Government announces AMI bailout

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.
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.''