NZ, Australia: ‘Significant Rate Rise’
Global reinsurers including Bermuda companies participating in the New Zealand catastrophe pool are expected to bear the brunt of this week’s multi-billion dollar damage claims stemming from the Christchurch earthquake [pictured] — leading to price increases of as much as 15 percent for insurers according to one industry executive.
And New Zealand media sources said today [Feb. 23] there’s a danger reinsurance prices will become so costly in both that country and Australia that insurance companies will stop purchasing it.
Cash-strapped insurers in both New Zealand and Australia — who have paid out tens of millions of dollars in damage claims in recent months following a spate of calamities – may balk at any major hikes in reinsurance pricing, industry sources speaking on condition of anonymity have told new outlets in both countries.
Early this week Australia’s Suncorp CEO Patrick Snowball, whose company has a large share of the New Zealand personal insurance market, said while he doubts the recent spate of natural disasters will make reinsurers unwilling to cover that country and Australia prices for both insurers and customers are likely to increase.
Provisional loss estimates from Tuesday’s devastating earthquake around Christchurch range from $6 billion to as high as $12 billion.
Reinsurers Munich Re and Swiss Re have said it is too early to comment on the Christchurch earthquake. But Munich Re said recently that higher losses for reinsurance companies will lead to premium increases of at least 15 percent at the upcoming renewal period from July 1.
“From the reinsurance perspective what is interesting and concerning is the number of claims from Australia and New Zealand,” Munich Re board member Dr. Ludger Arnoldussen told the New Zealand media recently. “There’s been quite a string of events.
“We are somewhat concerned as an industry because Australia and New Zealand in the past were considered attractive because they diversified our risk book. Do we now have to reconsider how we look at this risk? In my view there’s a high likelihood that reinsurance prices will continue their way up.”
Dr. Arnoldussen said it was likely Munich Re would be revising its pricing model for New Zealand.
“At this stage it’s too early to say — there’s still a lot of estimates rather than paid claims … but I think, in my experience it would be likely that we would see a significant rates rise for the New Zealand earthquake risk,” he said.
He said increases in reinsurance rates would almost certainly be passed on to insurance policy holders by insurance companies.
Meanwhile, catastrophe modelling firm AIR Worldwide estimates that industry insured losses from the moment magnitude 6.1 earthquake that struck New Zealand’s South Island near Christchurch will be between $3.5 billion and $8 billion USD. The quake caused extensive damage in the city centre and was the second major quake to strike the city in six months.
It is still in the very early aftermath of yesterday’s earthquake that struck near Christchurch on New Zealand’s South Island, and damage assessments are only just beginning after the initial focus on search and rescue.
Damage in this city of about 375,000 people is widespread, and aftershocks, of which there have been several, remain a concern.
“Christchurch is New Zealand’s second largest city, and while design requirements for new construction are stringent, many historical buildings dominate the central business district, and they are predominately of masonry construction,” said Dr. Arash Nasseri, engineer at AIR Worldwide. “Few have undergone seismic retrofit. Structures may also have been weakened by the magnitude 7.0 earthquake that took place in early September of last year.
“Although Tuesday’s quake — considered to be part of the aftershock sequence of the September event — was smaller in magnitude, it has been more damaging because it was closer to the center of Christchurch and occurred at such a shallow depth.”
The government of New Zealand has declared a national state of emergency in order to facilitate the coordination of local, national and international rescue and recovery efforts. Hardest hit was the city’s central business district, which remains largely shut down. Rows of masonry buildings crumbled and those buildings still standing will have to be carefully assessed for structural integrity.
According to AIR, the city’s infrastructure has also been hard hit, with many roads and bridges damaged as a result of liquefaction. In the city’s suburbs and surrounding towns, ground failure manifested in the form of liquefaction, lateral spreading and landslides.
“The largest magnitude earthquake to strike New Zealand since modern instrumental record-keeping began was a 7.8 event in 1931, known as the Hawke’s Bay earthquake,” explained Dr. Nasseri. “That disaster prompted the significant revision of New Zealand’s building code that has given the country one of the most stringent in the world today.”
South Island, on which Christchurch is situated, has an active fault zone in the north, which includes a region known as Porters Pass-Amberley Fault Zone and two others, the Alpine fault zone and the Hope fault zone.
“Most known historic earthquakes on South Island have occurred in this 200-mile wide collision plate boundary zone,” added Dr. Nasseri. “This area forms the southern part of the collision zone along the Pacific-Australia plate boundary. The Pacific plate subducts under New Zealand’s North Island and terminates under South Island, about 100 miles north of Christchurch. The plate boundary forms another collision zone that extends across South Island.”
AIR’s insured loss estimates reflect:
- Insured physical damage to property (residential, commercial/ industrial), both structures and their contents
- Direct business interruption losses
The loss estimates do not reflect:
- Losses to uninsured properties
- Losses to land
- Losses to automobiles
- Losses to infrastructure
- Indirect business interruption losses
- Loss adjustment expenses
- Losses from non-modeled perils, including fire-following and landslide
- Demand surge-the increase in costs of materials, services, and labor due to increased demand following a catastrophic event.
AIR continues to collect and analyse available data on this event and updates will be provided as warranted.
AIR Worldwide (AIR) is a scientific leader and risk modelling software and consulting services. AIR founded the catastrophe modeling industry in 1987 and today models the risk from natural catastrophes and terrorism in more than 50 countries.
More than 400 insurance, reinsurance, financial, corporate, and government clients rely on AIR software and services for catastrophe risk management, insurance-linked securities, detailed site-specific wind and seismic engineering analyses, agricultural risk management, and property replacement-cost valuation. AIR is a member of the Verisk Insurance Solutions group at Verisk Analytics and is headquartered in Boston with additional offices in North America, Europe, and Asia.
