Government tops up Southern Response funding to $1.5b

Friday, 26 May 2017

The Government has pledged a further $250 million to Southern Response, bringing the total funding for the Crown company to $1.5 billion.

The Government established Southern Response in 2012 to take on Canterbury earthquake-related liability from failing insurance company AMI.

It started with $500m government capital support and received another $500m pledge in 2013.

Last year, Southern Response indicated it would likely not have enough money to pay out all of its claims.

**READ MORE:

* Southern Response may need millions of dollars more of taxpayer funds

* Extra $104m for Crown-owned Southern Response in 'very extreme' case

* Southern Response earthquake claims settlement could take until 2019**

The Government decided last month to pledge another $250m in its Budget, announced on Thursday. 

It predicted another $500,000 in government funding for Southern Response budgeted over the next two years.

The document said there was 'significant uncertainty' the company's costs would align with estimates.

'There is a risk that the actual cost could vary from this estimate, which is sensitive to its underlying assumptions such as damage estimates, legal challenges, reinsurance recoveries and the forecast profile of claims settlement.'

A spokeswoman for Earthquake Commission (EQC) Minister Gerry Brownlee said the additional money was a response to the latest independent valuation for settling Southern Response's outstanding claims.

She said the company's remaining claims were more complex than expected.

The Government made the money available to Southern Response, but did not transfer it.

The company could call upon the pledged money when required.

Insurance lawyer and Christchurch Central candidate Duncan Webb said there was 'nothing in principal wrong' with the Government topping up Southern Response.

'You've got an insolvent insurance company, and the government's backing it because it's been a natural disaster.

'What it does show, is that Southern Response has been wildly underestimating its exposure essentially since the get-go.'

He said the company only now realised how much it needed to pay.

Webb said more claims than expected went over EQC's $100,000 cap and were passed onto insurers including Southern Response.

'That's because EQC made an absolute dog's breakfast of its repair programme.'