Crown accounts value on the block AMI Insurance at NZ$159 million

By Gareth Vaughan

The annual Crown accounts pin a value of NZ$159 million on beleaguered AMI Insurance, which is now on the block after the Christchurch earthquakes left the mutual society in a precarious financial position and the government stepped in to support it with taxpayers' money.

The Crown accounts for the year to June 30, released yesterday, say AMI has been consolidated into the government's financial statements on the basis that the government has the capacity to direct the operating and governing policies at the insurer and is directly impacted by the risks or benefits of AMI's operations.

"The fair value of AMI on acquisition was NZ$159 million," the accounts say. "This estimate makes use of a valuation of the AMI business performed by Deutsche Bank Limited completed in August 2011, and also takes into account the costs associated with the Canterbury earthquakes."

The NZ$159 million figure includes no goodwill.

AMI, which is being advised by Goldman Sachs, was effectively put on the block last month after AMI reported a NZ$705 million annual loss and breached its Crown Support Deed arrangement through a NZ$76 million shortfall to its NZ$198.6 million regulatory capital requirement.

In April, following the February 22 Christchurch earthquake, the government agreed to subscribe to NZ$500 million in capital, through AMI convertible preference shares, to be paid to AMI as and when needed over five years.

Finance Minister Bill English said taxpayers may be in line for a NZ$337 million hit from this government backstop agreement with AMI, if the insurer isn't able to raise new capital by 2015.

The Crown's financial statements attribute NZ$1.7 billion in total assets to AMI before the Crown support package, and NZ$2 billion worth of liabilities including NZ$1.9 billion of outstanding claims liability, leaving an equity deficit of NZ$335 million. However, after the Crown support package, AMI's assets are calculated at NZ$2.2 billion, giving it equity of NZ$159 million.

For the year to June 30, the Crown included revenue from AMI, excluding gains, of NZ$157 million and expenses, excluding losses, of NZ$177 million leaving a NZ$20 million operating deficit.

The Crown accounts note the government obtains the power to take charge of AMI's board of directors if a trigger event occurs or if a payment is made on the convertible preference shares. Trigger events include non-compliance with the Crown support arrangement, which AMI was in breach of as at June 30 through the regulatory capital shortfall, an insolvency event, and a material adverse event.

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