New Zealand’s Toka Tu Ake EQC has increased its reinsurance cover to a record level and entered the catastrophe bond market for the first time as it diversifies its portfolio and takes on increased risk with the recent doubling of its cap for housing claims. 

The reinsurance has risen to just below $NZ8.2 billion ($7.6 billion), from $NZ7.4 billion ($6.9 billion), with the catastrophe bond contributing $NZ225 million ($208 million). 

CEO Tina Mitchell says the organisation had been able to increase its cover despite the market hardening and that its entry into catastrophe bonds to complement traditional arrangements has been well received. 

“New Zealand is a risky country, but we understand our risks really well and we’re seen as quite a mature player, and it’s really great to be able to have the financial protection there should the worst happen,” she told insuranceNEWS.com.au.  

Toka Tu Ake EQC first pays claims from the Natural Disaster Fund, which receives premium monies, and through a Crown guarantee, with reinsurance coming into play if more than $NZ2 billion ($1.85 billion) is required. 

The four-year cat bond attaches at $NZ2 billion ($1.85 billion), just below the traditional reinsurance program. 

The bond, with an interest rate of 8.75%, is funded by institutional investors who provide the money upfront. If the funds aren’t needed over its lifetime they are returned to investors.  

Ms Mitchell says Toka Tu Ake EQC had been discussing increasing the total reinsurance cover following a doubling of the cap for paying claims to $NZ300,000 ($277,757) from $NZ150,000 ($138,878), while inflation was also a factor. 

The deductible for the reinsurance programme was raised from $NZ1.75 billion ($1.62 billion) to $NZ2.25 billion ($2.08 billion). 

“We haven’t increased our deductible for 12 years, so it was timely to review it, and that was, again, more prompted by the increase in our program, as opposed to the hardening market,” she said. 

MinterEllisonRuddWatts said it acted as counsel on the placement of the bond by Singapore domiciled special purpose reinsurance vehicle Totara Re Pty Ltd. 

“We are proud to work alongside Toka Tu Ake EQC on this ground-breaking, first-of-its-kind for New Zealand transaction,” Partner Chris O’Brien said. 

“With the heightened level of uncertainty both here and offshore, Toka Tu Ake EQC is providing prudent leadership to help prepare for whatever lies ahead for the country.”