AMI misjudged risks - English

AMI Insurance misjudged the risks it was covering and the Government will be closely watching the way the company operates, Finance Minister Bill English says.

Mr English yesterday announced a support package for the insurer, and said it could cost taxpayers up to $1 billion to safeguard policy holders including thousands of Christchurch home owners.

AMI said it believed it would be able to cover the cost of the earthquake claims but can't guarantee that because it doesn't know what the eventual liability will be.

"They've clearly misjudged the risks," Mr English said last night on TV One's CloseUp programme.

"The fact that they've come to the Government's door means something has gone wrong, that's not the normal course of business and we'd prefer not to be doing this deal at all."

Mr English said when the issue was raised, it was clear to the Government that it would have to deliver a support package to give certainty to a large number of potentially distressed home owners.

He said the Government would have its own member on AMI's board and advisers who would have total access to the company.

AMI chief executive John Balmforth said he didn't think the company had let policy holders down.

"On February 21, before the second earthquake, we had more than five times the minimum capital requirement under insurance company regulations," he said.

"That earthquake was unprecedented ... and it's possible that the claims will exceed our reinsurance capacity of $600m."

Mr Balmforth said risk assessment had been in line with international best practice.

"Clearly, with benefit of hindsight, the significant nature of the earthquake proved we didn't have sufficient (reinsurance)."

ACT's finance spokesman, Sir Roger Douglas, said in Parliament yesterday AMI had gained a large market share through low premiums and a policy of limiting expenditure by having too little reinsurance.

"They took a risk and those who took out insurance with them benefited from the risk for a while -- it was a risk that didn't work," he said.