Failed Queenstown-based insurance company Western Pacific asked the Government for a $5 million government guarantee on March 11, two days after AMI Insurance approached the Government with concerns, Treasury documents show.
The request was declined and Western Pacific collapsed, cancelling its 7000 insurance policies. It had 155 claims as a
result of the Christchurch earthquakes.
Treasury noted that stepping in to save it would have sent the wrong signal of a Government willing to help "weak insurance companies".
Western Pacific wrote to Finance Minister Bill English: "Should Western Pacific not meet its financial obligations earthquake victims will be seriously impacted by uncertainty over whether their claims would be met and delays in the payment of their claims.
"Western Pacific needs urgent government support in order to meet cash flow requirements and keep reinsurance funds available to the people and businesses of Christchurch.
"Unfortunately we will need an indication of support from the Government in the next few days if we are to continue to operate."
After its collapse, a Treasury document notes that it advised not helping Western Pacific because "its impact on the overall recovery in Christchurch is likely to be small" and its failure was "expected to have a very limited impact on insurance markets".
It said the company did not have a "sound business model" without "reasonable prospects for the business to continue as an unsupported going concern in future".
Supporting it would have sent the signal that the Government was willing to save weak insurance companies.
"It is not the Government's role to intervene in normal commercial processes, including a business failure, unless there is a very compelling reason to do so (such as in the AMI case)."
It was placed in voluntary liquidation on April 1 and owes almost $6 million to creditors and unsettled insurance claims.
It had about 7000 policies across the country, with about 50 per cent of its South Island business being Christchurch policies.
