Four hundred and eight-five thousand New Zealand holders of AMI Insurance policies will have breathed a huge sigh of relief when the Government stepped in last week to guarantee the company's future - and thus its ability to pay out on claims.
Among these will have been the 85,000 policy-holders with up to 225,000 policies accounting for about 35% of the Christchurch residential insurance market. Foremost among Finance Minister Bill English's priorities in announcing the move was to provide certainty for the city's policyholders in the wake of the two earthquakes and to make sure the residential rebuilding process did not stall.
Equally important was a general reassurance to the 400,000 holders of AMI's remaining 975,000 policies that their coverage remained intact - and, of course, to the banks which have registered interests over countless thousands of mortgaged properties throughout the country.
The Government's swift reaction also served to stem a potential stampede of existing customers from AMI's books, a move that would have exacerbated the insurance company's woes. But while there seems accord across the political spectrum as to the inevitability - not to say necessity - of the intervention, it has raised a number of issues.
AMI made an approach to the Government on March 9 concerned that its reserves and reinsurance might not be sufficient to cover the total value of claims resulting from the Christchurch earthquakes.
Following a period in which Government officials worked with AMI to gather information and attempt to gauge the severity of the situation, the "back-up" financial package was announced. This was to be a measure of last resort - to be called upon only if the company's own reserves were exhausted - but if invoked would involve the Government investing up to $500 million of equity in AMI "with the right to take ownership and assume control of the company" if it needed to.
In the meantime, it was expected that the support would give AMI the breathing space in which to seek a "market solution" - either to find a major investor, or facilitate talks with another insurance company with a view to a takeover.
Despite there being a month between the initial contact by the company and Mr English's announcement of the package, the extent of the taxpayer's exposure (and the Government's knowledge around this) seemed worryingly vague. For while the back-up fund was put at $500 million, on the day of its announcement it became clear that the bill to the public purse could well end up at closer to $1 billion. Now it appears - from Prime Minister John Key's comments on breakfast television yesterday - that in reality the Government thought the company would have gone into receivership if it had not stepped forward.
Regardless, coming on top of the additional $331 million exposure due to South Canterbury Finance's coverage under the Retail Deposit Guarantee Scheme, Government opponents could perhaps be forgiven for voicing a degree of concern.
Some critics have raised the possibility other insurance companies might find themselves in trouble over their own earthquake coverage - and thus seek Government "bailout" assistance, although Mr English was quick to point out that AMI has no shareholders, only policyholders, and as such no third parties would stand to gain from the initiative.
This logic holds little sway with some insurance insiders who suggest AMI had under-invested in risk coverage and reinsurance, and its policies were among the cheapest in the market for good reason. Just how other companies with 35% of the Christchurch residential market might have fared in the same circumstances is, however, unknowable.
Certainly, at a time when the Crown is facing huge debt levels, the potential additional impost is not good news for the economy. It already faces the cost of rebuilding Christchurch's infrastructure, it is still wrestling with the legacy of the failure of finance companies, oil prices continue to rise, and the economy seems to be bouncing along the bottom of a deep recessionary trough.
The Government may have had no alternative but to step in and act as a backer of last resort for AMI, but the very fact it has had to do so - while critical for confidence in the rebuilding of Christchurch and for many other interested parties - could mean the trough just got wider and deeper.
