UPDATED: English says claims costs could reach $1 bln

UPDATED: NZ government agrees to $500M bail-out package for AMI Insurance

April 7 (BusinessDesk) – New Zealand’s government could face claims costs of as much as $1 billion though the scale remains unclear, Finance Minister Bill English said today, after announcing support of up to $500 million for AMI Insurance Ltd.

Finance Minister Bill English said the support package would be called on “only as a last resort if AMI’s own reserves have been exhausted – unless the Crown believes it is in the public interest to take control sooner.” The government would “stand behind” claims in excess of $500 million which could reach as high as $1 billion, he told journalists at a Beehive briefing.]

“This support package will give AMI the time to seek a market solution to the challenges it faces as a result of the two Canterbury earthquakes,” English said.

Should the package be called upon, the $500 million of equity would allow the government to “take ownership and assume control of the company if it needs to.”

AMI has the biggest exposure to residential insurance in Christchurch, with about 35% of the market. It is the nation’s second-largest residential insurer with 485,000 policyholders and 1.2 million policies. In Christchurch it has more than 85,000 policyholders with 225,000 policies, according to a statement from English.

AMI first approached the government on March 9, saying its reserves and reinsurance may not cover total claims from the quakes, English said. That’s a day after chief executive John Balmforth told BusinessDesk that the firm was “strongly reinsured and has received excellent support from its reinsurers” as well as holding mainly liquid assets of about $540 million.

Government officials had worked with AMI since then to consider the best options for taxpayers and AMI policyholders, English said.

“The full extent of the claims AMI faces will remain unclear for several months.” English said. “Ministers have decided to act now. This provides a financial backstop for policyholders so the rebuilding of Christchurch is not jeopardised by potential solvency or liquidity issues and so confidence is maintained in the insurance sector.”

AMI is also seeking alternative commercial funding arrangement, English said.

(BusinessDesk)

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