N.Z. quake to hit local insurer ratings

Global reinsurers' earnings are likely to take a hit due to last month's devastating earthquake in New Zealand./ REUTERS

CHRISTCHURCH, New Zealand—Local nonlife insurers are likely to have their ratings downgraded and global reinsurers' earnings are likely to take a hit due to last month's devastating earthquake in New Zealand, A.M. Best Co. Inc. said in a briefing paper.

Best said in last week's briefing that the 6.3-magnitude quake that killed more than 150 and caused insured losses estimated as high as $8 billion will erode the capital of nonlife insurers and likely “will result in some local company ratings being lowered.”

“For global reinsurers, it is likely to be an earnings event, but ratings should not be impacted,” Best said.

The earthquake and other calamities in Australia and New Zealand are expected to cause reinsurance rates to rise. Insurers may not be able to fully pass increases along to policyholders, further squeezing their margins, Best said.

The Oldwick, N.J., rating agency said it expects all insurers and reinsurers it rates to be able to meet claims obligations in the Feb. 22 quake.

Insurers affected by the recent catastrophes that have tried to smooth their earnings through multiyear reinsurance structures are expected to “experience a lower net financial impact” than insurers that did not take those steps, Best said.

“Other insurers that have been less impacted by past catastrophic events (usually smaller commercial writers) tend to have simpler reinsurance structures and relatively larger net catastrophe retentions,” Best noted.

The New Zealand Earthquake Commission will partially cover residential losses, but the earnings of personal lines insurers are expected to be negatively affected, Best said.

“Residential premium rates have already seen an upward trend in the past few years, and earthquake losses may cause this trend to continue,” the rating agency said in the briefing paper.