Wrecked buildings line the streets of central Lyttelton township.Photo / Sarah Ivey
Credit rating companies say there is no immediate need to change the credit ratings of insurers because of the Christchurch earthquake but Moody's Investors Service said ratings pressure may develop over time on the banking sector.
"Overall, we believe the immediate consequences of the earthquake - and likely direct consequences
over time to rated issuers - are clearly negative but do not pose immediate ratings threats," Moody's said.
"The most likely area where ratings pressure might develop over time would be the banking sector, but would depend on the way in which the New Zealand economy recovers from this event," Moody's said.
The issue would be considered in a pre-existing rating review of the major New Zealand banks.
Standard & Poor's Ratings Services has stopped short of putting a figure on the insurance cost of Tuesday's magnitude 6.3 earthquake in Christchurch, saying only that the unprecedented event will cost more than the September earthquake.
"While still very early to accurately assess, we would expect the insurance loss to far exceed that of the September 2010 Christchurch earthquake, which currently stands at around $5 billion, and add to the general insurers' recent major flood losses in Australia."
Yesterday, JP Morgan estimated the cost of the earthquake at $16 billion.
Standard & Poor's said today that the earthquake placed further downward pressure on the earnings of the general insurers in New Zealand.
But their capital strength and reinsurance protection would limit negative rating pressure at this stage.
The scale of the event in terms of loss of life and damage to property was unprecedented for the region in recent times.
Suncorp Group Ltd, which owns Vero Insurance New Zealand, has reinsurance cover which limits its exposure to $60 million. Insurance Australia Group, which owns IAG New Zealand, has reinsurance cover which will limit exposure to A$40m.
The Earthquake Commission will meet the first $1.5b of its eligible residential exposure. It has substantial reinsurance protection beyond that.
The availability and cost of reinsurance protection in future may be an issue for insurers.
"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. As a result, the cost and availability of reinsurance cover may not be as attractive as before."
- NZPA
