Fronted ILS capital only a “small share” of NZ EQC’s $7bn renewal

Fronted ILS capital only a “small share” of NZ EQC’s $7bn renewal

Standard reinsurance capacity continues to control the reinsurance program of New Zealands state-owned house catastrophe insurance entity the Earthquake Commission (EQC), with fronted capability from alternative or ILS markets just contributing a “little share” in 2021. As we described just recently, the New Zealand Earthquake Commission (EQC) positioned its biggest reinsurance program tower in history at its renewal, protecting practically $7 billion of security for the 2021/22 monetary year.
That represents an increase in size of the NZ EQC reinsurance tower of more than 12%, having purchased $6.2 billion of reinsurance a year previously.
The Commission told us in 2015 that it had utilised a percentage of alternative capital within its 2020 reinsurance program renewal.
The scenario hasnt altered considerably, as this year Fraser Gardiner, Chief Financial Officer of the New Zealand Earthquake Commission informed us that fronted alternative reinsurance or ILS capital just makes up a “small share” of the $7 billion 2021 renewal placement.
Gardiner discussed that the number of counterparties had not changed substantially either for 2021, being around 70 reinsurers in total once again.
He also described that structurally the reinsurance tower remains comparable, with all of the earthquake protection on a per-occurrence basis.
On the participation of alternative capital gamers and ILS funds, Gardiner discussed, “The program does make use of a minimal amount of alternative capital, nevertheless this is accessed via fronting arrangements handled by worldwide reinsurers.”
Which proportionally only indicates that, “A little share of the programme is supported by capital alternative sources.”
Alternative reinsurance structures, consisting of using ILS or catastrophe bonds stays something the NZ EQC assesses each year though.
Gardiner described, “EQC continue to examine their reinsurance programme and the sources of capital readily available. We have actually been extremely happy with the level of support and rates we have actually been able to achieve from our existing reinsurance partners through this renewal, but we will continue to monitor a range of options.”
So alternative or ILS capital participation does continue in the NZ EQC reinsurance program, albeit on a fairly little basis.
Its encouraging that the alternatives continue to be taken a look at however, as there might be a case for the EQC sponsoring catastrophe bonds to lock-in multi-year security in years to come, so its essential the ILS market continues to engage with the Commission and its brokers.

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