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AMI government bailout: could cost $1 billion


UPDATED: If the AMI calls on “just one dollar” from the taxpayer the government will take over the company, Finance Minister Bill English told a media conference this morning.

NBR staff
Thu, 07 Apr 2011

UPDATED: If the AMI calls on “just one dollar” from the taxpayer the government will take over the company, Finance Minister Bill English told a media conference this morning.

But the company’s liabilities could be as much as $1 billion, the finance minister said.

The government’s support package comes with a set of caveats for the company’s board and a management. 

Mr English announced a rescue package of uncalled capital which included $500 million of uncalled capital.

“If they call for one dollar, we can effectively take it over,” Mr English said. 

Both the company and the Reserve Bank, which now has oversight of the insurance sector, have tried to calculate the AMI’s liabilities but these estimates are extraordinarily wide.

“There is so much uncertainty about the number of claims and the nature of those claims….we’ve been provided by the company and the Reserve Bank, the estimates of the excess of claims over the money available to meet them… range from zero - that is the company is able to meet those claims – to $1 billion more claimed than they are able to meet.”

Asked whether the taxpayer would have to stump up $1 billion, Mr English said “yes that’s possible.”


A possible bailout of AMI Insurance will see the Government pump up to $500 million of equity into the ailing insurer and hold the right to take control of the company. But the final cost could be double that.

Finance Minister Bill English announced the support package today saying it would only be called on as a last resort if the insurer's reserves were exhausted.

AMI approached the Government last month with concerns that its reinsurance would not cover the two Canterbury quakes after it reportedly had $1 billion of capital and reinsurance cover wiped out by the disasters.

Mr English said the package would give time for the insurer to seek a market solution.If the bailout was needed the Government would invest up to $500 million of equity in AMI and hold the right to take ownership and assume control of the company if it needs to.

"It was the Government’s judgment that a support package was necessary to give certainty to policyholders that their claims will be covered.

This applies to all AMI policyholders -- not just those in Christchurch," Mr English said.AMI is the biggest insurer in Chrsitchurch covering a third of all homes, contents and motor vehicles, with 85,000 policyholders and 225,000 policies.

It is the second biggest insurer in New Zealand with 1.2 million policies and 485,000 policyholders.It was understood the insurer probably had enough money to pay out all its existing earthquake claims.

AMI had $600m of reinsurance cover for the February quake and about $500m in cash and investments.

Mr English said the support package would give certainty to AMI's policyholders in the aftermath of the quakes and ensure the rebuilding of Christchurch and the insurance claims process proceeded "in an orderly manner".

"Officials have been working closely with the company to gather information about what are complex issues and to consider the best option for taxpayers and AMI’s policyholders," Mr English said.

"Because of uncertainty around the cost of earthquake damage, it is too early to tell whether AMI will have sufficient resources to cover all of these claims. The full extent of the claims AMI faces will remain unclear for several months."

Mr English said the decision to act now was "a financial backstop" for policyholders to ensure rebuilding Christchurch was not jeopardised by potential solvency or liquidity issues.

AMI would seek an alternative commercial arrangement and the Government support package would give the company time to do that.

"The alternative of doing nothing would likely have been severe, potentially leaving many thousands of AMI policyholders without the insurance cover and financial resources needed to rebuild," Mr English said.

"It would also have led to long delays in processing claims, other claims being only partially met and many of AMI’s customers in Christchurch not having insurance cover for future risks."

Mr English said it was an " unusual situation requiring a special response"."In considering options, the Government has been acutely aware of the need to protect the interests of taxpayers, who are already facing significant costs from the Canterbury earthquakes and finance company collapses.

"If Government financial assistance is needed, the Government will take every possible step to minimise the cost to taxpayers."

NBR staff
Thu, 07 Apr 2011
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AMI government bailout: could cost $1 billion
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