Repair bill estimated at $8 Billion
01 Dec 2016
Insurer regulator, the Reserve Bank of New Zealand (RBNZ), believes the magnitude-7.8 Kaikoura earthquake on 14 November could cost up to NZ$8 billion to repair damaged infrastructure and buildings.
The government is expected to pay up to NZ$3 billion of the repair bill and insurers up to NZ$5 billion, reported interest.co.nz.
The government's initial estimates of its costs have ranged from NZ$2 billion to NZ$3 billion, but there have been no official estimate of the total potential costs until now. Boston-based catastrophe modelling firm AIR Worldwide has estimated the total insurance industry losses at up to NZ$5.3 billion.
RBNZ Governor Graeme Wheeler pointed to the initial estimates in the Bank's half yearly Financial Stability Report, which also said insurers had sufficient capital to cope with the claims. Mr Wheeler and his deputy Grant Spencer said the government's accounts could handle the cost.
"The government finances are in pretty good space and so we don't think they would have difficulty if the actual costs turn out to be more than the NZ$2-3 billion initial estimate," Mr Spencer said at a news conference after the release of the Financial Stability Report yesterday.
"I would add that that NZ$2 billion to NZ$3 billion is the government cost around infrastructure replacement, etc, in the top of the South Island. In terms of the total cost you need to add in the expected insurance cost, which could be, we think, according to early estimates, in the NZ$1 billion to NZ$5-billion territory. So in terms of the total cost potentially of the Kaikoura quake, you are adding those two components together to get something in the order of NZ$3 billion to NZ$8 billion," he said.
Mr Spencer said the quakes would generate an initial downturn in local activity, but this would be offset by extra spending on repairs and recovery in both the short and long terms.
Mr Wheeler also repeated his view that fiscal stimulus was not needed in response to the earthquakes.
"At this point you've got an economy growing at around probably 3.5%, and at this stage based on how we are interpreting things, it is not an economy that's in need of substantive fiscal stimulus at this point," he said.
In the Financial Stability Report, RBNZ said the insurance sector was well positioned in terms of catastrophe reinsurance cover and capital buffers.