Lloyd’s Affirms Interest in New Zealand Market

New Zealand will continue to be supported by international insurance and reinsurance companies despite mounting catastrophe losses and a reduction of capacity after a series of earthquakes in the Christchurch area since last September.

A predicted exodus of insurers from the New Zealand and Australia markets following the unprecedented catastrophe events is not occurring, said Lloyd's Chairman Peter Levene. "But it's got to be on a commercial basis," he said, since the new reality is that risk must be reassessed and rates must reflect them if insuring these areas is to remain viable in the long term.

"The reinsurance industry must know that when they take on a risk, they have got to understand it. They need to know the detail and they need to price it at a level which is economic," said Levene in a statement. A sustainable insurance industry is vital in the long run, he added.

The international nature of the Lloyd's market means capacity is available and losses can be balanced, given its risk and geographic diversification. "No one knows exactly when and where disasters are going to happen, but Lloyd's is here to make good when they do," said Levene while on a recent visit to New Zealand and Australia.

Lloyd's said it expects claims of at least US$1.2 billion from the New Zealand earthquake and US$650 million from Australian floods earlier this year. Industry losses for the disasters are estimated at around US$15 billion.

The March 11 earthquake and tsunami in Japan is expected to bring claims of US$1.95 billion as of May 13. Industry losses are estimated at about US$30 billion, which excludes life insurance and the public sector's Japan Earthquake Reinsurance backstop. Overall, insurance rates will be firming as a result of the first half's natural perils and tornadoes in the United States, according to Lloyd's.

A spree of natural disasters, including earthquakes and aftershocks in Japan and New Zealand, flooding in Australia'sQueensland and Brisbane, Cyclone Yasi in northern Queensland and hailstorms in Melbourne and Perth, have resulted in new thinking about natural catastrophe risks. In New Zealand, there have been concerns about the long-term effects on insurability. The New Zealand quakes also raised the level of underwriting risks and may have a significant impact on insurance and reinsurance policies in the future (BestWire, July 12, 2011).

Unavailable reinsurance led Civic Assurance, which is owned by local governments and insures most municipal councils, to withdraw offerings of property insurance for 46 of 78 councils in New Zealand. As a result, the insurer cancelled its coverage as of June 30. Christchurch City Council said its brokers are seeking insurance coverage in the London market, and they are also investigating the possibility of capacity from the United States, particularly specialist markets, which underwrite programs on the U.S. west coast (BestWire, July 26, 2011).

"In the context of local authority assets, global reinsurers are demanding more data to better understand and price risk. This issue of insurability is generally not anticipated to extend to commercial markets," said Philip Chung, senior financial analyst of A.M. Best Asia-Pacific Ltd. (BestWire, July 12, 2011).

"Insurance is a numbers diversification game. Smaller companies would need more reinsurance than larger companies. Similarly, smaller economies depend on global reinsurers more than larger economies," Chung said. "While the New Zealand market is very reliant on global reinsurers, those same reinsurers are also eager to do business in the country."

(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)