Bailout decision weeks away - AMI

Photo / Dean Purcell

Struggling insurer AMI says it does not yet know if any government bailout will be necessary and its boss says it will be weeks before that becomes clear.

John Balmforth, chief executive of Christchurch-headquartered AMI Insurance, said the outlook remained uncertain.

"The purpose of the Government support was to provide our customers with confidence in AMI and provide us with time to fully assess the situation, particularly that relating to overall claims from the Christchurch 22 February earthquake.

"Given the uncertainties on actions such as land remediation following that event we do not expect to have definitive answers for some weeks yet. The concern of the board is to assess the situation and consider our options," he said.

The board's next meeting is May 23 but Balmforth is optimistic AMI can be sold.

"Sale of all or a portion of AMI is just one option for raising capital for the company. There are other options and until the claims position is known the amount of capital required will not be known. This will have a significant bearing on any decision. In addition, AMI has substantial reinsurance and reserves and, as a result, is in a strong cash position. The requirement for additional capital could be months, even years, away. Accordingly, we are not in a position to provide any more definitive information and will not be for some months.

"Until we have a much clearer idea of the claims position, we will not know whether we have to draw down funds from government. It may then be some time after that that we actually have to draw them down because our cash position is strong."

Asked if he expected the Government to own the insurer, Balmforth said the agreement struck specified that if AMI draws down state funds, it moves into a position of Government ownership.

"The agreement also provides that, subject to certain conditions, the Government can move into ownership earlier. Government ownership may therefore be contingent on the final claims position and our decisions about sourcing capital," he said.

"It is worth noting some of the terms of the arrangement with the Government. To put it into place, in the first instance AMI has paid to government $15 million.

"The preference shares are subject to payment of a dividend. This is a fully commercial arrangement. The advantage for AMI is that it gives confidence to our customers and provides us time to negotiate a replacement capital arrangement, if required," he said.