Govt stands behind AMI policyholder support

The Government is standing behind its support agreement for AMI Insurance policyholders, as Treasury continues to work closely with the company on recapitalisation options, Finance Minister Bill English says.

Commenting on AMI’s annual results announced this morning, he says the Government has not been called on to pay any money under the support agreement.

“AMI is using its own capital reserves and reinsurance to pay claims from the Canterbury earthquakes as they come due,” Mr English says.

“When we put the AMI policyholder support agreement in place back in April, AMI started a programme to raise fresh capital.

“The Treasury has been working closely with the AMI board on securing new private capital for the company.”

In April, the Government announced a backup financial support package to give AMI policyholders certainty and to ensure an orderly rebuild of Christchurch in the aftermath of devastating earthquakes in September and February.

The support package will be called on only as a last resort if AMI’s own reserves have been exhausted – unless the Government believes it is in the public interest to take control sooner.

If called on, the package 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 needed.

The ultimate cost to the Government will depend on the final cost of AMI’s claims, which remain uncertain, and the outcome of AMI’s recapitalisation process, which is still underway.

However, based on the $705 million annual loss reported by AMI today, the best current estimate of the likely cost of the Government’s support package is $337 million.

This will be reflected as an impairment for that amount in the Government’s annual accounts for the year to 30 June, to be published next month.

“AMI Insurance has set aside a large amount of money in anticipation of future claims from the Canterbury earthquakes, which is the prudent thing to do,” Mr English says. “In addition, reinsurers continue to support AMI, with $1.4 billion of reinsurance in place to cover any further disasters in the 2011/12 year.

“The company’s underlying business and earnings - without the impact of the earthquakes and the need to provision for them - remain strong.”

AMI Insurance’s annual result is available at www.ami.co.nz