New Zealand home insurance premiums are rising sharply on the back of higher reinsurance costs, according to Tower MD Rob Flannagan.

“Our reinsurance costs have gone up 25-30% and that will flow through to home insurance premiums, but not to contents and cars,” he told insuranceNEWS.com.au.

Insurance Council of New Zealand CEO Chris Ryan says such rises are occurring across the country.

“The general picture is we’re seeing quite big increases in rates for residential and commercial property,” he told insuranceNEWS.com.au.

“New Zealand is seen as one market but we are hearing of slightly higher rises in Wellington and Christchurch because of earthquake risk.”

Some reports put rate rises in Christchurch as high as 50%.

Tower recently renegotiated its reinsurance for 2012/13. Its excess on catastrophic events has risen from $NZ6.7 million ($5.37 million) to $NZ11.7 million ($9.38 million).

The group has chosen to accept the higher excess because “reinsurance at the lower layers is very expensive”, Mr Flannagan says. “It’s an issue of our cost of capital [to pay excess] compared with paying higher reinsurance costs to someone else.

“The company is in very good financial shape now and can carry extra risk.”

Tower’s reinsurance covers two catastrophic events in a year but “we stay two events in front, so if we had an event we would go and buy more”, Mr Flannagan says. “But cover for a third event would be very expensive.”

The company has also increased reinsurance cover for each event from $NZ500 million ($401 million) to $NZ525 million ($421 million).

“Our model [of the likely magnitude of a catastrophic loss event] is well below $NZ500 million, but this year there is a lot of capacity in the reinsurance market, so we took another layer because it’s relatively cheap,” Mr Flannagan said.

There is extra reinsurance capital in the Australasian market because “Berkshire Hathaway has taken 25% of the market in the past 12 months”.