Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Questions & Answers - AMI Secures Capital Support

Questions & Answers - AMI Secures Capital Support

7 April 2011

1. Overall position


On February 22 Christchurch sustained enormous damage. Around 35% of residential properties in Christchurch are insured by AMI. The level of claims, while not yet known, will be unprecedented.

Recognising the potential scale of the impact on AMI, AM Best our rating agency, put us on watch and made a modest downgrade to our rating – from A+ superior to A- excellent.

To maintain customer confidence in the company we have entered into an arrangement with Government whereby we can draw down additional capital to meet claims should that be necessary.

2. Will it be necessary to access these funds?

At this stage the ultimate loss is still unclear and it may take till as late as June before a more certain position is known. It was in the face of this uncertainty that we sought back-up from Government. At a time like this our customers want absolute certainty that they will be paid. The involvement of Government removes any doubt – they will be paid and the company will continue to trade normally.

3. Why is the final total of claims still so uncertain?

This is not a straightforward matter. It is complicated by what is covered in the first and second earthquake (they are treated as separate events for insurance and reinsurance purposes), whether additional damage caused by the quake will attract further EQC cover and decisions about remediation of land and/or relocation.

4. Will AMI be able to meet its claims without Government having to put in money?

We have a high level of reinsurance at $600 million. By comparison, we had the same amount for the first quake and claims costs are stable around $450 million. The second quake, while less powerful, was more destructive so we believe the additional $600 million reinsurance we have for that quake will be tested. In addition, we have reserves in excess of $350 million.

There’s a very good chance that we will be able to meet the claims ourselves, but there is uncertainty and by entering into the relationship with Government that uncertainty has been removed.

5. Should AMI have had more reinsurance?

Hindsight is a wonderful thing. Sitting here now we would love to have had more reinsurance. We are conservative insurers and our reinsurance requirements were carefully modelled after the first quake. Nobody expected such a destructive earthquake.

6. Are you happy with the arrangement with Government

We are very grateful that Government is providing support. We turned to Government in the first instance in the interests of time. We were looking for a wholly commercial arrangement and that’s what we have got. In other circumstances we would have sought support from the commercial sector, and still will, but in these circumstances Government can move faster and time is of the essence.

7. Does this arrangement, if it proceeds, mean you are owned by Government

With the signing of the arrangement we are giving Government access to convertible redeemable preference shares. If we draw down $100 million or more under this facility, then the shares become ordinary shares and Government takes an ownership of AMI.

8. Are you concerned about the loss of ownership?

We would want to avoid using the Government’s money if we could, but we won’t know the final position for some time.

9. Does this mean you would no longer be a mutual?

If we drawdown $100 million that would be the case, at least temporarily. Once this challenging period is over Government could allow us to buy the company back, thus restoring current arrangements. We could enter into an equity arrangement with a reinsurer or the company could be sold as a going concern. These are all considerations once the current earthquake-related challenges are resolved.

10. How long would Government be involved ?

The agreement provides for up to five years, but it could be a lot less.

11. Will premiums go up?

This arrangement will not, of itself, raise premiums, but the legacy of the two earthquakes, particularly their impact on reinsurance costs and the higher risk rating of the Canterbury area will inevitably result in higher premiums across the country and industry, not just AMI.

12. What does this do to your rating from AM Best?

AM Best placed us on watch in light of the uncertainty on the loss development. With the involvement of government the uncertainty is removed. We hope they will act accordingly. They will be reviewing the situation in May.

13. What if there is another event?

AMI has further reinsurance cover of $1 billion for the next event should one arise and up to $600 million if a further event occurs before 30 June 2011. AMI will have new reinsurance treaties in place for events following 30 June 2011.

14. When does AMI’s reinsurance cover end and what will AMI do if it cannot secure further reinsurance?

Our reinsurers have supported us strongly in the past and have provided increases in our reinsurance catastrophe cover for the current financial year. We are in ongoing discussions with our reinsurers about our future cover and we expect to agree treaties before 30 June 2011.

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

BusinessDesk: APN's NZME Sees Future In Paywalls, Growth In Digital Sales

APN News & Media has touted a single newsroom concept for its NZME unit in New Zealand, similar to what Germany's Die Welt uses, saying an 'integrated sales proposition' is helping it win market share, including ... More>>

Labour Party: Global Milk Prices Now Lowest In 6 Years

The latest fall in the global dairy price has brought it to the lowest level in six years and shows there must be meaningful action in tomorrow’s Budget to diversify the economy, says Labour’s Finance spokesperson Grant Robertson. “Dairy prices ... More>>

BusinessDesk: NZ Inflation Expectations Creep Higher In June Survey

May 19 (BusinessDesk) - New Zealand businesses lifted their expectations for inflation over the next two years, sapping any immediate pressure on the Reserve Bank to cut interest rates, and prompting the kiwi dollar to jump higher. More>>

BusinessDesk: Lower Fuel Costs Drive Down NZ Producer Input, Output Prices

May 19 - Producer input and output prices fell in the first quarter, mainly reflecting lower fuel costs and weakness in prices of meat and dairy products. More>>

Media: Fairfax Media NZ Announces Senior Editorial Team

Fairfax Media New Zealand has today confirmed its new editorial leadership team, as part of a transformation of its newsrooms aimed at enhancing local and national journalism across digital and print. More>>

Science: Flavonoids Reduce Cold And Cough Risk

Flavonoids reduce cold and cough risk Research from the University of Auckland shows eating flavonoids – found in green tea, apples, blueberries, cocoa, red wine and onions – can significantly reduce the risk of catching colds and coughs. The research, ... More>>


BusinessDesk: RBNZ House Alert Speech The Catalyst For Government Action

Prime Minister John Key all but conceded that pressure from the Reserve Bank of New Zealand for concerted action on rampant Auckland house prices was one of the main catalysts for the government's weekend announcements about tightly ... More>>

BusinessDesk: How To Fall Foul Of The New Housing Tax Rules: Tips From IRD

Just because you rented out your investment property doesn't absolve you from paying tax, says the Inland Revenue Department in a summary of commonly made mistakes by non-professional property investors when it comes to their tax liability.More>>

Legal: Superdiversity Law, Policy And Business Stocktake Announced

Mai Chen, Managing Partner at Chen Palmer New Zealand Public and Employment Law Specialists and Adjunct Professor of Law at the University of Auckland, today announced the establishment ... More>>

Housing: More House Price Gains Expected

House price expectations remain high, with a net 56% of respondents expecting house prices will increase. Fears of higher interest rates are fading, consistent with the RBNZ’s signals this year. Affordability and a lack of houses for ... More>>

TDDA: State-Of-The-Art Drug Testing Laboratory To Open In Auckland

World leading drug testing agencies, The Drug Detection Agency (TDDA) and Omega Laboratories, open New Zealand laboratory More>>

Network: Bigpipe Launches Ultra-Fast Broadband Into Wellington

Bigpipe Launches Ultra-Fast Broadband into Wellington Naked broadband provider Bigpipe has extended its national reach, announcing today, the launch of its unlimited UFB offering into Wellington. The Spark Venture business is giving Wellingtonians the ... More>>

Get More From Scoop

 
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news