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EQC issues ‘catastrophe’ 4-year bonds

Rob Stock

Toka Tū Ake EQC has issued its first-ever catastrophe bonds.

The recently renamed Crown entity runs New Zealand’s natural disaster scheme, which covers the first $300,000 of natural disaster damage to homes, and helped pay for rebuilds after the Christchurch and Kaikōura earthquakes.

Claims to the scheme are paid from the Natural Disaster Fund, but Toka Tū Ake buys reinsurance from a panel of 70 global reinsurers to help pay claims following massive natural disasters.

Chief executive Tina Mitchell said Toka Tū Ake had put in place a record $8.2 billion of reinsurance, an increase of $800 million on the previous year.

More reinsurance was needed because the amount Toka Tū Ake was liable to pay to fix homes had been lifted from $150,000 to $300,000, she said.

And for the first time, Toka Tū Ake had issued $225m of catastrophe bonds through a special-purposed Singapore entity, she said.

The bonds have been issued to investors for four years, and act like reinsurance, except they do not have to be renegotiated each year. Toka Tū Ake pays an annual premium of 8.75% on the bonds, Mitchell said.

‘‘If there’s no disaster, the investors get back their capital,’’ she said.

In the event of a natural disaster, Toka Tū Ake pays the first $2b of claims using money from the Natural Disaster Fund, topped up, if necessary, by the taxpayer.

If claims on a natural disaster go above $2b, Toka Tū Ake can draw on the catastrophe bonds, and only after that, can it call on its reinsurance cover.

The earthquakes reduced assets in the Natural Disaster Fund, which Mitchell said were about $370m. The fund is being rebuilt using levies on private house insurance.

Business

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2023-06-01T07:00:00.0000000Z

2023-06-01T07:00:00.0000000Z

https://fairfaxmedia.pressreader.com/article/281809993278955

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