AMI Insurance has secured a reinsurance package and is confident it can settle all valid claims associated with the Canterbury earthquakes, chief executive John Balmforth says.
The reinsurance package has more than doubled from $600 million per event in the year to June 30, 2011, to $1.3 billion per event in the year beginning today (July 1) to June 30, 2012.
The increased cover has an automatic reinstatement cover of up to $1.3 billion should the first cover be called on during the year.
AMI is the largest single insurer of homes in Christchurch and had to go to the Government for a possible bail-out after the February 22 earthquake.
The Government agreed to contribute up to $500 million in capital to AMI if asked.
Catastrophe reinsurance for events such as the Christchurch earthquakes had been more than doubled, Mr Balmforth said.
"It is now more difficult and more expensive for New Zealand insurance companies to purchase reinsurance as the international providers have suffered from their exposure to the series of earthquakes in Christchurch, floods in Australia, a tsunami in Japan and other natural disasters around the world."
Paying more for the enhanced level of protection was inevitable and was a major factor in premium increases for AMI policy holders as they fell due, he said.
"Everyone is having to pay more for insurance. That is just the new reality." AMI chairman Kerry Nolan said the company was trading profitably and had already begun the process of strengthening its balance sheet.
However, the company was not involved in any discussions with other insurance companies about the possibility of investing in AMI.
"We have a number of options that would bring more capital into the company but we are fortunate to have the support of the Government which allows AMI to take a measured approach to this capital-raising process.
"Until we have been able to assess all claims relating to the February earthquake, the full extent of our liabilities ... cannot be calculated."
So far, AMI had been able to use its own $350 million of reserves in settling claims, in addition to the $600 million of reinsurance available, without being in breach of regulations governing the insurance industry.
While AMI was able to call on the "backstop" agreement with the Government to provide more capital if necessary, AMI was confident it would have secured whatever capital it needed from other sources, Mr Nolan said.
