King Colin: Questions for Oral Answer — Questions to Ministers 
King Colin: Questions for Oral Answer — Questions to Ministers 
[Volume:666;Page:13973] 
2. 
COLIN KING (National—Kaikoura) 
 to the  
Minister of Finance 
: What steps is the Government taking to ensure the Earthquake Commission can meet claims arising from the Canterbury earthquake? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 The Earthquake Commission is expecting up to 100000 claims as a result of the earthquake with the potential cost being between $1 billion and $2 billion. The cost will be met from the Earthquake Commission’s natural disaster fund which at the start of this month held $6 billion in cash shares and Government bonds. In addition the Earthquake Commission has $2.5 billion of reinsurance cover. The Government has issued a new ministerial direction this week to enable the Earthquake Commission to sell down assets in sufficiently large amounts to produce the cash and to give it the ability to hold more cash than it used to so that it can pay out claims promptly. 
Colin King 
: How does the likely cost of the Canterbury earthquake compare with other recent natural disasters? 
Hon BILL ENGLISH 
: That is a good question because usually the Earthquake Commission has been allowed to hold sufficient cash to meet the costs of what has actually been quite a significant number of natural disasters over recent years. To put this into context for instance the Gisborne earthquake generated 6200 claims the Bay of Plenty earthquake generated 4300 claims and the Inangahua earthquake in 1968 generated 10500 claims. The most expensive of these was the Bay of Plenty earthquake where the total cost to insurers converted into today’s dollars was about $330 million. Treasury estimates that the cost to the Earthquake Commission and other insurers will be about 10 times that amount and that is why it is necessary that the commission is able to sell down the assets that it holds in the natural disaster fund. 
Colin King 
: What does the new ministerial direction change? 
Hon BILL ENGLISH 
: In a direction issued in 2001 the natural disaster fund was required to be invested in New Zealand Government securities global equities and New Zealand bank bills and the Earthquake Commission was required to consult the Minister if it wanted to sell any part of the portfolio or to hold more than $250 million in New Zealand bank bills. Under the new direction the Earthquake Commission will be able to keep a wider range of short-term cash holdings in New Zealand banks so that it can quickly settle claims. The commission will also be able to hold up to $2 billion in cash or short-term securities rather than the previous limit of $250 million. These provisions will remain in place for a year. 
Colin King 
: With the new ministerial direction in place how does the Earthquake Commission intend to meet claims? 
Hon BILL ENGLISH 
: The Earthquake Commission must pay the first $1.5 billion of claims before its $2.5 billion reinsurance cover kicks in. The commission advises me that it intends to pay these claims firstly from cash reserves secondly from maturing investments and thirdly from selling down part of its portfolio. The proceeds from maturing investments and those sold will be held in short-term securities in New Zealand banks. As a result the Earthquake Commission will not face cash-flow problems as it settles the high number of claims.