Insurance stocks were the worst hit as tremors from the Christchurch quake extended to the stock exchange today, despite confidence re-insurance covenants would cover the cost of claims. New Zealand's largest listed general insurer, Tower, recorded the la
Insurance stocks were the worst hit as tremors from the Christchurch quake extended to the stock exchange today, despite confidence re-insurance covenants would cover the cost of claims.
New Zealand’s largest listed general insurer, Tower, recorded the largest decline, with shares last trading at $1.84, down 7c from Friday’s close. Early in the trading session, Tower went as low as $1.75.
Shares in AMP also tumbled 15c to $6.45 this afternoon.
The falls came despite confidence from insurance companies their reinsurance arrangements were expected to cover claims for damage from Saturday’s one-minute earthquake in Christchurch and aftershocks.
Tower expected insurance claims arising from the Christchurch earthquake would cost the company $5 million, before tax.
Tower managing director Rob Flannagan said the company carried large amounts of reinsurance so its accounts and capital did not get hit in any one year and once all claims were received and assessed, the total payable would trigger its re-insurance arrangements, with losses to be capped at $5 million.
The after-tax effect of this is expected to be around $3.5 million.
“While this is a new experience for many of those affected, Tower itself is in the business of insurance and the cost is part of our normal financial planning,” Mr Flannagan said.
He said he presumed the decline in the share price reflected reaction from the large volume of overseas investors.
New Zealand’s largest insurance company, Insurance Australia Group (IAG), also said its reinsurance arrangements were expected to entirely cover claims costs and has signaled no change to premiums as a result.
IAG chief executive Michael Wilkins said the group’s State and NZI businesses had responded to more than 2000 calls since Saturday and anticipated that number to rise from today as people turned their minds to what to do.
“At this stage it’s too early to determine the extent of damage to our customers’ property. However, we expect it is likely to be significant,” he said.
“From a financial perspective, the entire event will be covered by our reinsurance arrangements.”
Full-year guidance for the group remained unchanged, he said.
Just a fortnight ago IAG revealed full-year results for the year to June showing New Zealand operations contributed earnings of $A139 million or almost a quarter of group profit.
IAG said it was optimistic of boosting insurance margins this year to between 10.5% and 12.5%.
State Insurance executive general manager Mary-Jane Daly said there would be no change to premiums
“Events of this nature are part of how those premiums are calculated.”
Suncorp, which operates the Vero New Zealand and AA Insurance businesses, said its reinsurance arrangements included a cap of $60 million on domestic earthquake exposures and said it was bulking up its claims staff in Christchurch to cope with demand.
Costs for insurers are likely to be largest in the industrial and commercial insurance categories, given the government provides residential earthquake insurance through the Earthquake Commission (EQC) covering the first $100,000 for homes and $20,000 for contents.
So far, 4164 have lodged claims with the Earthquake Commission, with the number predicted to rise to 100,000,
EQC chief executive Ian Simpson estimated it would cost more than $2 billion to repair damage caused by Saturday’s 7.1 magnitude earthquake, which struck 40km west of Christchurch.
Christchurch City Council said there were more than 500 damaged buildings, with 90 of those located in the central city.
However, there could be more damage on the way with aftershocks of up to magnitude 6 expected over the next week, which threatens further damage to buildings already weakened by the quake.
EQC has $250 million in New Zealand-registered bank deposits available more-or-less immediately to meet cash claims and $5.8 million to draw on in the Natural Disaster Fund.
The EQC's fund is 100% in offshore stock and bonds – primarily invested in shares from countries that are in the Morgan Stanley Capital (MSCI) World Index and the amount invested will be approximately proportional to the size and value of each country’s stock market.
Prime Minister John Key said the fund should cover most claims.
The Insurance Council of New Zealand has been reluctant to estimate the total cost to the industry.
Insurance losses from the 6.8 magnitude earthquake in Gisborne three years ago amounted to $30.5 million. Losses from the Bay of Plenty earthquake in June 1987 amounted to $192 million.
