The Reserve Bank of New Zealand’s demand that insurers carry enough capital to cover a one-in-1000-year event will further increase the cost of insurance, according to Insurance Council of New Zealand (ICNZ) President Jacki Johnson.

The bank requires underwriters to be backed by more reinsurance capital than in any other jurisdiction, creating a higher hurdle for meeting insurers’ return requirements and an obstacle to attracting investment capital, she says in ICNZ’s annual review.

“This will continue to drive up premiums, particularly for those regions more prone to earthquake risk.”

Ms Johnson says insurers support a well-regulated market that protects policyholders, but that must be balanced against adding significantly to the cost of insurance.

“It would be self-defeating if the additional capital insurers were required to hold meant cover for some people became unaffordable.”

The Reserve Bank declined to comment when contacted by insuranceNEWS.com.au.

Ms Johnson says insurers must work hard to show they provide good value, but responsibility for risk needs to be shared.

Wholesale and manufacturing industries, which contribute about 25% of gross domestic product, appear to be underinsured, “so the high levels of residential insurance penetration can disguise other vulnerabilities”.

Brokers, insurers and other industry groups must address the problem, she says.

Last year was New Zealand’s most expensive in a decade for insurance losses from weather events, totalling $NZ175.3 million ($165.65 million).

Insurers’ gross written premium (GWP) grew 7% to $NZ4.77 billion ($4.51 billion) in the year to last September, while claims fell 1% to $NZ2.17 billion ($2.05 billion).

The industry’s combined operating ratio improved to 96.27% from 98.93%.

Commercial GWP was marginally down at $NZ598.43 million ($565.47 million), while domestic lines GWP increased 15% to $NZ1.34 billion ($1.27 billion).

Motor GWP grew 4% to $NZ1.4 billion ($1.32 billion), marine was down 5% to $NZ135.23 million ($172.78 million) and liability GWP gained 9% to $NZ368 million ($347.73 million).

Earthquake GWP written by insurers increased 11% to $NZ608.69 million ($575.17 million).