Earthquake to push up reinsurance costs: Fitch

Photo / NZPA

The 7.1 magnitude earthquake in Christchurch on Saturday will probably push up Australian insurers' reinsurance costs, according to Fitch Ratings.

The rating agency said it expects Insurance Australia Group will need extra cover, due to its main reinsurance catastrophe programme being limited to one full reinstatement which won't renew until the end of the year.

The earthquake will be the third major event to impact IAG's lower catastrophe layers, after the Melbourne and Perth storms, Fitch said.

"The availability and cost of lower levels of catastrophe cover will suffer a greater impact now, following the increased frequency of large losses in recent years," the agency said.

"Already evident when Suncorp failed to renew a A$50 million layer below its A$200 million retention in FY10, the agency expects IAG may face a similar situation when its three-year retention buy-down expires at the end of 2010."

Suncorp-Metway, which owns the Vero and Asteron insurers, estimates its net exposure to the earthquake will be $60 million, while IAG, which has State Insurance, said the impact will be negligible.

Suncorp and IAG hold about 60 per cent of New Zealand's market share.

Listed insurers took a knock in trading on Monday, and AMP Ltd. fell 2.6 per cent to $6.41, while Tower dropped 0.5 per cent to $1.87 on the NZX today.