the September quarter of 2010, as have health insurance prices, while vehicle insurance increased only 2.9 percent and life insurance 3.2 percent.

Local insurers typically renegotiate their reinsurance contracts on an annual basis, and Vero said it’s scheduled to renegotiate its reinsurance within the coming year, while Insurance Australia Group, whose local brands include State and AMI, has its reinsurance programme in place until 2014.


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