Insurance Australia Group has agreed to buy AMI, the Christchurch-based insurer bailed out by the government this year, for $380 million in a deal that will see the target's liabilities transferred to a new state-owned company.
AMI has been seeking new capital since the government provided a $500 million financial backstop that allowed the insurer to cope with surging reinsurance costs and gross claims from the Christchurch earthquakes of almost $2 billion. Suncorp Group and Tower had also expressed interest in AMI.
The acquisition will cement IAG's position as the biggest general insurer in New Zealand, where it operates the NZI and State brands, adding almost 30 per cent to its New Zealand premium income and yielding $30 million a year of net synergies within two years, the company said in a statement to the ASX.
The Australian insurer expects to recognise costs of integrating the two businesses of about $40 million.
The acquisition would lift IAG's market share in New Zealand to 40 per cent and give it a greater exposure to vehicle insurance. The transaction is conditional on approval from the Reserve Bank, as prudential supervisor for insurers, the Overseas Investment Office and the Commerce Commission. If approved, the deal would go unconditional early next year.
AMI's liabilities for current and future earthquake claims will be held by a new company to be owned by the government, with IAG providing support services, it said. AMI booked a charge of $760 million for insurance losses in its latest year, resulting in an annual loss of $704.6 million.
IAG said it will fund the acquisition using its own internal resources.
"We're confident about the longer-term outlook for the New Zealand insurance market," IAG managing director Mike Wilkins said in a statement.
AMI chairman Kerry Nolan said IAG's offer and the government's undertaking to back a separate earthquake claims resolution business "is the best possible outcome for all policyholders, earthquake claimants and other stakeholders."
"The February earthquake created a very serious loss of capital for AMI," he said.