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

 

Cosmetics & Pollution: Proposal To Ban Microbeads

Cosmetic products containing microbeads will be banned under a proposal announced by the Minister for the Environment today. Marine scientists have been advocating for a ban on the microplastics, which have been found to quickly enter waterways and harm marine life. More>>

ALSO:

NIWA: 2016 New Zealand’s Warmest Year On Record

Annual temperatures were above average (0.51°C to 1.20°C above the annual average) throughout the country, with very few locations observing near average temperatures (within 0.5°C of the annual average) or lower. The year 2016 was the warmest on record for New Zealand, based on NIWA’s seven-station series which begins in 1909. More>>

ALSO:

Farewell 2016: NZ Economy Flies Through 2016's Political Curveballs

Dec. 23 (BusinessDesk) - New Zealand's economy batted away some curly political curveballs of 2016 to end the year on a high note, with its twin planks of a booming construction sector and rampant tourism soon to be joined by a resurgent dairy industry. More>>

ALSO:


NZ Economy: More Growth Than Expected In 3rd Qtr

Dec. 22 (BusinessDesk) - New Zealand's economy grew at a faster pace than expected in the September quarter as a booming construction sector continued to underpin activity, spilling over into related building services, and was bolstered by tourism and transport ... More>>

  • NZ Govt - Solid growth for NZ despite fragile world economy
  • NZ Council of Trade Unions - Government needs to ensure economy raises living standards
  • KiwiRail Goes Deisel: Cans electric trains on partially electrified North Island trunkline

    Dec. 21 (BusinessDesk) – KiwiRail, the state-owned rail and freight operator, said a small fleet of electric trains on New Zealand’s North Island would be phased out over the next two years and replaced with diesel locomotives. More>>

  • KiwiRail - KiwiRail announces fleet decision on North Island line
  • Greens - Ditching electric trains massive step backwards
  • Labour - Bill English turns ‘Think Big’ into ‘Think Backwards’
  • First Union - Train drivers condemn KiwiRail’s return to “dirty diesel”
  • NZ First - KiwiRail Going Backwards for Xmas
  • NIWA: The Year's Top Science Findings

    Since 1972 NIWA has operated a Clean Air Monitoring Station at Baring Head, near Wellington... In June, Baring Head’s carbon dioxide readings officially passed 400 parts per million (ppm), a level last reached more than three million years ago. More>>

    ALSO:

    Get More From Scoop

     
     
     
     
     
     
     
     
    Business
    Search Scoop  
     
     
    Powered by Vodafone
    NZ independent news