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OLDWICK, N.J.—The New Zealand insurance market is set for a period of transformation as it copes with a prolonged period of earthquake activity and changes to regulation, according to a report by A.M. Best Co. Inc.
There have been an estimated 8,000 earthquakes and aftershocks in New Zealand this year, according to the report.
And while rebuilding efforts present insurers with opportunities for premium volume growth, many construction programs have been stalled until the ground settles, the report, “New Zealand's Insurance Market on Cusp of Transformation,” noted.
While reinsurance capacity still is available, coverage is more restricted and at a considerably higher price than before the recent period of earthquake activity, the report states.
“Insurers that are continuing to underwrite earthquake risk are passing on the bulk of these increased reinsurance costs to policyholders,” according to the report. “Companies are considering alternative risk transfer, such as captives,” it added.
Recent regulatory changes also are continuing to have an effect on the insurance industry in New Zealand, the report said.
The Insurance (Prudential Supervision) Act 2010 received Royal Assent in September 2010 and is “expected to lead to significant changes as it is rolled out over the coming years during a transition period,” the report noted.
The new rules place greater focus on the financial strength of companies, Best noted.
Insurers must meet provisional licensing requirements by March 2012 and obtain a full license by September 2013. Requirements for a license include compliance with solvency standards, including a minimum solvency capital requirement, scrutiny of senior personnel and appropriate risk management policies, Best said.
In addition, a Catastrophe Risk Capital Charge will be introduced beginning in 2013, the report noted. This charge will be phased in over several years.