Toka Tū Ake EQC secures a record $9.2 billion in reinsurance coverage, almost $1 billion more than last year's reinsurance cover

Toka Tū Ake EQC has secured a record $9.2 billion of reinsurance for its new financial year, nearly a billion more than last year. 

Over the past four years, EQC has steadily increased its reinsurance purchases in response to the growing number of natural hazards affecting New Zealand.

Reinsurance, or insurance for insurers, transfers risk to another company to reduce the likelihood of large payouts for a claim.

Established under the Earthquake Commission Act 1993, EQC is a Crown entity that provides insurance to residential property owners and invests in natural disaster research and education.

 In 2019 and 2020, EQC secured $6.2 billion in reinsurance. This figure rose to nearly $7 billion in 2021 and $7.2 billion in 2022.

Last year in 2023, EQC announced it had secured $8.2 billion in reinsurance cover, with its reinsurance portfolio now also including $225 million in catastrophe bonds. 

For the 2024 financial year, EQC announced on Wednesday that it has secured $9.2 billion in reinsurance.

Chief Executive Tina Mitchell told interest.co.nz the $9.2 billion secured was at the “upper end” of the range of the reinsurance capacity sought.

She said the “continued growth” of EQC’s reinsurance programme demonstrates the confidence the international reinsurance market has in EQC’s national insurance scheme.

“Once again, we have been really well supported by our reinsurance partners, with many substantially increasing the amount of capital they have committed to the programme.”

The increased reinsurance interest included existing partners offering more as well as offers from new and returning markets.

When interest.co.nz asked what reasons new reinsurers were giving for wanting to support EQC’s reinsurance scheme, Mitchell noted there was a “range”.

“One reason often cited is that New Zealand provides a diversifying risk for a number of reinsurers and helps to balance a global book of risk,” she said.

Mitchell added it was “heartening” to see new, well-rated reinsurers have the confidence to put capital at risk after reviewing EQC's information and loss models.

“The increased capacity demonstrates the ongoing confidence that our reinsurance partners have in the EQC Scheme, which includes our ongoing commitment to research, resilience and risk reduction.”

Vote of confidence

Mitchell said EQC saw the reinsurance interest as a “huge vote of confidence” in NZ and EQC’s approach to natural hazard risks.

“Most of the time the EQC scheme is able to cover events, even the bigger events like Cyclone Gabrielle, through levies, but reinsurance protects New Zealand from any future devastating events and helps to ensure we will be able to pay claims when they fall due.”

An EQCover premium, or levy, is collected by private insurers and is then paid into the Natural Disaster Fund (NDF)  and the Crown Guarantee – both of which are managed by EQC.

The EQCover premium is 16 cents per $100 of the EQCover amount, up to a maximum amount of $480.

EQC claims reinsurance only for events causing over $2.1 billion in damage and this has only happened twice, following the Canterbury earthquakes in September 2010 and February 2011, which generated about half a million claims costing an estimated $12 billion.

Mitchell said some of the EQC levy is used to buy reinsurance and this approach keeps the scheme affordable for homeowners – while also shielding the Crown from financial risks during major events.