By Eric Johnston
AUSTRALIA'S major insurers are likely to emerge with heavy exposures to the earthquake that hit New Zealand's South Island over the weekend.
While it is too early to estimate damages, New Zealand's Insurance Council warned the earthquake could emerge as one of the nation's most expensive in more than two decades.
''The initial impression of this earthquake is that it has been extremely damaging. It's hit both the commercial area and a lot of people's homes. So I suspect this will be on a very large scale,'' Mr Ryan told Radio New Zealand.
New Zealand's last major earthquake struck Gisborne on the North Island's east coast three years ago. With a magnitude of 6.8 on the Richter scale, this resulted in insurance losses of $NZ30.5 million ($A23.9 million).
Still, New Zealand's most expense insurance event was a 6.3-magnitude earthquake that hit the Bay of Plenty region on the North Island in 1987. This disaster resulted in insurance payouts to the equivalent of $NZ330 million, adjusted for inflation.
In Australia, the Newcastle earthquake in 1989 still ranks as the most expensive insurance event. Payouts then topped $862 million, but if adjusted for inflation the bill today would exceed $4.3 billion.
Insurance Australia Group has the biggest exposure in New Zealand of the local insurers, operating brands such as NZI and State.
In 2009-2010, New Zealand operations generated earnings of $139 million, or nearly a quarter of IAG's group profit, based on about $1 billion in premium sales.
A spokesman for IAG said it was too early to measure the damages, but believed the cost would be covered through reinsurance arrangements.
''From a group perspective, we are expecting claim costs from the event will be entirely covered by group reinsurance arrangements,'' he said.
For Suncorp, most of its insurance in New Zealand is sold through the Vero brand, which mostly focuses on commercial insurance, although it does sell some home and car insurance.
Over the weekend Vero was bulking up claims staff in its Christchurch offices.
Vero last year generated $580 million in premium revenue and profit of $55 million.
A Suncorp spokesman said the group was exposed, but said it had a ''conservative'' reinsurance policy, with separate arrangements for the New Zealand business.
''We will have some commercial exposure as well as some personal insurance exposure,'' he said.
Costs could be largest for commercial and industrial insurance, because the New Zealand government provides residential earthquake protection worth $NZ 100,000 for homes and $NZ 20,000 for contents.
Both Suncorp and IAG have just signed off on another tough year with profits depressed by huge claims following severe storms in Melbourne and Perth.
IAG had further problems in its troubled British operations involving a one-off charge of $327 million, leading to a near halving of profit to just $91 million.
Suncorp reported a full-year profit from its general insurance business of $557 million, a 34 per cent increase on the previous period.
The two insurers have expressed optimism over boosting insurance margins this year.
With CLANCY YEATES