Insurers begin to count the cost

Wednesday 23rd February 2011

The earthquake that struck Christchurch may be the costliest national disaster for insurers since 2008, according to estimates from JPMorgan Chase & Co.

In a note to clients JPMorgan analyst Michael Huttner estimated insured losses from the earthquake may be as much as US$12 billion.

That would make the New Zealand earthquake the most expensive disaster since the US$19.9 billion loss from Hurricane Ike in the US in 2008, according to the Insurance Information Institute in New York.

"Even buildings which are still standing may have hidden structural damage and could then need to be rebuilt," Huttner said.

"This is a very conservative assumption on our part and in support of this we note that all reinsurers revised cost estimates for the previous earthquake."

A US$12 billion loss from this week's earthquake would make it the seventh-most costly natural disaster for insurers since 1970, according to Insurance Information Institute rankings.

Tower said the earthquake would probably trigger reinsurance arrangements which would cap its costs to $5 million.

It said the after-tax effect is expected to be around $3.5 million.

Separately, Insurance Australia Group, which owns State Insurance and NZI, said the earthquake will cost the company up to $53.5 million (A$40 million) but no higher due to reinsurance cover.

Managing director Mike Wilkins said at present, "it's far too early to determine the extent of the damage", and that the company's primary concern was providing assistance to those affected by the devastation.

Insurance industry figures have also predicted rising insurance bills in the wake of the earthquake.

IAG chief executive Karl Armstrong said that while the Earthquake Commission and insurers would absorb the bulk of the costs, something had to be passed on.

"At this stage it's early to tell but the likelihood is there'll be increased costs for everyone," he said.

Wellington insurance broker John Sloan said the spectre of earthquake insurance premium increases “will become a reality.”

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