EQC 'could deal with another big one'

Finance Minister Bill English. Photo / Mark Mitchell

The Earthquake Commission remains in "good shape" to handle further disasters, says Finance Minister Bill English, a view supported by its chief executive Ian Simpson.

Prime Minister John Key has signalled big increases in the EQC levies New Zealanders pay as part of their home and contents insurance to rebuild the commission's core National Disaster Fund in the wake of the two Christchurch quakes.

Key said the commission was likely to be "cleaned out" as a result of damage claims by homeowners.

But English yesterday said the commission remained in "reasonably good shape".

"My advice is it could handle another disaster on the same scale [as last week's Christchurch quake]."

However it was not clear whether private insurers could handle another catastrophe.

English understood council and local government insurance "would struggle to handle another disaster of any significant scale and would probably find themselves relying on the Government".

"We'll get that clarified over the next week or two because anything could happen."

Earlier this week Simpson said it was too early to be sure of the impact of the quake on the commission's reserves but indicated they were unlikely to be entirely depleted by claims.

The commission had $6 billion in reserves immediately before the first quake in last September. For each quake the commission effectively pays an excess of $1.5 billion before reinsurance cover of $2.5 billion per event kicks in. That means the commission is on the hook for at least $3 billion from the two quakes and subsequent aftershocks.

"The only risk we've got for further expense is if either September 4 or February 22 end up costing more than $4 billion because once you go through the reinsurance then you're dipping back into the National Disaster Fund."

While last week's quake caused far more damage than the September event, it was not certain the EQC's bill for it would go over $4 billion.

"This is incremental damage to properties where we've already put that $3 billion liability to one side, plus our exposure to buildings is capped at $100,000.

"While it is a far more damaging event by the look of it on the ground, we need to do some more work before we start assuming that it's gone through the top of the cover.

"For us to burn through the entire fund, you have to assume that the 22nd on its own cost $7 billion on top of the $2.75 billion to $3.5 billion for the first event."