NZ Government Backs Troubled Kiwi Insurer

April 21, 2011

1cathedralwikiThe New Zealand government could face claims costs of as much as $1 billion after stepping in to bail out one of the country’s leading insurers — a firm backed, in part, by Bermuda-based global catastrophe and property re/insurers.

AMI Insurance had its capital and reinsurance cover wiped out by the two major earthquakes which rocked New Zealand’s South Island in February and last September.

Bermuda re/insurers including Endurance, Partner Re, Alterra, Aspen, XL Group, Omega, Platinum, Allied World, Flagstone, Hiscox, and Montpelier Re have already declared hundreds of millions of dollars in losses for the first quarter of 2011 as a result of their exposure to the New Zealand events along with the Japanese earthquake and tsunami and floods and a cyclone in Australia.

Analysts estimate that catastrophes in the first quarter of 2011 will cost Bermuda firms almost $6 billion.

AMI is the biggest insurer in Christchurch covering more than a third of all homes, contents and motor vehicles. It has more than 85,000 policyholders with 225,000 policies in that devastated city - - or about 35 per cent of the residential insurance market.

The New Zealand government will underwrite or guarantee its efforts to raise additional capital, allowing AMI to buy more reinsurance cover from Bermudian and global providers to meet future claims.

Earlier this month New Zealand Finance Minister Bill English said the government has stepped in to safeguard the interests of AMI Insurance policy holders by providing the company with a support package to ensure all claims can be met.

He said there remains a great deal of uncertainty about the final cost of the February quake but that AMI could face losses of up to $1 billion, and the government would stand behind the claims even if the cost continued to swell.

Earlier this month AMI said it was looking at options to raise money to help pay claims from the February 22 earthquake.

As a mutual owned by its policyholders, AMI does not have shareholders or other investors it can go to for funding.

AMI had $600 million of reinsurance cover for the February quake and about $500 million in cash and investments.

The company’s CEO  John Balmforth said AMI was backed by some of the largest international re/insurers based in Bermuda and other parts of the world and claims would be met.

“I’m completely confident we can cover this. I’ve had messages from reinsurers offering support and saying they are ready to assist.”

Last week the Association of Bermuda Insurers & Reinsurers said its 22 members and other re/insurers operating on the island have reported 51 percent of the total claims resulting from the February 22 Christchurch earthquake.

Bermuda companies also faced hundreds of millions of dollars in pay-outs from the earlier September, 2010 Christchurch temblor, with earthquakes accounting for the largest losses for re/insurers based on the island last year.

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