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They are doing it wrong - socialise that risk. Here in New Zealand when a big insurer has something bad happen (eg an earthquake flattens a big city) you get bailed out by the government. Departing staff still got big payouts in that era too, so it doesn’t seem to impose any stringent criteria on companies too. AMI specifically. Sarcasm aplenty in this comment.

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Even reinsurance has limits, and large earthquakes on major metropolitan centres are basically the one thing that will exceed them (floods can be bad too, but the risks are more predictable, and are often excluded from policies in high-risk areas).

The only alternative to the "government backstop" is that insurers will refuse to write policies or will exclude earthquake risk (in which case the government may need to set up it's own scheme, e.g. in CEA insurance in California).

NZ does have the EQC.

https://www.eqc.govt.nz/

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