Insurance companies and the Insurance Council rushed to calm the fears of policyholders yesterday after an announcement the Government was providing a $500 million last-resort support package to AMI Insurance.
Insurance Council chief executive Chris Ryan said all council members had current ratings from one of the three approved international ratings agencies operating in New Zealand. The council noted the insurer retained an investment rating of A- from AM Best ratings agency.
AMI Insurance chief executive John Balmforth said the company believed it was in a "very good" financial position without the Government's support, and could meet all claims.
But, in the interests of a conservative approach to managing the company and to give security and confidence to its policyholders, it sought Government help.
AA Insurance said it had the financial strength to take care of customers' claims. AA Insurance had no association or connection with AMI.
"The company has good, conservative reinsurance in place and a strong financial strength rating," chief executive Chris Curtin said.
"Our message to our customers is this: we remain open for business as usual."
AA Insurance was offering insurance policies to new customers across New Zealand, subject to some restrictions in Canterbury.
Vero chief executive officer Roger Bell said brokers, representatives and customers could remain confident their claims were secure.
Announcing the intervention, Finance Minister Bill English said the Government would provide a "last resort" package of $500 million of equity if AMI's reserves had been exhausted in the aftermath of the two earthquakes in Canterbury.
The package would give AMI the time to seek a market solution to the challenges it faced.
He later indicated up to $1 billion could be paid out if AMI was unable to pay its claims, although AMI said it was still in a sound financial position.
The Government had made it clear that helping to rebuild Christchurch was one of its top priorities.
"That is what today's announcement is about - providing certainty for AMI's tens of thousands of policyholders in the aftermath of the two earthquakes and ensuring the rebuilding of Christchurch and the insurance claims process proceeds in an orderly manner," he said.
Dunedin insurance broker Peter Taylor said he would not be surprised to see a run on AMI as policyholders looked to other insurers.
However, they would receive a reality check about the risk market and would face higher premiums.
AMI had targeted the "mum and dad" market with lower premiums. That model had proved unsustainable with two catastrophes in a short period.
Now was the ideal time for the insurance market to rethink how it operated and provide some confidence for policyholders their claims would be met.
Labour Party leader Phil Goff said Labour supported the package but stressed it must only be a backstop.
The Government would need to ensure safeguards were in place to protect the long-term interests of taxpayers.
"Kiwi taxpayers are sick and tired of bailing out the private sector, including finance companies which were often reckless and greedy," he said.
Green Party co-leader Russel Norman said the package put the Government's books under even greater pressure, making the need for an earthquake levy more compelling.
The Maori Party also supported the package.
Government plan
• $500m last-resort support package for AMI Insurance.
• AMI paid the Crown $15m establishment fee for package.
• Payment only happens if AMI's resources are depleted.
• Crown could take ownership of AMI and have control of board.
AMI Insurance
• Christchurch-based AMI is New Zealand's second-largest residential insurer with 485,000 policyholders and 1.2 million policies across the country.
• It has 35% of the residential insurance market in Christchurch.
• AMI is a mutual company, meaning its customers are also its owners.
