Correlated risks re-re-revisited: worse than I'd thought

Glenn Boyle draws my attention to the National Disaster Fund.

Loyal readers will recall that a substantial proportion of EQC's investments have to be in government securities. They need to be in assets that can be liquidated quickly in the event of an event. But the odd bit is that they needed to be in New Zealand Government Securities. As I'd summarised back in 2010:

Suppose that your wife tells you that you could save a lot on house insurance if you just paid her the premiums every month and she'd pay you if the house burned down. Seems like a good idea - keep the money in the family. She invests the premiums you pay her in getting the kitchen redone. Yup, the insurer's asset base looks good now. But come the fire...

Hopefully it's not as bad as all that. If they're clever, the reinsurance picks up everything beyond some minimal amount, so the Earthquake Commission's asset base only needs to cover what would effectively be a deductible. In that case, heavy domestic investment in government assets is silly rather than reckless.

I worried too that the value of any NZ government securities being sold-off post-event would be lower: if government is selling debt at the same time to rebuild, and there's a higher risk premium on the country as a whole, these things will sell at a discount post-event.

And then I found EQC is forbidden from having a properly diversified portfolio.

But it's worse than that:

Direction to the Earthquake Commission pursuant to Section 12 of the Earthquake Commission Act 1993. 
i. This direction comes into effect on 1 November 2001 and as of that date the direction dated 2 June 1998 is hereby revoked.
ii. The Earthquake Commission (the Commission) shall invest the Natural Disaster Fund (the Fund) in:
     a. NZ Government securities comprising Treasury bills and/or Government stock and/or Inflation-Indexed Bonds tradeable only through the NZ Debt Management Office [emphasis added];
     b. global equities; and
     c. New Zealand bank bills. 

It later notes that the NDF can have up to 35% in global equities and up to $250m in New Zealand bank bills. The rest is non-tradeable government securities.

It's one thing to be heavily invested in NZ government bonds that could trade at a discount post-event. It's another to be invested in ones that can only be sold back to the government. Isn't that basically equivalent to the government not having a disaster fund at all (for the 70% in nontradeable government securities) and just having to go to the debt markets to cover the costs of the quake?

If you wonder why EQC took such a hard-nosed approach to costs, and prided itself on keeping the rebuild costs to the government down, well, this might be part of it. If I'm reading this correctly, both the NDF and any overruns above NDF that weren't covered by reinsurance would come out of the government's pocket.

I get the point of having something like EQC. The reinsurance scheme seems worthwhile. Is the NDF that different from self-insuring though?