International rating agency Standard & Poor's has warned the cost to general insurance companies of getting their own reinsurance policies could become prohibitively high.
Some analysts are predicting a doubling of premiums. That would be passed from the reinsurers to the general insurance companies and, in turn, to ordinary policy holders.
S&P financial institutions ratings analyst Michael Vine said the earthquake in Christchurch this week would hit the earnings of general insurers, but the extensive reinsurance held by that sector should limit any downgrade by the agency.
Analysts have predicted insured losses from Christchurch could be as much as $US12 billion ($NZ16.07 billion).
That would make Christchurch the most expensive disaster since the $US19.9 billion loss from Hurricane Ike, which struck the United States in 2008, according to the Insurance Information Institute, a New York-based trade group, The New Zealand Herald reported.
Mr Vine said yesterday the damage and loss of life in Christchurch was "unprecedented for the region" and the insurance loss would "far exceed" the estimated $US5 billion cost of the September quake.
The capital strength and reinsurance protection of the major general insurers would limit any negative rating pressure on that sector "at this stage", he said.
However, because of the large number of disaster claims worldwide in recent years, he warned reinsurance could become expensive.
"Reinsurance capacity has been ample in recent years, but we are now moving from a buyers' to a sellers' market, in view of these catastrophic events," Mr Vine said.
Craigs Investment Partners broker Peter McIntyre said while insurers "spread the risk" around the globe by taking out policies with many companies, reinsurers were now expected to be considering premium increases of 100% to 200%.
"For the end user [public], this means premiums are going to be a lot higher in the future," Mr McIntyre predicted.
However, Insurance Australia Group (IAG) chief executive Mike Wilkins questioned the $NZ12 billion cost prediction yesterday, saying it was just an estimate and it was too early to be "postulating those sort of numbers".
He did not believe the cost of the earthquake would threaten the viability of either primary insurers or reinsurers.
Mr Vine said the key exposures in Christchurch's case would be carried by the Earthquake Commission, which had an S&P AAA/stable rating and would meet the first $NZ1.5 billion, with "substantial" reinsurance cover beyond that.
However, there is some confusion whether the Tuesday quake is classed as an aftershock or a new event.
The Earthquake Commission's reinsurance covered only new events, so if the quake was an aftershock, the commission might have to use its reserves for any claims exceeding $NZ4 billion, The Sydney Morning Herald reported yesterday.
Finance Minister Bill English has said the quake was a new event, but Suncorp chief executive Patrick Snowball yesterday said there was some confusion about the issue.
Insurance costs
• Hurricane Katrina: $US71.2 billion ($NZ95.5 billion).
• Hurricane Ike: $US19.9 billion.
• Canterbury September quake: $US5 billion.
• Christchurch February quake: $US12 billion (est).
• Chilean earthquake: $US8.5 billion.
- Additional reporting by NZPA
