New Zealand’s Earthquake Commission (EQC) expects to incur a direct loss of $NZ7 billion ($5.3 billion) from the Christchurch earthquakes.

The EQC’s annual report shows the losses not covered by reinsurance comprise $NZ1.5 billion ($1.1 billion) excess from the September 4 event, $NZ1.5 billion excess from the February 22 event and $NZ1 billion ($760 million) from the June 13 quake.

It also expects another $NZ2.5 billion ($1.9 billion) above the upper reinsurance threshold from the February 22 quake – the most devastating of the series – and another $NZ500 million ($380 million) from claims following aftershocks that are either below the reinsurance excess or which do not meet the criteria to be considered part of a “parent” earthquake.

The annual report’s auditor notes there are uncertainties in calculating earthquake liabilities and the reinsurance recovery. He says the EQC’s total liabilities exceed its assets but the Government is obliged to meet any future deficiencies. 

The EQC’s directors say they adopted the financial statements for the commission as a “going concern” because of the government guarantee.

The income statement shows the EQC’s gross earned premium was $NZ87.8 million ($67 million) and it paid $NZ48 million ($36 million) in reinsurance for the year to June 30.

The reinsurance bill was 25% above the amount budgeted for and the cost of reinsurance the previous year. 

The EQC’s claims expense for 2010/11 was $NZ11 billion ($8 billion), compared with $NZ32 million ($24 million) the previous financial year, and its final deficit, after other costs and income, was $NZ7 billion ($5.3 billion).

Its reinsurance recoveries are estimated at around $NZ4.5 billion ($3.5 billion).

The commission renewed its reinsurance treaties in March, when it says reinsurers had incurred losses from the Japan earthquake and considered the Australasian region particularly unstable following the Queensland floods and Cyclone Wilma.

Northern New Zealand caught the tail end of Cyclone Wilma in January, resulting in 1000 landslip claims to the EQC.

EQC Chairman Michael Wintringham says the commission’s model has worked. He says homeowners have over many years steadily built the Natural Disaster Fund (NDF) in anticipation of a disaster, and successive boards and staff of the EQC have nurtured the fund through reinsurance placements.

“The big calls on the NDF arrived in 2010 and 2011,” Mr Wintringham says. “The money was available and will be spent for the purpose for which it was intended. That is the ultimate measure of the scheme’s success.”

He says the organisation grew from 22 to almost 1200 staff in a few months.