Wellington (AFP) April 7, 2011
New Zealand said it was prepared to bail out one of the country's largest insurers Thursday amid fears it could be unable to pay claims stemming from two major earthquakes in Christchurch.
Finance Minister Bill English said the government was ready to invest NZ$500 million ($390 million) in AMI Insurance if required and could also take control of the company if necessary.
"The support package would be called on only as a last resort if AMI's own reserves have been exhausted -- unless the Crown believes it is in the public interest to take control sooner," English said in a statement.
"This support package will give AMI the time to seek a market solution to the challenges it faces as a result of the two Canterbury earthquakes."
Christchurch, New Zealand's second-largest city, was rocked by a 7.0-magnitude earthquake in September, then hit by a 6.3-magnitude tremor on February 22.
The second quake claimed more than 180 lives, leaving up to a third of the city's downtown area and about 10,000 homes facing demolition.
English said AMI, which is mutually owned by its policyholders and not listed on the New Zealand stock exchange, accounted for about one-third of the residential insurance market in Christchurch.
"Because of uncertainty around the cost of earthquake damage, it is too early to tell whether AMI will have sufficient resources to cover all of these claims," he said.
He said the full extent of AMI's liabilities from the earthquakes would not be known for several months but it could face a shortfall of NZ$1.0 billion.
English said the government's pledge to back the insurer would boost market confidence and ensure rebuilding efforts in Christchurch continued uninterrupted.
"Ministers have decided to act now," he said.
"This provides a financial backstop for policyholders so the rebuilding of Christchurch is not jeopardised by potential solvency or liquidity issues and so confidence is maintained in the insurance sector."
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