The Earthquake Commission (EQC) has more than doubled its estimated Canterbury liability as the scope of the damage becomes clearer – and that figure is subject to revision as further information comes to light.
The new estimate has increased by about $4 billion to $7.1 billion following an actuarial valuation based on available field assessments of damage claims. It includes an increase of $2.17 billion from the February 22 shock and $1.42 billion from the June tremor and other aftershocks, which were not previously included.
"Today's announcement will not affect homeowners' claims, which EQC will continue to pay in full. And it will not delay rebuilding in Christchurch," said English.
"EQC can meet most of these costs through the Natural Disaster Fund, which held about $6 billion before the first earthquake.
"The government, through its guarantee under the Earthquake Commission Act, will meet any shortfall. EQC also has reinsurance in place to help meet the cost of any future events."
The government remained on track to meet Budget forecasts of a return to surplus in 2014/15 and to keep net debt below 30 per cent of GDP, he said.
EQC's initial liability estimates were based on international models for calculating damage from single events. While these hold for the September 4 earthquake, they were not designed to calculate the effects of multiple events.
The scale of residential damage is worse than initially thought. It was originally expected about 12,000 houses would sustain more than $100,000 in damage, but assessments now put that number at 30,000 houses.
Damage to land was initially estimated at between $300 million and $600 million, which has jumped to $1.8 billion.
Combined, these factors are likely to push the operating deficit before gains and losses up to about $18 billion – $1.3 billion higher than the Budget forecast. However, the numbers have not yet been finalised or audited.
"We need to remember these are still estimates and EQC and the Treasury will continue to periodically revise the expected liability as more claims are completed and more information becomes available."
The new estimated liability will be reflected in the 2010/11 Crown accounts, which will be published in October. According to English, current indications suggest the higher EQC liability will be partially offset by higher than forecast tax revenue and lower than forecast costs in other areas.
As of August 24, EQC had paid out $1.41 billion for all claims to date, which is about $4 million per day. It has received more than 388,000 claims – the previous biggest event for EQC was the Gisborne earthquake in 2007 with 6224 claims.
The Canterbury earthquakes are likely to rank as the fourth most costly global event for insurers since 1970 after the Northridge earthquake in California in 1994, the 9.0 earthquake and tsunami disaster in Japan in March this year, and the Kobe earthquake in Japan in 1995.