A big New Zealand insurer faces costs of up to $3.5 billion, says Bermuda-based re-insurer Aspen, which has been asked to stump up an increased $58 million payout on September's Canterbury earthquake.Aspen has become the latest reinsurer to raise its loss
A big New Zealand insurer faces costs of up to $3.5 billion, says Bermuda-based re-insurer Aspen, which has been asked to stump up an increased $58 million payout on September's Canterbury earthquake.
Aspen has become the latest reinsurer to raise its loss estimates for the quake after telling investors it had increased its reserve for the loss by 265% to $US53 million ($NZ71.5 million).
International reinsurance companies cover the big and rare risks taken on by primary insurance companies, typically earthquakes, floods or hurricanes.
Two other re-insurers have already disclosed dramatic reserve strengthening to cover quake losses and industry sources have said there was widespread industry unease over the sustainability of current loss forecasts.
One reinsurer, PartnerRe, estimates the total industry loss from the Canterbury earthquake would be $US4.5-5.5 billion.
Exposure increased
Aspen Insurance Holdings initially told investors that it had net exposure of $US20 million to the earthquake but has boosted that to $US53 million, net of reinstatement premiums, which equated to $US47 million after tax.
Aspen said in a statement to the New York Stock exchange that its current loss estimate was consistent with an industry loss of $NZ5.5 billion.
The upward revision was mainly due to one large domestic New Zealand insurer – known in the industry as a "cedant" because it cedes business to the re-insurer – claiming on its re-insurance. Aspen did not identify the company but said the claim comprised 81% of its total loss estimate for the quake.
Its initial estimate of a $NZ2.2 billion loss for the New Zealand insurance company "included a margin for conservatism above the top end of the client's original estimated range of $NZ1-2 billion," Aspen said.
"The latest information from this client indicates a substantial increase with a wide range of possible outcomes. Given the continuing uncertainty associated with this loss, Aspen has now concluded that it is prudent to reserve at a total loss for Aspen's shares ... which assumes a loss of at least $NZ3.5 billion for this client."
Aspen also reserved at a total loss for all other domestic New Zealand placements, and said the balance of Aspen's loss was $US5 million on its share of programmes for clients based outside New Zealand.
Another re-insurer, PartnerRe, also increased its loss estimate for the Canterbury earthquake, saying it now estimated another $US76-95 million in losses from the quake.
It booked its previous estimate for $US64 million in losses in the third quarter, weighing down the bottom line then.
New claims
The increase reflected a higher-than-expected number of new claims filed in November and December as well as engineering reports on land damage, PartnerRe said.
Government statisticians are expected to next week re-write the nation's account books to provide for insurance companies raking in at least $NZ1.7 billion from re-insurers offshore.
Costs of the most damaging quake in eight decades mean the cash injection will improve the government's current account – and the nation's international investment position – as it shows up in the balance of payments as a $1.7 billion inflow from overseas. .
Statistics New Zealand balance of payments manager John Morris said the estimate would be detailed in the scheduled December 22 balance of payments announcement.
Because many insurance claims have not yet been settled, the cash would initially show up in the accounts as an increased level of financial assets abroad. But it would eventually boost the nation's seasonally-adjusted current accounts.
