Standard & Poor's Rating Services says the government is likely to be called on to fund claims from the 6.3 magnitude earthquake in Christchurch this week, but has kept the Earthquake Commission's triple-A rating.
The EQC is financially well structured to meet its residential property and contents insurance obligations through its substantial natural disaster fund, reinsurance protection, and the ability to call on the government for additional funding if needed, S&P said in a statement.
As at December 23, the EQC said it had $4.5 billion in its Natural Disaster Fund, as well as $2.5 billion or reinsurance which it can draw on to pay for the February quake. However, if the scale of the latest Christchurch exceeds $8.1 billion, or a 1in-1000 year event, the EQC would exhaust its own resources and require a call on government funds.
EQC has previously released estimates of claims cost related to the September earthquake, which ranged from $2.8 billion to $3.5 billion, from around 160,000 claims.
Subsequent aftershocks have increased those numbers to around 185,000, and the upper estimate is likely to be exceeded, and Prime Minister John Key said the second quake will probably add a further 100,000 claims.
"With reference to those figures, the increased scale and damage of the February earth quake would likely generate costs will in excess of the earlier event," S&P said. "At this stage it is too early to assess the likely cost of the Christchurch earthquake to insurers, reinsurers, and EQC, but we believe it is likely to be one of the world's costliest insurance events in recent times."
S&P said it believes the government, which is rated AAA for long-term local currency debt obligations, will honour any earthquake-related funding requests from the EQC given its financial ability, and moral and legal obligation to rebuild communities after a natural disaster.
The announcement comes one day after the rating agency said it will maintain the current ratings on general insurers, despite the effect that the latest Christchurch will probably have on near-term earnings, due to substantial re-insurance and EQC cover.