Rural insurer FMG defends its reinsurance cover in first ever online annual meeting

Because of Covid-19 restrictions, insurer FMG held its annual meeting online for the first time in its 115-year history.

Rural insurer FMG has defended its reinsurance programme at its annual meeting, held online for the first time in its 115-year history.

This month a candidate for a board position, industry veteran Bevan Killick, publicly raised concerns about the insurance company's reinsurance cover and questioned whether directors have the necessary skills to run an insurer.

During his presentation to policyholders, FMG's chief financial officer Dave Kibblewhite raised media reporting as he defended its reinsurance cover.

The mutual bought more cover than Medical Assurance Society or Tower "despite both of those organisations targeting the major [cities] where the biggest concentration of risk is," Kibblewhite said.

"In contrast, FMG is targeting rural and regional New Zealand, which is geographically spread."

After the Canterbury earthquake in 2011, FMG used about 40 per cent of its reinsurance cover, and after the Kaikoura earthquake, it used about 30 per cent of its cover.

"Most other insurers used considerably more than us and in the Christchurch event, many exhausted their reinsurance cover completely," Kibblewhite said.

Kibblewhite said FMG's reinsurance had increased from just under $200 million a decade ago to close to $1 billion now as the business grew.

In recent years, it purchased more as a proportion of the size of the business as the models it used to calculate risk improved "as well as our conservative philosophy as a mutual when it comes to capital management," Kibblewhite said.

"Rest assured that management and the board spend a lot of time every year to determine what level of reinsurance to purchase.

"We use international modelling experts to model a one-in-1000-year event as well as running our in house models and various stress tests," Kibblewhite said.

"We believe we have used the best models internationally with the most up-to-date science and data to achieve a very robust result on behalf of members."

In his presentation, Killick repeated his concerns that mutuals should purchase more reinsurance covers than private sector rivals because of the difficulty they have in raising capital.

"I have been unable to fund another comparable insurer purchasing less reinsurance than FMG, other than pre-earthquake AMI," Killick said, adding that IAG purchased more even though it was spread across Australasia, while FMG was focused solely on New Zealand.

"Greater reinsurance spend should result in steadier profits and protect FMG in the event of catastrophes and increased severity and frequency of events," Killick said.

"If the alpine fault ruptures, I am sure you want your claims paid. A strong mutual rural insurer is good for New Zealand and our rural communities.

"FMG currently does so much good in our communities, just like AMI in Canterbury did, pre earthquake."

Since 2012, Killick has sat on the board of Southern Response, the insurance company established by the Government to settle the claims of AMI, which collapsed after the Christchurch earthquakes, as a result of a lack of reinsurance.

Killick also alluded to his concerns around what he says is a lack of the appropriate skills on the board of an insurance company.

"You wouldn't have a plumber rewire your home. Surely you want appropriate skills and qualifications protecting your homes, your families and your livelihoods."

The meeting was due to be held in Tauranga on Friday, but was moved online because of Covid alert level restrictions. Voting for the meeting closes on Monday. Results are set to be announced on August 27.