• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer
  • Subscribe
  • Twitter
  • RSS Feed

Investment News NZ

Investment News provides financial advisers news stories from the financial industry in New Zealand. Subscribe to our free weekly newsletter.

  • Home
  • News
  • Kiwisaver
  • Subscribe
  • About
  • Advertise
  • Contact
You are here: Home / Investment News / Depleted disaster fund to be rebuilt from ground zero

Depleted disaster fund to be rebuilt from ground zero

July 12, 2015

Gillian Dudgeon: EQC head of shared services
Gillian Dudgeon: EQC head of shared services

Despite analysis suggesting it would be “most efficient” to close the almost-drained Earthquake Commission (EQC) investment fund, the government has backed its continued existence in a discussion document published last week.

However, on current settings it will be a long recovery for the EQC’s National Disaster Fund (NDF), which by the end of the year is expected to have zero assets, minimal revenue prospects and a dearth of in-house investment expertise.

Prior to the September 2010 Christchurch earthquake, the NDF reported assets of almost $6 billion, about a third of which was invested in global equities.

The NDF began selling down its global equities portfolio soon after the September 2010 Christchurch quake, first redeeming a $320 million AllianceBernstein mandate. However, following the more-damaging February 2011 earthquake, the EQC accelerated the sell-down, exiting its remaining offshore share mandates – with State Street Global Advisors, Tweedy Browne, T. Rowe Price and Capital International – in the first half of 2012, the fund’s interim ‘Statement of investment policies, standards and procedures’ says.

Gillian Dudgeon, EQC general manager shared services, said the remaining NDF assets reverted to a mix of cash and NZ government bonds. Dudgeon, formerly ANZ head of programme management risk, joined EQC in February last year as head of risk before moving in her current position this March.

“Approximately two-thirds of the current fund is held in New Zealand Government Securities, which are managed by the Treasury Debt Management Office,” Dudgeon said. “EQC maintains an ongoing dialogue with the office as to when cash may be required to settle customer claims and other expenses. The remainder is held in on-call products with New Zealand approved banks with available rates reviewed regularly.”

According to a Treasury spokesperson, the NDF, which is recorded with assets of about $2.5 billion in the latest government books, should “fully deplete… during the current fiscal year” as the EQC pays out on claims, largely due to the 2010/11 Canterbury earthquakes.

The latest EQC ‘Statement of performance expectations’, published earlier this month, puts the NDF in negative balance over the next two financial years, with no investment purchases forecast during the period.

While the EQC now receives annual premiums (collected as a levy on private home insurance policies) of about $280 million – up from roughly $66 million prior to the Christchurch quakes – most of that is soaked up in reinsurance costs, of $165 million, and administrative expenses.

If it were to be recapitalised by premiums alone, it would clearly taking decades to for the EQC fund to reach its former glory.

EQC’s Dudgeon said how the NDF is rebuilt “will be discussed as part of the current review of the Earthquake Commission Act”.

While the NDF always had a relatively small investment team, it is understood the EQC does not currently employ specialist staff in the area.

Current Worksafe NZ CFO, Phillip Jacques, who was the front-man for the EQC investment team, left the organisation mid-2013. In his final EQC role as head of corporate services, Jacques was responsible for “finance, information technology, risk and assurance, business information, investment management and commercial services”, his Linkedin page says.

“Decisions about fund management would need to be made once the current review of the Earthquake Commission Act is completed and decisions made about rebuilding the NDF,” Dudgeon said.

The government EQC review discussion document says: “Finance theory suggests the most efficient approach to financing would be to close the NDF and instead finance natural disaster risk centrally through the Treasury.

“This is because, for low-probability high-impact risks, it is more efficient to pool resources against a diversified portfolio of risks, rather than create a range of ring-fenced funds for different risks.”

But given a large portion of the EQC fund is in NZ government stock those “efficiencies are less than they appear”, the review document says.

However, the report argues the main reason to keep the NDF would be to boost ongoing public acceptance of the annual EQC premium impost.

“NDF also gives future governments the flexibility to adjust the mix of central government and EQC management of the fund’s resources, by adjusting the NDF’s investment mandate,” the document says.

“Retaining the NDF also preserves maximum policy flexibility for the Crown. The NDF investment portfolio can be adjusted as policy thinking about the optimal financing strategy for the fund evolves.”

The EQC discussion document also says the government could look other state-owned funds – such as New Zealand Superannuation Fund and the Accident Compensation Commission fund – for guidance on the future of the NDF.

“In retaining the NDF, provisions for the fund and how it is managed may be updated to reflect insights from legislation covering Crown Financial Institutions, established since the

1993 EQC Act,” the document says.

Submissions on the EQC review proposals are due by September 11 this year.

 

Read More » Investment News

Recent articles

  • ACC fund names new CIO May 8, 2025
  • Mercer NZ chief to step down May 6, 2025
  • Travels in FAP-land: study breaks fresh ground in licensee territory May 6, 2025
  • ASB usurps ANZ as retail king as fund survey restates $9bn May 4, 2025
  • KiwiSaver stays balanced in volatile March quarter, Morningstar May 4, 2025
  • Nikko loses senior sales manager to rival; Simplicity locks in Everett as chair May 4, 2025
  • FMA downsizes climate, DIMS compliance May 4, 2025
  • Tech-centred Kernel takes to trading by Alpaca May 4, 2025
  • Salt finds investors blasé as Trump blasts through 100 days of ‘volatility and confusion’ May 4, 2025
Finished reading? Why not subscribe? To receive a weekly email enter your email address here.

Primary Sidebar

WEEKLY NEWSLETTER

Sign up here to receive our weekly newsletter.
Learn More »

Most Recent Investment News

ACC fund names new CIO

May 8, 2025

Mercer NZ chief to step down

May 6, 2025

Travels in FAP-land: study breaks fresh ground in licensee territory

May 6, 2025

ASB usurps ANZ as retail king as fund survey restates $9bn

May 4, 2025

KiwiSaver stays balanced in volatile March quarter, Morningstar

May 4, 2025

Search by Keyword

INVESTMENT NEWS

  • ACC fund names new CIO May 8, 2025
  • Mercer NZ chief to step down May 6, 2025
  • Travels in FAP-land: study breaks fresh ground in licensee territory May 6, 2025
  • ASB usurps ANZ as retail king as fund survey restates $9bn May 4, 2025
  • KiwiSaver stays balanced in volatile March quarter, Morningstar May 4, 2025
  • Nikko loses senior sales manager to rival; Simplicity locks in Everett as chair May 4, 2025
  • FMA downsizes climate, DIMS compliance May 4, 2025

Quick-links to Popular News

  • FAP Compliance
  • Coronavirus
  • New Appointments
  • Financial Markets Authority (FMA)
  • Kiwisaver
  • Climate Change
  • Crypto Currency
  • Blockchain
  • Insurance

Sponsored Content

Building a smarter portfolio: strategies for diversified growth 

Five strategies for dealing with market volatility

Unlocking the potential of smarter portfolio management for New Zealand’s largest investors

Bullish on bullion? Discover gold’s role as a diversifier

Climate disclosures and transition finance: APAC’s path forward

Sheep sheds and credit spreads

More Sponsored Posts >>>

Secondary Sidebar

Recent News

  • ACC fund names new CIO May 8, 2025
  • Mercer NZ chief to step down May 6, 2025
  • Travels in FAP-land: study breaks fresh ground in licensee territory May 6, 2025
  • ASB usurps ANZ as retail king as fund survey restates $9bn May 4, 2025
  • KiwiSaver stays balanced in volatile March quarter, Morningstar May 4, 2025
  • Nikko loses senior sales manager to rival; Simplicity locks in Everett as chair May 4, 2025
  • FMA downsizes climate, DIMS compliance May 4, 2025
  • Tech-centred Kernel takes to trading by Alpaca May 4, 2025
  • Salt finds investors blasé as Trump blasts through 100 days of ‘volatility and confusion’ May 4, 2025
  • Generate goes for (extra-strong) growth May 4, 2025

Footer

Copyright ©2025 InvestmentNews.co.nz — All Rights Reserved — Terms & Conditions