Statisticians say that insurance companies are likely to rake in $1.7 billion from re-insurers offshore in the wake of September's Canterbury earthquake and its aftershocks -- a shot in the arm for the nation's account books.The Government is expected to
Statisticians say that insurance companies are likely to rake in $1.7 billion from re-insurers offshore in the wake of September's Canterbury earthquake and its aftershocks -- a shot in the arm for the nation's account books.
The Government is expected to run a deficit of $11.1 billion -- 5.5 per cent of gross domestic product -- in the current financial year, up from the $8.6b deficit predicted in May.
Costs of the most damaging quake in eight decades will force the Government to borrow an additional $1b in bonds this financial year.
But the nation's cashflows will get a boost from the international re-insurance companies which cover the big and rare risks taken on by primary insurance companies, typically earthquakes, floods or hurricanes.
Their 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. The current account measures the flow of goods, services and money to and from the country.
Statistics New Zealand balance of payments manager John Morris said the estimate was released today, before the scheduled December 22 balance of payments announcement, "given the importance of the market being informed due to the size of the figure and it's impact".
Because many insurance claims have not yet been settled, the cash will initially show up in the accounts as an increased level of financial assets abroad.
But it will eventually boost the nation's seasonally-adjusted current accounts.
In the June quarter the balance of payments deficit for the year ended June was $5.6 billion, or 3 percent of gross domestic product (GDP), down from $10.5b, or 5.7 percent of GDP a year earlier.
The $1.7 billion figure is the latest available estimate of the total lodged and expected claims by New Zealand-based insurance companies against overseas re-insurers.
Shortly after the quake, Moody's Investors Service predicted re-insurance companies would probably take the bulk of losses for claims from the New Zealand earthquake that were not covered by the government's EQC agency.
At the same time, another financial agency, JP Morgan, separately estimated the potential cost to re-insurers could amount to $US4.3 billion ($NZ5.8 billion), but re-insurance companies themselves said it was too early to estimate the size of their losses.
Mr Morris said the quakes and their aftermath will impact on insurance, including reinsurance, financial assets and liabilities, tourism and other services, and trade in goods.
But he noted that the impact on balance of payment statistics of earthquake-related transactions in trade in goods, and the impact on services tourism and other services could not be easily identified.
Goldman Sachs and Partners NZ in Auckland last month estimated that the quakes may cost as much as $4.9 billion, with repairs taking four years to complete.
Economist Philip Borkin said the bank's damage estimate was nearly a billion dollars higher than Treasury's provisional $4 billion forecast because of damage done by aftershocks following the initial magnitude 7.1 quake.
