The total impact of the two earthquakes at Christchurch will top 10% of New Zealand’s annual economic output, but it shouldn’t cripple the economy or cause a debt blow out.
But the financial impact of the quakes on September 4 and Tuesday of this week will be the largest of any disaster in Australasia and could approach $A20 billion in total.
New Zealand’s gross domestic product is currently running at an annual rate of $NZ190 million and suffered a surprise fall in the September quarter, raising the prospect the economy could slide into recession.
The impact of this quake will be to make that recession certain, according to some early estimates.
Analysts say that while the rebuilding from the September quake was just starting, that will halt and the clean up and associated costs from the damage from the Tuesday event will slow the economy for months to come.
But the impact won’t just be on insurers such as QBE, Suncorp and IAG. A multitude of Australian companies, large and small, will feel the impact.
The big four banks face losses (all Australian-owned) and higher bad debts from the South Island and Canterbury area, as well as property losses and damage.
Fairfax Media’s Christchurch papers will be hit with lost advertising sales, as well as the cost of the damage to the old offices in the CBD.
APN is facing higher costs in some areas for a while.
Woolworths and Harvey Norman also face potential lost sales as a result of the quake and its aftermath, or at best, lower sales for the next few months, or longer.
Wealth managers, AXA APH and AMP have significant operations in New Zealand. Their returns and income and new business will suffer for the rest of the year.
Fletcher Building, bidding for Crane, was hit in the quake with facilities in Christchurch badly damaged just as it was starting its big rebuilding contract there.
Other Australian companies operating in the NZ market or exporting also face potential loss of sales or lower growth and the associated impact on profits.
NZ government borrowings will have to rise and the Reserve Bank of New Zealand may have to cut rates to soften the impact of a dramatic slowing in activity in the South Island and in the country’s second biggest city.
The central bank will announce its next rate decision today fortnight, March 11.
The government, which only boosted the GST last October 1, might have to cut it again to provide relief for consumers, especially for the thousands of people in and around Christchurch who will be unemployed as a result of the quake.
The Sydney office of JPMorgan Chase estimated this week that Tuesday’s quake could see insured losses top $US12 billion.
The actual size of the total loss will be more, possibly $A14 billion or more, going on the estimates of the September quake provided this week in the 2010 review of insurance catastrophes by Munich Re, the big global reinsurer.
In it Munich Re said the overall losses of the September 4 quake was $US6.5 billion, with the insured loss put at $US5 billion.
If JPMorgan’s estimate is in the ballpark, the latest losses will be more than double the September 4 quake.
The question of the size of the actual damage of the latest rattler is unknown, but early estimates strongly suggest that it will be at least double the earlier quake, given the extent of the property damage and loss of life and injuries, especially in Christchurch’s CBD, the port of Lyttleton and the tunnel between the two urban areas.
But the size of the insured loss and the coverage of that depends on whether Tuesday’s quake is classified as a separate event, or an aftershock from the September 4 quake.
Credit Suisse analysts in Sydney said yesterday that that point is very much moot at the moment, but as we will see shortly, the NZ Finance Minister Bill English and the government say there are two quakes, so reinsurance treaties will apply.
Bloomberg quoted JPMorgan analyst Michael Huttner as saying in a client note yesterday, "Even buildings which are still standing may have hidden structural damage and could then need to be rebuilt."
"This is a very conservative assumption on our part and in support of this we note that all reinsurers revised" cost estimates for the previous earthquake.
Insurance Australia Group yesterday cut its forecast insurance margin for this year to 8-10% from its previous 9-11% range in the wake of the Christchurch quake.
IAG described the event as a "second earthquake" and said it was exposed to a maximum $40 million in claims stemming from the quake in New Zealand’s second-largest city, with reinsurance covering claims beyond that total.
IAG, which revealed a surprise first half loss, last week after more write-downs in its UK business, is due to reveal final figures for the half later today. IAG shares rose 2 to $3.65 as investors took comfort from the first estimate of the loss.
Suncorp, another big insurer, revealed a 39% drop in interim earnings yesterday to $223 million (compared with $364 million a year ago). The outcome was better than the $190 million estimated
