Toka Tu Ake EQC from New Zealand has raised its reinsurance coverage to an all-time high and made its inaugural entry into the catastrophe bond market.
This move is part of its strategy to diversify its portfolio and accommodate the increased risk resulting from the doubling of its housing claims cap.
The reinsurance coverage has increased to nearly $NZ8.2 billion ($7.6 billion), up from $NZ7.4 billion ($6.9 billion), with the catastrophe bond adding $NZ225 million ($208 million) to the total.
Despite the market’s challenging conditions, CEO Tina Mitchell explains that the organization managed to expand its coverage. Additionally, their foray into catastrophe bonds as a complement to traditional arrangements has received positive reception.
CEO Tina Mitchell highlighted, “While we recognize the inherent risks associated with New Zealand, our comprehensive understanding of these risks positions us as a seasoned participant in the industry. Having the essential financial protection in place provides reassurance in the event of a worst-case scenario.”
Toka Tu Ake EQC initially covers claims using funds from the Natural Disaster Fund, which is funded by premiums and supported by a Crown guarantee. Reinsurance is activated if the claims exceed $NZ2 billion ($1.85 billion).
The four-year catastrophe bond is linked at $NZ2 billion ($1.85 billion), slightly below the level of the conventional reinsurance program.
The bond, featuring an 8.75% interest rate, is financed by institutional investors who contribute the funds upfront. In the event that the funds are not utilized during its duration, they are returned to the investors.
According to Ms. Mitchell, Toka Tu Ake EQC has been in talks to enhance the overall reinsurance coverage due to the doubling of the claims payment cap to $NZ300,000 ($277,757) from $NZ150,000 ($138,878), considering the impact of inflation as well.
The deductible for the reinsurance program saw an increase from $NZ1.75 billion ($1.62 billion) to $NZ2.25 billion ($2.08 billion).
Explaining the rationale behind the decision, she stated, “Considering we hadn’t adjusted our deductible for 12 years, it was an opportune moment to evaluate it. Our choice was predominantly driven by the growth of our program, rather than market conditions.”
Legal firm MinterEllisonRuddWatts confirmed its role as counsel in facilitating the placement of the bond through Totara Re Pty Ltd, a special purpose reinsurance vehicle based in Singapore.
Partner Chris O’Brien expressed pride in collaborating with Toka Tu Ake EQC on this pioneering transaction, which marks a significant milestone for New Zealand.
“Toka Tu Ake EQC is demonstrating prudent leadership, especially in the face of increased uncertainty both domestically and internationally, by taking proactive measures to prepare for whatever challenges the country may encounter,” commented the spokesperson.
Source : insurancenews.com.au