Thursday, September 29, 2011

Aftershock aftershock

Taonga this afternoon carries this bombshell re major church insurer in NZ refusing to insure for earthquakes in the future:

Church insurer stops quake cover
The impact of the Christchurch quakes on churches throughout New Zealand became more stark today – with the announcement that Ansvar New Zealand, the company which insures most churches here, will no longer provide them with earthquake cover.

Since last September, Ansvar New Zealand has had to handle $700million of earthquake-related claims – while over the same period it received just $35million in premiums.

As a consequence, the international credit-rating agency AM Best has downgraded its assessment of the niche insurer's financial strength from A- to B++.

On the back of this downgrade, Ansvar New Zealand has announced that it will write no new earthquake cover – with immediate effect – and will only renew earthquake insurance until December 1 this year.

In effect, says Don Baskerville, the Chair of the Anglican Insurance Board, this means Anglican churches throughout the country have been given six month’s notice, because their policies are renegotiated and renewed, en masse, by the AIB in April next year.

He describes Ansvar’s decision to pull out of the earthquake cover market as “disappointing – but not surprising.”

While Anglicans won’t have to deal immediately with insurance convulsions, other denominations will.

The Baptist churches, for example, must renew the insurance on their churches this December.

The impacts of the quake – and of Ansvar’s exposure to it – won’t just be felt by all Anglican churches in New Zealand. In some ways, the ripples are being felt throughout the Communion.

Because The Ecclesiastical Group, which brought the Ansvar business in New Zealand and Australia in 1998, was set up by the Church of England in 1896, and is the main insurer to this day of British churches.

According to Michael Tripp, the CEO of The Ecclesiastical Group, the Canterbury quakes “have produced the Group’s biggest ever series of losses.

“Although we are well protected by our reinsurance programmes, we have nevertheless experienced gross claims… of over 250 million pounds sterling.”

“We have therefore taken the decision to cease writing any new business from our Ansvar subsidiary in New Zealand…”

According to one observer, Ansvar’s decision to pull out of offering earthquake cover to the churches may set up “an arm wrestle” for the churches' insurance business.

Anglican churches are required by canon law to have cover not only for earthquake and fire damage, but also for “material damage” (anything from theft to being hit by a runaway truck) as well as personal indemnity.

Ansvar won’t want to lose its church material damage and indemnity business – and it has announced that it will set up a special team by January 1 to explore placing earthquake cover for clients in other markets, such as Lloyd’s of London.

On the other hand, the various denominational insurance boards may not want to fragment their business between two or more insurers.

According to our observer, the crippling losses suffered by Ansvar New Zealand are an illustration of the risks that face a small niche insurer. Ansvar specialised in providing insurance to churches, and to heritage buildings – both of which suffered disproportionate damage in the quakes.

The Ansvar decision is sure to be the focus of discussions at a seminar being hosted on Monday in Wellington by the Anglican Insurance Board.

Both the senior managers of Ansvar New Zealand and Ansvar Australia will be at that meeting.
The silver lining to this dark cloud may be lower premiums than expected (measured against some information about horrendous increases to premiums). The dark cloud will concern churches in other cities which experience an earthquake.


Pageantmaster said...

"... The Ecclesiastical Group, which brought the Ansvar business in New Zealand and Australia in 1998, was set up by the Church of England in 1896, and is the main insurer to this day of British churches."

Ugh - NOOO! Ecclesiastical Insurance is wholly owned by Allchurches Trust, and tied up with the CofE.
I hope they have indeed reinsured properly! Given the way anything connected with my church is run, I am not hopeful.

No disrespect Peter, but we have had a succession of financial disasters as a church which come down to a dangerous combination of starry-eyed ambition combined with financial inexperience. We should not be involved in trying to pretend we are able to compete with the big boys who know what they are doing.

Pageantmaster said...

Their latest report makes interesting reading:

Peter Carrell said...

Any page or pages in particular?

Pageantmaster said...

The Chairman's Introduction to the report struck me as noteworthy for several reasons:
1. the claim that losses were limited by reinsurance, but no details of how limited;
2. the fund had been exposed to not only NZ seizmic claims but also to the Haiti and Chile earthquake damage;
3. lack of clarity over whether the losses in NZ have been fully reserved for in its accounts, or are even yet quantified.

In addition from the Standard and Poors report, issued prior to the reporting of the NZ exposure, they appear to have been concerned about another aspect of the management of the group: the high concentration on equities:
"In our view, Ecclesiastical's financial risk is high. The company remains exposed to a high level of equities"

Ultimately, the owner, the All Churches Trust, is one of the sources of funding for our cathedrals and churches:

While a large insurer has the range of business to absorb even quite large earthquake losses, Ecclesiastical Insurance Group in their acquisitions appear to have managed to instead expose themselves to some of the most risky earthquake zones in the world and far from diversifying their risk, they seem to have concentrated it with losses from the Chile, Haiti, and now the New Zealand earthquakes.

Many thanks for drawing attention to this Peter+ - I don't think we have heard the last of it.

Andrew Reid said...

EIG Ansvar is a large church insurer in Australia, also. I'm not sure if our dioceses have the same requirements re earthquake cover (the risk is lower here), but if we do, it will mean a similar predicament for Australian churches.