The Natural Hazards Commission (NHC) is gearing up for a return to running a full-blooded diversified portfolio with an investment consultant search in train.
Known as the Earthquake Commission (or EQC) until July this year, the NHC put its investment strategy design out to tender last month after the government revoked asset class restrictions – essentially limiting exposure to cash – that had been in place since 2015.
In a just-published request-for-proposal (RFP), the NHC says it is looking for candidates to produce an asset allocation and investment strategy in line with the newly re-diversified mandate.
“Our ideal supplier will have significant experience successfully designing investment strategies for large public sector, charitable or not-for-profit investment portfolios,” the RFP says.
The government natural disaster agency says the key goals are to produce a statement of investment policy and objectives (SIPO) and overarching strategy by May next year.
Further decisions on how the NHC “will execute and implement the investment strategy and SIPO will be made separately, including on whether to out-source the management of the NHF”, the RFP says.
“We are not looking for a provider to execute the strategy and/or manage our investments at this point in time.”
Prior to the 2010/11 Canterbury earthquakes, the EQC Natural Disaster Fund – now rebranded as the Natural Hazard Fund – peaked above $6 billion with a mix of external third-party managers and in-house asset management.
The Canterbury quakes drained the EQC fund to zero with only a slow rebuild of investment assets since. As at the end of June this year, the NHC reported just $136 million of investments.
But an inaugural funding and risk management statement (FRMS) published in July notes that “if there are no major natural hazard events in the five-year period, the Fund could grow to in excess of $1.2 billion to contribute to future events”.
NHC board chair, Chris Black, says in the annual report that the FRMS found “the current levy rate is insufficient to cover the long-term costs of the Natural Hazards Insurance scheme”
“Consequently, the Minister has requested a review of the financial settings of the scheme, which we welcome,” Black says.
After dealing with multiple disasters post the Christchurch quakes – including the Cyclone Gabrielle devastation in 2023 – the NHC secured over $9 billion in reinsurance during the previous financial year at a premium cost of almost $414 million (versus $286 million in the 2023 annual period).
The NZ disaster insurance effort also included a national first catastrophe bond issue, which supplies $225 million of cover after the NHC absorbs a certain level of event-related losses.
Under a four-year arrangement managed via a Singapore-based entity, Totara Re, first brokered in April last year, the initial ‘attachment point’ – ie the loss level when cat bond payments kick in – was set at $2 billion.
In April 2024 the NHC “agreed to increase the attachment point of the catastrophe bond to $2.101 billion from 1 June 2024, following the first annual reset of the bond”, the annual report says..
“The increase in the attachment point was driven by increased modelled exposures covered by the reinsurance contract.”