By Alex Tarrant
The government wants to see AMI Insurance working as hard as it can to find new capital if it turns out the company needs an injection as more information comes to light on its exposure to the Christchurch earthquakes.
Finance Minister Bill English announced today that government would underwrite AMI to the tune of NZ$500 million if the company’s resources were exhausted as it reeled from payouts due to the quakes.
However the total exposure could be as high as NZ$1 billion, English said, which put an emphasis on AMI either avoiding calling on government support or finding a commercial option to any capital shortage.
It has been reported several insurance companies may be interested in buying AMI.
Asked whether the government backing would be a disincentive for AMI to seek a commercial solution, English replied: “If AMI want to continue as a going concern under the current board and management, then they need to find substitute capital, because if they run out, and need significant government capital, well then government will take control of the company.”
“If we become the owner of it then we’d have to find a way through it,” he said.
“The only other effective choice is for the Crown to take it over 100% straight away, and that seemed to us to put the taxpayer needlessly at risk before we knew the state of the company and before the company had had an opportunity to do what it’s indicated it is trying to do, and that’s find other capital.”
“They haven’t found one [a commercial solution] yet. We want to see them working as hard as they can to get it.
“We’re not happy about any of this arrangement. We’ve got a large company that’s somehow found itself in circumstances where it’s got to do business with the government, and that’s unsatisfactory for everybody,” English said.
“These arrangements are set up to give them the time to try and find a partner. The alternative was the Crown just took it over, which would have cut off any option of other capital coming in,” he said.
Government will appoint its own director on the company’s board and have advisors with the right to attend any meeting of the management or the board.
“The government needs to understand what’s happening with this business. We’re not going to try and run it, but we’ve got to make sure that the claims are met according to industry standards and that we get to the bottom of the issue of what exposure the taxpayer might or might not have,” English said.
Timing?
Meanwhile, asked about the timing of the announcement of the support package given there was a story about the issue on the front page of the Dominion Post today, English said there had been negotiations going on for some time that were coming to conclusion anyway.
AMI first approached the government about a possible problem on March 9.
“It was important that there was the least amount of uncertainty for people in Christchurch who were worried about their insurance, and that there wasn’t any uncertainty that might disrupt the insurance market,” English said.
“We were looking to make an announcement in the next few days anyway,” he said.
“This is quite a significant commitment from the taxpayer, but more importantly, the people in Christchurch need to know that whatever speculation there had been about AMI, that had come to an end and there was certainty for their insurance claims.”
White knight?
The government had not been involved in any discussions about a possible ‘white knight’ bidder.
“This arrangement is set up so that the company has the time and the incentive to go and talk to its own industry about finding solutions. We’re not experts in it,” English said.
He had no idea whether there was a white knight bidder.
“There’s been some speculation, including in the media today, that companies are interested in it, but look, it’s up to them,” English said.
“We understand they’ve retained advisors who have been given the task of finding capital, and that’s good,” he said.
2 Comments
Michael Boggs at Tower gave an interview on National Radio yesterday, during which he all but agreed to buy AMI. It sounded to me as if the only thing not settled was the price (and what the gov't will absorb in the way of losses).
http://www.radionz.co.nz/audio/national/ckpt/2011/04/07/insurer_tower_i…
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