New Zealand’s Earthquake Commission (EQC) may sell down most of its NZ$1.7 billion international shares portfolio in order to meet the ballooning claim costs from the recent disaster in Christchurch.
According to Phillip Jacques, EQC chief financial officer, he would be “inclined” to sell global equity assets ahead of the fund’s approximately NZ$4 billion of New Zealand government bonds to cover an expected influx of claims.
Jacques said the EQC Natural Disaster Fund currently holds about NZ$300 million in cash and would be liable for the first NZ$1.5 billion in claims before the $2.5 billion of reinsurance cover kicks in.
The EQC fund pays out up to a maximum of $100,000 per claim in the event of natural disasters but only to residential homeowners who also have private insurance.
EQC’s exposure to the massive 7.1 Christchurch earthquake remains unknown, however, latest New Zealand Treasury estimates total damages would amount to at least $4 billion.
Jacques said the EQC had enough liquidity to meet immediate payouts but would sell down assets “sooner rather than later” to ensure there was enough cash to cover the expected flood of future claims.
“But we’re not in a rush, we’ll sell down in an orderly fashion,” he said. “It maybe over the next few weeks or even months.”
According to the EQC’s latest published report, as at June 30, 2009, the fund held about NZ$1.6 billion in global equities split between active and passive strategies.
State Street Global Advisors (SSgA) manages the passive portfolio of just over $645 million while the almost $1 billion active portfolio is spread amongst a number of managers.
In 2008 the EQC told I&T News it had awarded global equity mandates to Tweedy Browne, T Rowe, Capital International and AllianceBernstein. However, the manager line-up has since changed with AllianceBernstein understood to have been replaced.
Russell acts as investment adviser to the EQC fund.