Quake to cost reinsurers up to USD3.6 bn

The recent 7.8 magnitude earthquake that struck in New Zealand could result in a cost to the economy of up to NZD8 billion, with insurance and reinsurance potentially paying as much as NZD5 billion (almost USD3.6 billion) of the loss, according to the regulator.

The estimate from the Reserve Bank of New Zealand, that also acts as regulator of the insurance industry, is among the first to suggest a potential impact to insurance and reinsurance capital.

The cost to repair earthquake damage to buildings and infrastructure is estimated at anywhere from NZD3 billion to NZD8 billion, with the government expected to foot up to NZD3 billion and the remainder by insurers and the global reinsurance market.

The Reserve Bank said that the insurance industry is well capitalised and has sufficient access to capital to pay claims from the earthquake event.

It estimates that the insurance industry in New Zealand has around NZD14 billion more of capital and reinsurance protection since the 2011 Canterbury quakes, suggesting a greater use of reinsurance capital perhaps which could result in a greater proportion of the claims from this latest event falling to reinsurers and perhaps insurance-linked securities (ILS) funds.

An additional factor that could exacerbate the eventual final insurance bill from the recent Kaikoura, New Zealand earthquake is business interruption.