New Zealand’s state-owned residential property disaster insurance entity, Toka Tū Ake EQC, has completed a renewal for a record level of reinsurance of just under $8.2 billion for New Zealand homeowners, including reinsurance via catastrophe bonds, which it has secured for the first time.
“We have been able to increase our reinsurance cover for the year ahead despite the reinsurance market hardening.
“Global markets have experienced considerable losses over the past five years from a range of hurricanes, typhoons, floods, storms and wildfires, alongside the Covid pandemic and the war in Ukraine.”
Toka Tū Ake EQC stated that it has entered the catastrophe bond market for the first time to “expand and diversify” its sources for risk capital to further protect the Crown balance sheet.
The first entry into the market yielded approximately $225 million. Mitchell explained that while this only makes up a small part of the overall reinsurance portfolio, this first step is “significant” to secure long-term assurance for New Zealand homeowners.
The Chief Executive continued, “It is important that we have a diverse portfolio for risk transfer. By exploring catastrophe bonds now, we can access other reinsurance arrangements to complement the long relationships we have had with traditional reinsurers.
“This gives Toka Tū Ake EQC more options in the future, in terms of new risk capital markets and the duration of the contracts.
“The most important element in all considerations is that any additional or alternative source of risk capital comes from high-quality sources, makes economic sense, complements our core reinsurance programme and demonstrates value for money for levy payers.”
Toka Tū Ake EQC suggests that reinsurance only kicks in if the EQC scheme needs more than $2 billion to pay claims.
Before reinsurance kicks in, any EQCover claims are funded from the Natural Disaster Fund (NDF) and the Crown Guarantee, which the EQC can access once the NDF has been exhausted.
In the history of the EQC scheme, the Crown Guarantee has only been required between 2018 and 2020 after the accumulated damage caused by the Canterbury (2010/11) and Kaikōura (2016) earthquakes.
Mitchell concluded, “With the catastrophe bond in place, Toka Tū Ake EQC now has another form of protection to sit alongside and complement the traditional reinsurance contracts we secure annually.
“The global reinsurance industry recognises the world-leading work Toka Tū Ake EQC undertakes to understand and quantify natural hazard risks and the steps we are taking to reduce the impact of those hazards for New Zealanders.”
You can read all about this Totara Re Pte. Ltd. (Series 2023-1) catastrophe bond and every other cat bond transaction in the Deal Directory of our sister publication, Artemis.
