Wellington City Council weighs insurance fixes and debt cuts
Wellington City Council weighs insurance fixes and debt cuts | Insurance Business New Zealand
Catastrophe & Flood
Wellington City Council weighs insurance fixes and debt cuts
Strategy outlined as airport share sale stalls
Catastrophe & Flood
By
Roxanne Libatique
Wellington City Council has decided to revise its Long-Term Plan (LTP) following a recent decision not to proceed with the sale of its shares in Wellington Airport.
The council is now exploring alternative ways to manage its rising insurance risk related to potential earthquakes and climate change impacts, while also addressing concerns over a potential $2.6 billion shortfall in post-disaster reconstruction funding.
Wellington City Council reassesses insurance risks
Wellington Mayor Tory Whanau said that the council’s focus moving forward will be on managing these insurance risks without further increasing rates. She reassured the public that important city projects – such as social housing, water infrastructure, and climate resilience initiatives – will not be compromised during the planning process.
“For me, that means protecting our social housing, and continuing funding for water and key climate initiatives,” she said.
Wellington City Council’s debt
A key priority, the mayor said, is reducing the council’s debt over the next 10 years to create a $500 million financial reserve to address future disaster recovery needs.
Discussions among council members have indicated strong support for the previously proposed self-insurance fund, though the airport share sale remains contentious.
Council officials are now considering other potential funding sources, including the sale of ground leases and carbon credit assets, to establish a mechanism that would serve as both a long-term investment and insurance buffer.
Wellington faces major financial risk from underinsurance
At a previous council meeting, chief financial officer Andrea Reeves explained that Wellington is facing significant financial risk from underinsurance. In the event of a 7.7 magnitude earthquake in the Wellington or Wairarapa region, the council could be left with a major funding gap for reconstruction.
She said that around 50% of the council’s investments are tied to Wellington Airport, currently valued at $278 million, raising concerns about the financial exposure that comes with relying heavily on a single asset.
Discussions on Wellington City Council’s airport share sale
Reeves had previously suggested selling the council’s shares in the airport, with the proceeds going into a perpetual investment fund (PIF). Projections indicated that the fund could grow to $6.4 billion over 50 years with an annual return of 7.8%, potentially providing dividends comparable to the airport investment over time.
However, she also warned that a partial sale of the shares could reduce the council’s control over the airport and limit the PIF’s long-term growth potential.
Public feedback on the airport share sale revealed mixed opinions. Only about a quarter of respondents supported a full sale, while more than 50% preferred either no sale or a partial divestment.
The council plans to continue discussions with central government officials in the coming months to identify potential solutions to its insurance and financial challenges while determining the most viable path forward for the city’s long-term resilience.
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