It says a lot about the comparative health of the Government's books - and the strange times we live in, when the financial markets operate on some kind of binary "risk on, risk off" basis - that the announcement of a hit to its balance sheet equivalent to 2 per cent of GDP saw the kiwi dollar rise, to more than US85c.
The EQC receives a levy, collected along with homeowners' fire insurance, of 5c for every $100 of cover it provides.
But the cover is limited to $100,000 per home, plus $20,000 in contents.
These caps have not changed since 1993.
That was a whole other millennium. There have been two housing booms since then.
And the construction sector is a notorious recidivist offender when it comes to inflation.
The commission argued, in the briefing to its incoming minister (English) in 2008, that to compensate for inflation since 1993 the cap on a dwelling should be doubled to $200,000.
"A $30,000 claim in 2003 is now a $60,000 claim, yet the EQC is receiving the same premium on a dwelling insured for at least $100,000 that it was receiving in 2003," it said.
The fact that the caps have not been adjusted for 18 years represents a slow, creeping privatisation of disaster insurance.
It shifts the frontier, in real terms, where the public scheme ends and private insurance is needed in a way that expands the private sector's share.
In addition the one size fits all approach unfairly benefits the better off.
"For example a $500,000 home is much more likely to sustain $60,000 damage in an earthquake than a $150,000 home. Yet both get the same cover from EQC and both pay the same premium," the commission said.
Then there is the issue of the way damage to land is handled: No cap, no premium, just a liability.
Damage to land, initially estimated at between $300 million and $600 million, now looks like costing the commission $1.8 billion - a quarter of its updated liability of $7 billion.
EQC pointed out three years ago that the value of the land the scheme covers had more than trebled between 2003 and 2007, while its premium income over the same period only rose 9.25 per cent.
Its chairman, Michael Wintringham, describes the current rules as anomalous and inequitable: "A person whose house is situated on a high-value section receives greater cover, at the same price, as the homeowner with a lower-value section," he said in his 2009/10 annual report.
Parliament's commerce select committee agreed this "appears inequitable". The effect of all these antiquated provisions is that in the 2010 financial year EQC received $86 million in gross premiums, dwarfed by its $386 million of investment income.
Now, of course, the $6 billion in reserves generating that investment income has been cleaned out.
Or rather, "reserves".
EQC started its annus horribilis on July 1 last year with just under $6 billion of investment assets on its balance sheet.
But only 31 per cent of that consisted of liquid securities, the great majority of it ($1.7 billion) shares in overseas companies.
The rest ($4.1 billion) consisted of a special kind of Government stock, essentially IOUs issued by the Crown which deliver a stream of interest payments but cannot be sold and can only be redeemed for cash from the Treasury's Debt Management Office.
Spot the flaw in this arrangement?
Whenever the commission needs to cash these bonds in, as it does now, is also likely to be a situation when the Government also faces other large claims on its funds - like the$5.5 billion Canterbury Earthquake Recovery Fund set up in the May Budget, which does not include Crown liabilities under the EQC.
The thinking seems to have been: "we'll cross that bridge when it falls down".
Whatever the accounting rules around how the $4 billion expected increase in EQC claims is treated in the Government's operating balance and debt numbers, that sum represents cash that the Government will need to borrow and which will flow out to claimants, with a corresponding hit to the Crown's net worth.
So what needs to change to put the EQC back on a sound financial footing?
First of all, we ought to respect the basic insurance principle that there needs to be some kind of proportionality between the value of the cover the scheme provides and the premiums paid by those who benefit from it.
The maximum $69 a year homeowners pay at present is way too low.
Both the rate of 5c per $100 and the cap, if caps are retained, need to be raised.
The regressive free ride on the treatment of damage to land needs to be addressed, which ought not to be difficult as sections are already valued for local body rates purposes.
The increased ongoing cost of the scheme ought to fall on those who benefit from it, the owners of residential properties, not on taxpayers.
However, that principle may have to be departed from if it is necessary to recapitalise the disaster fund at least up to the $1.5 billion threshold where reinsurance kicks in.
In light of the still fragile nature of the economic recovery, it would be better to finance that through Government borrowing than through an ad hoc income tax of the kind the Greens advocate.
It would represent an extra five weeks' borrowing at the current rate of around $300 million a week and Government bond yields are low by historical standards.
