Publications
Annual Report
2007-2008
General Manager's Report
Like all organisations, EQC follows an annual plan and routine of activities, with goals in mind and measures to help us see our way. Our objectives include being ready for a natural disaster and our plans make provision for exercising and training, and learning from others.
When a natural disaster occurs – as it did on 20 December with a 6.8 magnitude earthquake centred beneath the sea off Gisborne – the challenges for EQC are not only to respond as prepared and expected, but to maintain necessary routine tasks in the face of the additional load. Management of the investments of the Natural Disaster Fund, renegotiation of reinsurance agreements, checking of premium payments, completion of reports and returns, payment of invoices, oversight of research expenditure, maintenance of services to other claimants and many other day-to-day activities vital to the running of an administration have to continue unabated. This is an integral part of our catastrophe response programme.
We need to measure how well we coped with the disaster by the degree to which we adhered to our standards and timetables in all these other areas, as well as how well we responded to the home owners who had earthquake damage and an entitlement to compensation. It is therefore pleasing to be able to report substantial achievement of the targets set in our Statement of Service Performance, despite the distraction of the Gisborne earthquake. This was the largest event with which we have had to cope since our predecessor, the Earthquake and War Damage Commission, was faced with the Edgecumbe earthquake of 1987.
This is a doubly rewarding result because – as luck or Ru–aumoko would have it – the earthquake occurred right at the time we were to commission a new web-based claims management system. Development of the new system involved staff from IBM, Eagle Technology and Guidewire, working out of EQC’s office in Wellington.
After much thought, including careful review of a fall-back position, we decided to go ahead with the changeover in March and this has been proven the correct decision. The new system has delivered better access to the claims records by all who needed it, and better control of the process, both of which translate to a better service to claimants.
EQC could not have achieved any of this without its staff. Employees and contractors voluntarily set aside plans for their Christmas breaks as soon as news of the earthquake came through. The Commission was able to have representatives in Gisborne before Christmas. Arrangements for opening a local support centre for the teams of people needed to service the claims were well in hand by the New Year. Plans and contracts are needed for a disaster response, but they are ineffectual without the commitment of the people they rely on.
Our response to the Gisborne earthquake, and our ability to continue “business as usual”, are testament to our being on the right track with our planning and preparation. We must not lose sight of the fact, though, that the Christmas event created just over 6,200 claims on EQC. It is possible for an earthquake to cause 10 times that number. That will be a real test of the Commission’s ability to cope.
Claims Handling and Catastrophe Response
It was a busy year from the outset. At the start of July we were winding down our Northland support centre, set up following the March storm, when another storm occurred, requiring the centre to stay open for a further three months.
In October, when we were once more discussing the closure of the Northland centre, a magnitude 6.7 earthquake struck near Milford Sound. We set up shop in Invercargill and dealt with 1,000 small claims, with some contractors transferring straight from Whangarei.
In response to the Gisborne earthquake, EQC set up two support centres in the city to help handle the claims. At the peak of the operation we had over 70 people working from these centres and, at balance date, more than 90 percent of the claims had been settled.
Administration of the Scheme
The Commission has a programme of checking premium calculations and reports from external auditors to ensure the integrity of premium payments from insurance companies. This year we received 12 reports from auditors, of which three were qualified. EQC’s subsequent checks found that all premium payments to the Commission were correct.
Research
Important advances in understanding of the earthquake hazard in the Wellington region were made this year through the It’s Our Fault project. It’s Our Fault is a comprehensive study of the likelihood of large Wellington earthquakes, the size of these earthquakes, their effects and their impacts on the community. It is jointly sponsored by EQC, Wellington City Council and ACC. The new results come from evidence of prehistoric movements of the land, carefully unearthed and interpreted by scientists from GNS Science and Victoria University, and from complementary studies by NIWA scientists of tell-tale changes in features on the seafloor, where large fault lines cross the Cook Strait.
In Auckland, where volcanoes dominate the landscape, EQC has initiated a thorough science review of the Auckland volcanic field to improve the basis for long-term planning and management of volcanic risk in New Zealand’s largest city. The review, which began this year, is led jointly by GNS Science and the University of Auckland. Key questions that will be addressed are: What was the distribution in time and source of past eruptions affecting Auckland? What is the likelihood and size of future eruptions affecting Auckland? Where are we in the lifespan of the Auckland volcanic field? How intensive should the monitoring be to provide adequate warning of an eruption?
EQC’s investment in the development and maintenance of research capacity in New Zealand continued this year with 18 new projects funded through the biennial grants programme, and a further 10 projects supporting postgraduate student and early-career research at New Zealand universities. Two of New Zealand’s top engineering students were also awarded Fulbright-EQC Graduate Awards in Natural Disaster Research, to pursue their research in the United States. Geoff Rodgers (University of Canterbury) and Aaron Wilson (University of Auckland) were the recipients of the awards.
All research topics supported by EQC address matters relevant to natural disaster damage, and methods of reducing or preventing such damage, spanning the earth sciences, civil engineering, architectural design, building technologies, social science and emergency management.
Public Education
A third, five-year sponsorship of the Awesome Forces exhibition at Te Papa was agreed to in December, marking the continuation of a mutually beneficial relationship between the museum, EQC and GNS Science. Since the museum opened in February 1998, 8.7 million visitors have enjoyed Awesome Forces and had the opportunity to learn about natural disasters, EQC’s role and how to prevent natural disaster damage. Planning is currently underway for a number of improvements inside Awesome Forces, using the latest advancements in technology. Visitors can expect to see some exciting new information introduced to the exhibition over the next couple of years, presented in highly engaging and innovative ways.
The Earthquake Commission expanded its education and outreach activities with sponsorship of the new exhibition at the Hawke’s Bay Museum and Art Gallery, Living on the Edge: Hawke’s Bay Earthquake, 1931. Opened in February, the exhibition highlights the potentially devastating effects of such an earthquake and, like our museum sponsorships at Te Papa and the Auckland War Memorial Museum, provides information on how to minimise the effects of such disasters.
EQC’s ethnic minorities programme continued and included publishing a new brochure, People, Property and Natural Disaster, in seven languages. The brochure includes information for new migrants on various topics including preparing for the natural disasters the Commission covers, the cover provided by the Commission and information on risks in certain areas.
Other public education activities included; a series of press advertisements highlighting EQC’s role that ran in community newspapers throughout the country; internet and press advertising to take advantage of the heightened awareness that follows large natural disasters; new internet advertisements highlighting the different natural disasters that EQC covers; and a continuation of our successful programmes for schools.
Managing the Natural Disaster Fund
The Natural Disaster Fund grew by $140 million to $5.5 billion during the year, an increase of three percent over last year’s total at balance date.
Volatile markets saw the value of EQC’s offshore equities
fall despite the weak New Zealand dollar contributing 6.6 percent to the return. After the deduction of management fees, active equity managers out-performed the MSCI world benchmark by 1.6 percent. Except for the replacement of one growth manager, the structure and asset allocations remained unchanged.
High domestic short-term interest rates through the year boosted EQC’s cash returns. The Reserve Bank Official Cash Rate was 8 percent at the beginning of the year, but increased early on to 8.2 percent. As a consequence, bank deposits (RCDs) and Treasury bills produced steady income throughout the year, with a combined return of 8.6 percent.
The average yield on New Zealand Government stock (NZGS) moved from 6.95 percent (30 June 2007) to 6.38 percent (30 June 2008), increasing the value of the portfolio. EQC’s returns for NZGS and inflation-indexed bonds, of 9.1 and 5.2 percent respectively, were in line with the indices.
Approximately 64 percent of EQC’s portfolio is invested in NZGS and inflation-indexed bonds and as at 30 June, EQC held 12 percent of NZGS and 23 percent of inflationindexed bonds on issue.
Asset class | Actual return | Benchmark |
|---|---|---|
NZ Government Stock | 9.1% | 9.0% |
NZ Government Inflation-Indexed Bonds | 5.2% | 5.2% |
Bank Bills (Registered Certificates of Deposit) / Treasury Bills | 8.6% | 8.8% |
Passive Global Equities | -9.1% | -9.3% |
Active Global Equities | -7.7% | -9.3% |
Total Portfolio* | 3.3% | 3.2% |
* The target total portfolio return is 1% over the NZGS index return, over a rolling 10-year period. The structure has not been in place long enough to compare 10-year returns. For the four years to 30 June 2008 the actual total portfolio return was 6.0% versus the target of 7.0%.
EQC is responsible for managing and administering the Natural Disaster Fund in a manner that ensures:
- best practice portfolio management;
- maximisation of returns without undue risk to the Fund as a whole; and
- avoidance of prejudice to New Zealand’s reputation as a responsible member of the world community.
During the year the Commission developed a formal responsible investment policy which was adopted on 6 December. One of the recommendations agreed to in the policy was that EQC became a signatory to the United Nations Principles for Responsible Investment. As a signatory, the Commission acknowledges internationally agreed standards for responsible corporate behaviour and employs the principles to guide its investment decisions.
EQC is currently working with other Crown financial institutions to ensure that it has the resources and information necessary effectively to engage with investee companies on responsible investment matters and to fulfil EQC’s obligation to avoid prejudice to New Zealand’s reputation.
The Commission has instructed its investment managers to exclude from its portfolio investments in organisations engaged in the development, production, transfer, possession, acquisition, stockpiling or use of anti-personnel mines; and the manufacturers of cigarettes and tobacco.
EQC’s annual catastrophe reinsurance negotiations in May delivered increased cover for the Natural Disaster Fund for competitive rates. The Commission’s reinsurance programme provides protection for the Fund in case of a large natural disaster.
David Middelton
General Manager
