What is the Value Proposition? 3rd International SPONSE Workshop Performance of Non-structural Elements in our Buildings What is the Value Proposition? 3rd International SPONSE Workshop John Lucas - Insurance Council of New Zealand 31 March 2016

ICNZ – Who Are We. What is Our Interest in Earthquake Resilience ? 28 members covering 95% of all General Insurance provides insurance coverage for about NZ$600b of assets premiums paid to protect these assets $5.26b with claims incurred of $2.3b in any normal year. Total cost of Canterbury earthquakes $41 billion approximately $21 billion from private insurers approximately $12 billion from EQC Balance self insured 20% of gross Domestic Product Commercial Losses $10.3 billion

The ICNZ 15 Point Resilience Plan SPEAKER LOGO Publication Statement on the Required Steps to Make New Zealand more Resilient to Natural Hazards We point out that currently there are no controls requiring compliant seismic non-structural design in our buildings and this need to change We recommend that NZS4219 must always be followed both for new and retrofits. Recommend Included in Annual Building Warrant of Fitness Inspections

What a Seismic Non –structural Failure could Cost a Business SPEAKER LOGO Building Not Habitable Someone being injured Cost of Repairs Loss of Rents for Building Owners Business Loss of Profit & Relocation Expenses Potential Work safe Liabilities for Directors.

New Health & Safety at Work Act on 4 April 2016 SPEAKER LOGO Employers face increased fines for Heath & Safety Breaches. Personal Liability for Directors. Cannot Insure for Fines but can for Court Ordered Reparations. Safety of the Work Environment would include working environment earthquake hazards and the risk of injury to employees. Employers will likely demand work places with state of the art Seismic non structural Performance.

Case Study – Wellington Building July 2013 SPEAKER LOGO New 6 Level Building completed in 2009 Modern Seismic compliant Structure 21 July 6.5 Earth Quake Event 151km from Wellington 0.16 PGA in Wellington City Internal fit-out & Services damaged on 2 top floors Potential Losses $12 million Estimated Cost on NZS4219 Compliance 1.6% of Construction price $1.3 million

Seismic Resilience is Paramount SPEAKER LOGO New Zealand has a 90 to 95 % Earthquake Insurance take up Rate Japan & California have much lower rates. Insurance Costs are high and cover availability is restricted International Reinsurers Cant fully support Japan & California New Zealand's Earthquake maximum Loss limits are Manageable For New Zealand Earthquake Reinsurance Rates are reducing California & Japan tend to build in better resilience Reinsurers may not continue to support New Zealand on easy terms

New Zealand indebted to the Global Reinsurance Market SPEAKER LOGO The Canterbury 2010/2011 Earthquake 2nd largest Natural Catastrophe event for global Reinsurers @ US$28 billion Japans Tohoku Insured losses were US$40 billion (total Cost estimated to be US$210 million) New Zealand Earthquake Catastrophe premiums contribute to 0.1 % of the Global Premium Pool. Japan will repay its Reinsurers in 5 years New Zealand will repay its reinsurers in 35 years .

Fortunes From an Economic Cycle SPEAKER LOGO Historically Low Bond & Interest Rates Global Pension Fund Capital looking for better returns Reinsurance is providing higher returns Large amounts of capital flooding into Reinsurance markets Cheap capital has driven Catastrophe Insurance rates to record lows New Zealand is riding on that fortune What will happen when rates rise and another large Catastrophe event occurs?

Nothing Lasts Forever SPEAKER LOGO The World Economy will improve and interest rates will rise A large insured earthquake event will occur Pension fund investors will loose some money Available capital to reinsurers will decrease Catastrophe reinsurance costs will increase. Insurance may become less affordable for most New Zealanders Insurance may become unavailable for those risks that are not resilient.

Thankyou The Value Proposition for Earthquake Resilience? SPEAKER LOGO I am sure tomorrow better performance of Non-structural building design it will be valuable! Thankyou