US insurance risk analysis firm EQECAT has estimated the September 4, February 22 and June 13 earthquakes in Christchurch could generate total insured losses of up to US$23 billion (NZ$28 billion).
Los Angeles-based EQECAT, which does catastrophe modeling for insurers and corporations globally, said the June 13 earthquake could generate fresh losses of up to US$3-5 billion, adding to estimated losses from the September 4 quake of US$4-6 billion and estimated losses from the February 22 quake of US$8-12 billion.
"Monday’s event—almost four months after February’s event—has likely caused from $3 to $5 Billion US in losses, with the incremental losses occurring to repaired structures and facilities," EQECAT said in this estimate.
The increased losses are expected to further stretch the New Zealand government's finances as it will bear much of the burden of again repairing public infrastructure such as roads, water pipes, schools and hospitals. The Christchurch City Council, which has just announced a 7.1% rates increase and a likely budget deficit, also faces further losses.
The latest quake may also delay the rebuild of Christchurch and further delay economic activity that the Treasury and the Reserve Bank are relying on to boost the economy next year. Any slowdown in the recovery may reduce inflationary pressures and allow the Reserve Bank to further delay any increase in the Official Cash Rate.
Most economists had been forecasting the RBNZ would start increasing the OCR from its current 2.5% level from December 8.
It may also delay the economic rebound and the resulting improvement in the government's deficit, which had been expected to return to surplus by 2014/15 from a deficit of NZ$16.4 billion or 8.4% of GDP this fiscal year to June 30.
'Some bloke overseas watching the telly'
In Parliament today Finance Minister Bill English told journalists the government had not seen any basis for such a large increase in insurance costs due to the aftershocks.
“The engineers are having a look now at whether there’s any new damage, but it does look as if most of the damage has occurred in places where there was already damage,” English said.
“These aren’t insurance assessments, these are an offshore consultant having a stab at what it might be from the pictures on TV, so I don’t think we should give it too much credibility,” he said.
In time, there would be some further estimates of costs.
“We would expect over the next few weeks the picture will become a bit clearer, but our focus at the moment is on all the information that is relevant to making decisions that are going to allow the rebuilding and the recovery to continue,” English said.
Meanwhile, English said concerns of whether there would be problems for people in other parts of New Zealand in terms of accessing insurance were one aspect of what was a very complex set of problems.
Answers needed to be found reasonably quickly, English said.
“The track record of these disasters around the world is that when you have the disaster the reinsurance industry reacts with a heightened sense of risk. They see it as higher risk in the near future, and then after a while that tails off," English said.
“This last earthquake has made it a bit more likely that the reinsurance industry will be jumpier in the short-term, but in the long-term that should settle down,” he said.
The government hoped reinsurers wouldn’t go as far as deciding New Zealand was too expensive to insure.
“I think we’ve all had a bit of a knee-jerk reaction to this last earthquake. But over time these things settle down. There’s no doubt that the series of earthquakes changed the perception of risk in New Zealand for the foreseeable future, and we’re all going to have to deal with that reality," English said.
(Updates with Finance Minister comments.)
53 Comments
This is a national tragedy and needs participation across all the sections of the society to pitch in.
For a start, how about the mortgage holders who are benefiting from the current lower rates agree to pay 0.10% extra on their loans for a limited period of one year, which could be chanelled by the banks to the Chritchurch rebuilding effort, towards specific projects, supervised by a board comprising of executives of the banks and some prominent citizens ?
I am sure considerable amount will be generated on an on-going basis for the near future to help out with rebuilding one of our beautiful cities or helping those most distressed to get back on their feet with timely help.
Thanks
So let's add on ( you pick the billions of dollars figure) Leaky Home Repairs; the Deposit Guarantee Scheme - including SCF; and AMI and the public loss from Finance Companies ( again, pick the billion figure) and that's a lot for a little country to 'contribute' towards, no matter how. It doesn't look like Kiwis are going to be buying much of anything for a while, no matter what it is!
Well...let's just say ' it a challenge'! But it's time to cut the OCR to 0% ( helps those who need the funds to 'do something'); tax, or whatever, ( S/D; CGT; scrap negative gearing etc) the daylights out of property in all ways possible - the blow lessened by lower mortgage rates based off 0% that will allow people to 'stay put'; and the tax, whatever it is, on property will discourabe further flow of funds in that direction. The time, ineed MAI, is upon us.
CGT would only apply when the property is sold. If no one is selling now (shortage of listings) then why would anyone sell if they have to pay tax, ergo no tax revenue.
If CGT not applied to family home that leaves PI's selling their rental properties and they will only do that if property values continue to increase or they are forced to (the latter not likely if OCR at 0%).
If CGT was to be implemented it would be better done after popping the bubble first.
Either way CGT does not address the supply side of housing.
Your idea of increasing taxes below is also a bit hasty. The tax base needs broadening yes but increasing labour taxes would be wrong IMO.
This is the situation when the idea of public credit should be looked at in closer detail.
I do. It would lower the dollar ,that would feed though from the drop, and that would help what's left of our exporters, and cut imported consumtion by making the products too expensive to bring in; also better for our domestic producers. The fly in the ointment is energy. So perhaps gentle drops, rather than my gung-ho call :), but eventually he must. Why do we have to compete against other low interest rate countries - US; UK etc to sell our goods if we dont have to? To me, all the talk of "We're gonna put it up...soon" is like nailing plastic hawks to the strainer posts in a vineyard. It's not what they are, but what they appear to be, to the other birds.
I know some of you will moan about this, but they need to increase taxes AND cut back WFF entitilements!!!! (more than the trivial amount they are proposing)
yeah yeah I know that will have its own negative economic impacts (reducing discretionary spending further etc)
the whole country needs to make a sacrifice here
scary times
If they can spend the reinsurance money quick enough it just might just hold GDP up otherwise have you foreign assets sorted before then.
Can't get access to the redzone today however...up closer a lot of additional damage has occurred in the city center. Can't over emphasis how much additional damage.
NA - cut OCR to zero?
Think about the consequences.
Banks would use private depositors wealth @ zero cost and bid for all the term securities offered by the government at tender. A windfall profit for whom? Aussie bank owners.
And make no mistake the yields on government stock would not collapse as international investors would walk away.
US primary dealers have availed themselves of this scam to the tune of plus USD 1.0 trillion.
View evidence here
Aren't they already reaping a windfall benefit, albeit at higher nominal rates, Stephen? And I do understand your point. But my belief is that the DMO has front-loaded its borrowings for excatly that reason! The market will walk away at 0%, so they are paying a premium, now, to attract the funds that would be otherwise not forthcoming later. 0% doesn't have to be forever. But long enough to allow the Government to get on with its 'rebalancing', giving a sop to the masses whilst it does.
Elley - you are already indirectly and unknowingly paying away profits to foreign owned banks via your taxes.
As I have pointed out before NZ Treasury (NZDMO) has lodged a large deposit (NZD 9.838 billion) with the RBNZ which is on lent to the banks at ~2.75%.
Ostensibly this large sum, of over borrowing in the good times, is earmarked to redeem the forthcoming maturity of the NZD 8.906 billion, 6.00%, 15-Nov-2011 outstanding government stock issue.
They (the banks) theoretically could be sitting (receiving 6.00% pa) on this issue waiting for it to mature and buying the current new longer term issuance around 5.00% pa.with the proceeds received from the RBNZ.
Elley - you and me the taxpayer are taking a daily haircut.
"you are already indirectly and unknowingly paying away profits to foreign owned banks via your taxes." Quite true I'm sure, but then again I'm paying for a lot of things I'd rather not via my taxes.
Don't get me wrong, I'm happy to pay my fair share - I'd just prefer if all of it was used in a useful way (but I am not naive enough to think it is the case and so long as the amount I am paying doesn't increase, well, I'm not too bothered).
As for the deposit rates or what they might soon be, we don't have that much in deposits so building myself a swimming-pool soon should take care of the returns (or lack of it)!
A pool in Oxford sounds chilly! But probably less chilly than the Swiss deposit rates in the 70's. They went negative! You had to pay to put your money on deposit with your bank. But it was at a time ( like now?) when everyhting else was devaluing with the oil-shock, and capital preservation was important and foreign funds swamped their system. Lucky, Swiss....
LOL. Well, we might have a lifestyle block but our business is IT so I'm not sure I could really justify it as a business expense :) Anyway, it'll be nice not to have to drive to Rangiora and back every time I wanna swim (and until we moved here last year, that was 4kms/day so the pool is actually to swim, not to impress my neighbours...not that impressing sheep and cows would be likely to work anyway!).
I think you will find a fire water tank is regarded as a plus by your insurance company and they may reduce your premium as a result..but if it is a swimming pool they won't!!!...Check out Dipton on Google earth and count the water tank 'pools' ditto every other rural area.
We have to keep it at 24C incase the dairy shed needs cleaning, to do this we have installed a modified spa pool which doubles as a sheep dip. However we turn it off in the winter when our turst meets in Fiji for a month to discuss the next years financial plan. We have the other meeting on the golf course or in our company box at the Eden park which can coincide with the odd game.
Hmmm, are you guys are trying to test me?! OK, will investigate. I suppose I could try the justification angle too - after all, we may not be the backbone of the country and I'm sure it would survive just fine without me (!) but on the plus side, we provide services that are in high demand and that relatively few people are able to provide, pay quite a bit of tax and receive nothing from the govt, and 95% of the development we do is for the export market.
There we are, I'm feeling better already about calling my yet-to-be-built pool a fire water supply, thanks!
The problem with hiking insurance premiums to the roof is the unknown extent to which punters will not take out insurance....I see the govt having to step in to subsidise premiums for homeowners in Chch and maybe wgtn as the private companies abandon providing cover or demand massive annual payments...
It will only take one company to offer lower premiums for lower risk property and lower risk areas...and the whole pudding will collapse.
Areas prone to earthquakes, floods, slips, Tsunami and criminal activity are the ones that will not get cover or cost more...while wooden houses and old wooden houses will cost a dam sight more..as will brick piles and highrise stuff predating the best EQ engineering standards....
That is why the CEO and the entire board of AMI ought to be sacked , and the company nationalised . AMI has broken the golden rule of trust , essential in all commerce . They have cheated the system . ...
.... Instead they're rewarded with a government back-stop at a small fee , and are now lording it over their rivals ( the honest insurance companies ) because of the GG that Bill English gave them .
Stands to reason Gummy that one of the companies being shafted by the AMI freebee govt support, will say "bugger this for a joke" and start offering lower premiums to low risk clients...while refusing to offer cover in high risk areas and to high risk properties....must represent a substantial market potential for the first to make the move...
That would leave Bill English owning AMI and providing cover to the rest....!
deanbo, I can't just ignore that stupid comment - even if it was meant to be a joke.
If you only watch the so called news and comment programmes then you might think this. But, about 90% of ChCh is up and running and we are finding a way to get by. Yes there are some badly hit areas (again), but most of the city is fine.
It terms of business, manufacturing was 95% running within a week of Feb22 and is running now. retailers have been hit, but mainly in the CBD, elsewhere we are fine. You actually have to go to certain areas to find the damage - I don't take this lightly because the damage there is bad - but don't think the whole place is gone.
A nightmare, my mother got a letter yesterday now saying (afterthe September one) that any decision on the land in Waimak is now on hold.
Each house thats is badly damaged will needs to co-ordinate between Insurance company(sometimes more than one or two)- EQC-Banks (again sometimes more than one)-Lawyers a nightmare to get all of these groups together.
Parts of it are stuffed that's for sure...have to wait...and wait....and wait some more for the decision makers to get their finger out...even though it's plainly bloody obvious the cliff edge going back 50 metres will have to be cleared of houses....the sinking suburbs will have to be bulldozed and new subdivisions established maybe where the 'forest' is 10 km away...and then we have the vested interests slithering their way into the system to ensure they get what they want or don't pay what they should...!
Oh I think things will stagger on from shake to shake through the summer and into another winter of indecision....it is afterall NZ. Look how long it took the govt to wake up to the worldwide debt crisis and the NZ fiscal debt crisis.....!!
Gee, this doesn't bode well for the rebuild;
Kate - simple.
Inertia: The tendency of a body to resist acceleration.
Mass times length of lever, versus time.
And the mass in tilt-slab?
It's not rocket science. I built with walls weighing 11kg per finished sq.metre. Purposely.
Probably, it was designed properly, and built ditto. It's a pretty controlled/known form.
Nonetheless, you could design something on the back of an envelope, that could have stood up.
"However, the building's engineers said the buildings had performed above expectation under exceptional strain, staying upright and allowing the occupants to escape."
Exactly...
Our earthquake regs are just this....the building has to survive long enough so ppl can safely leave, nothing more....If she had specified "I want a building to withstand a 8.0 earthqauke, still be operational and need no major repairs", she should have said so and probably paid twice as much....bet she wouldnt have wanted to.
regards
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