Natural Hazard Fund

Each year New Zealand homeowners pay a Natural Hazards Insurance Levy (formerly known as the EQC levy) as a part of their private insurance premium, which goes into the Natural Hazard Fund. Natural Hazards Commission Toka Tū Ake are responsible for managing the fund, which includes investing it. Over time, the levies and returns from our investments help to grow the Natural Hazard Fund.

The fund is used to cover claims for damage following a natural hazard event. We provide the first layer of insurance for residential homes, which is generally up to $300,000 plus GST and provide limited cover for certain areas of residential land.

Money from the fund is also used to:

• purchase reinsurance from international financial markets
• meet the costs of administering the NHC scheme
• fund research and education that improves understanding of natural hazard risk and how to reduce it.

The Funding and Risk Management Statement

The Government’s Funding and Risk Management Statement (FRMS) is a key part of the financial governance of the Natural Hazards Insurance Scheme, and sets out how the costs and risks of the scheme are shared between the Crown and the levy payers.

The Statement provides estimates of the cost of providing the scheme’s natural hazards cover, projections of the amount in the Natural Hazard Fund, and sets out key information about how the government has determined the levy and financial settings, including policy considerations.

This first Funding and Risk Management Statement was released 1 July 2024. The Natural Hazards Insurance Act 2023 introduces the requirement for the Government to regularly review the financial settings and levy settings, and for the development of a Funding and Risk Management Statement at least every five years.

The Treasury leads this work, with risk modelling advice from NHC Toka Tū Ake on the likely cost of providing natural hazard insurance now and over the coming years. This cost is influenced by our evolving understanding of the risks we cover as well as changing costs.

How the Natural Hazards Insurance levy is calculated

The Government sets the Natural Hazards Insurance levy (NHI levy). NHC Toka Tū Ake regularly prepares analysis that reflects the expected long terms costs of the natural hazards we cover, and the cost of administering the fund, including the cost of reinsurance.

The Government reviews this information and sets the levy rate after considering how to best share the costs and risks of the scheme. The Government will sometimes increase the NHI levy to keep pace with our growing understanding of the risks we cover, rising house prices and building costs. This makes sure that homeowners in New Zealand continue to have access to our natural hazard insurance cover if they need it.

Rebuilding the Fund after the Canterbury earthquake sequence

The fund was first created in 1945, when NHC Toka Tū Ake was established (then called the Earthquake and War Damage Commission). By 2010 the fund had accumulated to over $6 billion. Following the Canterbury and Kaikōura earthquake sequence, the entire fund was used up to settle claims for earthquake damage. We are now working to rebuild the fund, through levies and investments.

How the Natural Hazard Fund is invested

The money in the Natural Hazard Fund is invested in accordance with relevant provisions of the Natural Hazards Insurance Act 2023, Ministerial Directions made under the Act, and the Crown Entities Act 2004.

Over its history, the fund has been invested in a mixture of New Zealand government stock and global equities.

Consistent with the approach of other Crown Financial Institutions, NHC Toka Tū Ake also complies with the United Nations Principles for Responsible Investment.

Read our statement of investment policies, standards and procedures. [PDF, 351 KB]

Reinsurance

One way we manage financial risk is by purchasing reinsurance. Reinsurance is insurance for insurers. We pay our reinsurers a premium every year for reinsurance cover, and if a big natural disaster happens, they step in to help cover the cost of settling claims.

We have been purchasing reinsurance since 1988, and each year we negotiate to buy reinsurance on the international market. In 2023/24, we paid around $386 million in reinsurance premiums to secure nearly $8.2 billion in reinsurance cover for New Zealand. This included the successful placement of the first ever catastrophe bond in which NHC Toka Tū Ake was able secure $225 million of reinsurance cover directly from international capital market investors.

Like many other forms of insurance, we will have to pay an excess if we make a claim with our reinsurance company. The current excess on reinsurance cover is $2 billion. We must be prepared to meet the costs of all claims up to $2.101 billion before we can call on our reinsurance cover. This excess is charged for each natural hazard event that happens.

Since we started purchasing reinsurance in 1988 we have paid over $3 billion in reinsurance premiums, and received more than $5 billion from reinsurers to cover claim costs from the Canterbury earthquake sequence.