1. Under section 103 of the Crown Entities Act 2004 and in accordance with section 12 of the Earthquake Commission Act 1993 (“Act”), the Minister Responsible for the Earthquake Commission (“Minister”) directs the Earthquake Commission (“Commission”) to give effect to government policy as specified in this direction (“direction”).
2. This direction comes into effect on 27 July 2015 (“Commencement Date”).
3. On the Commencement Date, the direction issued by the Minister to the Commission on 30 October 2001 under section 12 of the Act (as subsequently amended) is revoked, except as provided for in paragraphs 10 and 11 of this direction.

Purpose

4. The purpose of this direction is to ensure the Commission invests the Natural Disaster Fund (“Fund”) conservatively and maintains its liquidity to meet claims in the aftermath of the Canterbury earthquake sequence.
5. Prior to making the direction, the Minister consulted with the Commission.

Investment Policies

6. The Fund’s investments must comprise any or all of the following (“Portfolio Composition”):
   1. Treasury bills, Government nominal bonds and Government inflation indexed bonds (“New Zealand Government Securities”), such New Zealand Government Securities to be traded only through the New Zealand Debt Management Office; and
   2. New Zealand bank securities, including New Zealand bank bills and deposits, held only in banks which (“New Zealand Bank Securities”):
      1. are registered under the Reserve Bank of New Zealand Act 1989;
      2. have a short term credit rating of A–1, Prime 1 or higher; and
      3. if rated by both the Moody’s and Standard & Poor’s credit rating agencies, ratings from both which equal or exceed the foregoing ratings.
7. Funds invested in New Zealand Bank Securities shall be held across a number of banks.
8. The Commission shall invest the Fund with the objective of achieving an average rate of return of at least the rate of change in the ANZ 90-day Bank Bill Index (or any successor to that index) for each financial year less 25 basis points per annum.
9. The Commission must invest the Fund on a prudent, commercial basis, and in doing so, must manage and administer the Fund in a manner consistent with:
   1. best practice portfolio management;
   2. maximising return without undue risk to the Fund as a whole; and
   3. avoiding prejudice to New Zealand’s reputation as a responsible member of the world community.
10. Subject to paragraph 11, the Commission must continue to adhere to the Statement of Investment Policies, Standards, and Procedures (“SIPSP”) for the Fund, prepared pursuant to the direction issued by the Minister to the Commission on 30 October 2001 under section 12 of the Act.
11. Subject to paragraph 14, and as soon as practicable after the Commencement Date, the Commission must review and, if necessary, amend the SIPSP to ensure it satisfies the requirements of this direction.
12. The Commission must review the SIPSP on one or more occasions in each financial year.
13. The SIPSP must address or outline the following matters:
    1. The classes of investments in which the Fund is to be invested and the selection criteria for investments within those classes;
    2. the determination of benchmarks or standards against which the performance of the Fund as a whole, and classes of investments, will be assessed;
    3. standards for reporting the investment performance of the Fund;
    4. ethical investment for avoiding prejudice to New Zealand’s reputation as a responsible member of the world community;
    5. the balance between risk and return in the overall Fund portfolio;
    6. the fund management structure;
    7. the use of options, futures, and other derivative financial instruments;
    8. the management of credit, liquidity, operational, currency, market, and other financial risks;
    9. the retention, exercise, or delegation of voting rights acquired through investments;
    10. the method of, and basis for, valuation of investments that are not regularly traded at a public exchange;
    11. prohibited or restricted investments or any investment constraints or limits; and
    12. any other matters the Commission considers relevant to the SIPSP.
14. The Commission must consult with the Minister if it intends to modify the SIPSP to any substantive degree.
15. The Commission must consult with the Minister before it modifies the Portfolio Composition.
16. The Commission must not cover its pre-disaster currency exposures through a hedging strategy without the Minister’s approval.
17. Should the net assets of the Fund decrease to less than $200 million, the Commission must notify the Minister of this fact as soon as practicable after the occurrence of this event.
18. In the event of a natural disaster likely to involve claims on the Commission in excess of $250 million, the Commission must consult with the Minister before liquidating any part of the investment portfolio of the Fund apart from the holdings of New Zealand bank bills.
19. If the Commission considers at any time that any provision in this direction is inconsistent with another provision in this direction or any other direction under section 12 of the Act or any provision under that Act it shall advise the Minister of that inconsistency.

Dated this 27th day of July 2015.

Hon GERARD ANTHONY BROWNLEE, Minister Responsible for the Earthquake Commission.