Publications
Annual Report
2008-2009
Chairman's Report
For those charged with the governance responsibilities of financial institutions, and particularly for those with responsibility for others’ money, the last two years have been difficult to say the least.
EQC has custody of the Natural Disaster Fund, around $5.6 billion of public money. This is intended to meet a substantial part of the rebuilding costs following a major earthquake, or other natural catastrophe, in New Zealand, an event which will certainly happen at some time.
At the beginning of the last financial year the Fund was $5.54 billion. At 30 June 2009, the Fund stood at $5.57 billion. Several factors helped us maintain the value of the Fund despite financial market turmoil, and the very large loss of value in international equities in particular.
Diversification was a major contributor. Losses in our international equity portfolio were offset by rises in the value of our holdings of New Zealand Government stock. The $963 million in international equities under active management at 30 June this year was spread across five managers, whose variety of investment “styles” also helped spread risk.
Remaining unhedged allowed declines in the value of our foreign currency denominated equity holdings to be offset, in part, by a weakened New Zealand dollar.
It would be unreasonable to omit luck as a factor in our performance. The offsetting movements could have moved in ways which exacerbated the losses on our international equities. That point accepted, diversification remains one of our primary safeguards against dramatic movements in the value of the Fund.
During the year, the Board reconfirmed its commitment to a form of active management of our international equity portfolio as the best way to ensure long-term growth in the value of the Fund. Consistent with that decision, the Board agreed also that the balance of our international equity portfolio remaining in a passive investment fund should be placed under active management.
In the current circumstances, that was not a decision that was lightly taken. Three accompanying decisions were also taken. A further manager would be appointed, bringing the total active managers to six. Within the portfolio the allocation of funds between managers would be rebalanced to ensure that the Fund was not overly exposed to the performance of any one manager. Finally the timing of the move from passive to active management would, as far as possible and as far as the Board could judge, be taken at a time when the major and unprecedented volatility in the markets had eased. At the time of publication of this report, the new manager has been appointed and arrangements are largely in place to give effect to these decisions, but the final allocation of the portfolio to fully active management has not yet taken place.
The Board has also reconfirmed its commitment to principles of responsible investment. EQC has joined with three other Crown financial institutions (ACC, New Zealand Superannuation Fund and Government Superannuation Fund) and contributes financially to the Responsible Investment Unit of the New Zealand Superannuation Fund. This arrangement should ensure better informed decisions by the Board on matters related to responsible investment, a more whole-of-Government approach to such matters and, in some instances, the ability to exert more leverage on companies in which our managers invest to reinforce the Government’s expectations in this regard.
The change of Government in 2008 required EQC, like other government organisations, to prepare a briefing for its new Minister. Such briefings can provide an opportunity for an operational or organisational stock-take. In EQC’s case it was an opportunity to address some aspects of the scheme, based in statute, which have proved problematic or even inequitable.
These include some long-standing inequities in land cover; the three-month time limit for reporting claims; the unwieldy and potentially disputatious provisions for insuring long-term accommodation for the elderly; the insurance of multiple use buildings; and the level of excess. These are now part of our work programme.
There have been changes in the Board since EQC’s last annual report. Tim McGuinness, Carole Durbin and Wyn Hoadley completed their terms as Board members. Linda Robertson and Giselle McLachlan have joined the Board. Keith Taylor, already a board member, has been appointed Deputy Chairman.
EQC has been fortunate in the quality of appointees as Commissioners. I record my thanks to those who served with me, and welcome our new members. I thank all Board members for their contribution and support.
2009 will be significant in EQC history. David Middleton has been the only General Manager and Chief Executive of EQC since it was established by statute in 1993 as a successor to the Earthquake and War Damage Commission. He has decided to step down after 17 years in these roles.
It is difficult to overstate the contribution he has made: to New Zealand’s financial preparedness for a natural disaster; to the effectiveness, and recognition of that effectiveness, of EQC as an organisation to serve the interests of the Government and people of New Zealand; and in the international recognition of EQC’s unique and muchadmired role and performance.
He has served successive Governments well. He has supported me, and three chairmen before me. He has served many Board members to help make the organisation what it is today.
I take this opportunity, with the Board, to thank him publicly and wish him every success in the next stage of his career.
I thank all staff of EQC. It is a privilege to be their Chairman.
Michael Wintringham
Chairman