Insurance co losses behind lower current account deficit

Wednesday 22nd June 2011

Insurance company losses resulting from the Canterbury earthquakes were a key factor in a fall in the current account deficit in the March quarter.

Figures from Statistics New Zealand (SNZ) today showed the deficit was a seasonally adjusted $1.8 billion in the three months, down $1.1 billion from the December quarter.

Unadjusted, the current account balance was a deficit of $97 million, compared to a surplus of $159 million in the March 2010 quarter.

The smaller current account deficit in the latest quarter, compared to the three months to December, was driven by a $1 billion fall in income from foreign investment in New Zealand, SNZ said.

"Company profits fell as foreign-owned insurance companies reported losses from the Canterbury earthquakes," SNZ balance of payments manager John Morris said.

A rise in the quantity and price of dairy exports, along with increases in higher exports of crude oil and forestry products were behind a $232 million rise in the seasonally adjusted goods balance from the December quarter to $842 million, SNZ said.

The capital account surplus of $7.5 billion in the March quarter was due to an estimated $7.6 billion of reinsurance claims on non-residents, due to the February 22 quake.

At March 31, New Zealand's net international liabilities were $148.2 billion, compared with $158.6 billion as at December 31.

Much of the fall was due to outstanding reinsurance claims from the February 22 earthquake, which were an asset for New Zealand until the claims were paid.

Total outstanding reinsurance claims on non-residents from the September and February earthquakes combined were estimated at $11.1 billion.

The March year current account deficit of $8.3 billion was about 4.3% of GDP.

The December year current account deficit had been revised to 4.1% of GDP, following a change in the treatment of estimated reinsurance claims from overseas for the September quarter Canterbury earthquake, which were now excluded from the current account, SNZ said.

ANZ economist Mark Smith said that at 4.3% of GDP the current account deficit was in the problematic but not alarming zone.

"The key focus for the market remains the trajectory of the deficit," he said.

He expected it would head above 5% of GDP by the end of the year, with deficits in the 5-6% range for the next few years. A return to external deficits above 7% was not yet in prospect.

"If a return to 7% plus deficits occurs it implies New Zealanders have not learnt from past excesses, which runs the risk of financial markets forcing an adjustment upon us."

NZPA

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