US hurricane should not hit NZ insurance premiums

New Zealand should escape the effects of higher insurance premiums as a result of Hurricane Katrina, Earthquake Commission chief executive David Middleton says.

The hurricane devastated parts of the southern United States on Wednesday. Damage estimates are topping $40 billion.

Insurance companies have been quick to say that if the cost of the disaster reached such levels, a flow-on effect in higher premiums would be inevitable, as reinsurance companies sought to recover losses.

Mr Middleton said though it was too early to determine the global effects of Katrina, the reinsurance market was better capitalised than with earlier hurricanes and could cope with a $40 billion bill.

Twelve years ago the commission could not buy enough reinsurance to cover its potential losses from a natural disaster, but today it could place its $1.5 billion risk three times over, Mr Middleton said.

"The reinsurance world is aware and prepared for these disasters."

Reinsurance giant Lloyd's of London has already said it would take the cost of claims in its stride.

As well, much of the damage from Katrina would be covered by the US insurance system with little exposure to the reinsurance market.

"I don't think there will be any serious strain on the finances of the insurance world," Mr Middleton said.

However, some insurance companies in the affected areas could struggle to survive.

The reinsurance market had become more sophisticated with a greater focus on risks on a regional basis, meaning the effects of Katrina would be shared by Atlantic countries prone to hurricanes.

Premiums for New Zealand had been dropping, he said.

"In days gone by, a big event somewhere in the world put everybody's premiums up. But these days that is not so much the case."

However, the time could come when reinsurance costs would rise globally if particular regions were hit repeatedly.

- nzpa