Insurance Certificates

Insurance valuations or more properly, the provision of insurance certificates are more common with
commercial rather than residential property. However with particularly specialised designed or
expensive properties maintaining an up to date insurance certificate is prudent.

Failure to keep up to date with current construction costs could mean that your property is UNDER
INSURED.

Insurance Valuations differ substantially from standard market valuations in that the values being
calculated are mainly concerned with the replacement of the asset in the event of a disaster.

Valuer’s Insurance Certificate

The following terms headed in italics are included in a Valuers insurance certificate.

REINSTATEMENT

These are cost based calculations and are concerned with the current cost of rebuilding the insured
asset if it were to be damaged or destroyed.

Reinstatement Estimate. Is the estimated cost at date of valuation (including relevant fees)
of reinstating the asset to an as new condition, including, where appropriate, the use of current
equivalent technology, material and services. In the case of partial destruction no specific
allowance has been made for any additional requirements that any Council, Government or
other Authority may require as additional expenditure to upgrade, alter or amend the undamaged
portion of the asset.

Inflationary Provision. This amount has been estimated on the basis of a loss occurring on
the last day of a 12 month insurance period, if appropriate. The inflation provision incorporates
an allowance for the additional time required for damage inspections, demolition, preparation of
new preliminary proposals and their approval by the Territorial Authority, preparation of working
drawings and specifications, schedules of quantities, in addition to an estimated period of
construction contract. No allowance is made of any delay due to the need to comply with the
provisions of the Resource Management Act. All inflationary provisions are given without
prejudice.

INDEMNIFICATION

The principal of indemnity is an insurance term. It is concerned with returning the insured to the same
position as they were before the loss. The insured should be no better or no worse off because of the
incident. The calculation can be cost based or it can also be market based (whichever gives the higher
of the two values). For example say you were the owner of a well leased building whose market value
(based on capitalised income) was more than replacement cost. The principal of indemnity should
return you to that greater position.

Market Related Value. Market Related Value is the estimated amount for which an asset
leased at the market rent, if appropriate, should exchange on the date of valuation between a
willing buyer and a willing seller in an arms length transaction after proper marketing, wherein
the parties had each acted knowledgeably, prudently and without compulsion.

Depreciated Replacement Cost. Is the Replacement Cost at the beginning of the
insurance period reduced by factors providing for age and physical depreciation.

Function Replacement. It is the estimated cost required to reinstate all assets to perform
similar tasks but under optimum current design and layout conditions with capacity
requirements not greater than currently available. The value of any partial loss has been
disregarded in this context.

DEMOLITION ESTIMATE

For the purpose of valuation, it is assumed that 100% of the assets have been damaged beyond repair
and have no salvage value.

Unless otherwise noted in the valuation covering letter, Demolition Estimate covers the cost of
demolition and removal as debris of the assets valued but excluding the cost of removal of any noxious
materials, or removal of debris on adjourning premises.