International rating agency Standard and Poor's believes New Zealand's Earthquake Commission (EQC) will be able to make a $2.5 billion claim from its reinsurers, as opposed to dipping into its cash reserves.
In what appears to be a technicality of insurers, if Tuesday's quake was deemed an aftershock from the September quake, as opposed to a "new" event, the EQC may have to call on its reserves for any claims exceeding $4 billion.
The cost of the second quake is already expected to exceed the estimated $5 billion expenditure on the September quake, with several analysts making estimates well beyond $10 billion.
In a statement yesterday, affirming the EQC's existing AAA-stable rating would remain unchanged despite its significant exposure to the Christchurch earthquake, Standard and Poor's financial institutions ratings spokesman Michael Vine said the EQC should be able to claim from the $2.5 billion cover it had with reinsurers.
"We understand the February earthquake would be treated as a second [new] event, and the EQC would benefit from this $NZ2.5 billion in reinstated cover," Mr Vine said.
Craigs Investment Partners broker Peter McIntyre said that Prime Minister John Key's suggestion that he was not ruling out the possibility of a nationwide tax to assist in rebuilding Christchurch might not come to anything if the EQC was able to claim the $2.5 billion from its reinsurers.
Mr Vine said the EQC's obligations could be met through its substantial natural disaster fund, its reinsurance protection and, if required, from the legal mechanism allowing the EQC to call on the Crown for additional funding.
S&P believed the New Zealand Government would honour its financial obligations to the EQC, if called upon to do so, given the Government's financial footing and moral and legal obligations to help rebuild communities after a natural disaster, Mr Vine said in a statement.
"Standard and Poor's believes the EQC is financially well structured to meet its residential property and contents insurance obligations to policyholders," Mr Vine said.
While it is still too early to assess the likely cost of the Tuesday quake to insurers, reinsurers and the EQC, Mr Vine believes it is "likely to be one of the world's costliest insurance events in recent times".
Previous EQC estimates of the September claims ranged from $NZ2.8 billion to $NZ3.5 billion, from about 160,000 claims, but the subsequent aftershocks increased claims to about 185,000.
The claim is now expected to reach that upper estimate - but analysts aside from S&P have already this week picked the final cost of the September quake as likely to be about $US5 billion ($NZ6.68 billion).
"The increased scale and damage of the February earthquake would likely generate claims costs well in excess of the earlier event," Mr Vine said.
In an earlier S&P assessment of the EQC, and review of its own published studies and mandate, it was acknowledged if a catastrophe occurred that cost more than $NZ8.1 billion - a one-in-1000-year event - "EQC would exhaust its own resources and require a call on government funds".
Mr Vine said, if the cost of the February quake and related events exceeded $NZ7 billion, it was "likely" the EQC would call on the Government under the support mechanism provided under section 16 of the Earthquake Commission Act 1993.
• Future premiums imposed by the reinsurers, which are used by general insurers in order to spread the risk associated with large national disasters, are expected to possibly double in the future, with the likelihood of large premium increases possibly being passed on to the public.
It was understood this risk spread had already prompted several boardroom meetings of New Zealand and Australian general insurers.
• S&P also yesterday reaffirmed no changes to its rating of New Zealand - AA+/negative/A-1+ foreign currency, and AAA/stable/A-1+ local currency - despite the earthquake.
Also unchanged are the ratings of the Christchurch City Council: AA+/negative/A-1+; Christchurch City Holdings Ltd: AA+/negative/A-1+; and Christchurch International Airport Ltd: A-/stable/A-2.
