RBNZ approves IAG's purchase of AMI's good book, removing final roadblock to IAG controlling 60% of NZ home and car insurance markets

The final roadblock facing Insurance Australia Group's bid for AMI Insurance's good book has been removed, after the Reserve Bank of New Zealand approved the sale.

That follows ticks of approval from the Overseas Investment Office, and the Commerce Commission for the sale to go through, which will give IAG, which already owns the State and NZI insurance brands in New Zealand, control of around 60% market share of New Zealand's home and contents, and car insurance markets.

IAG has paid the government NZ$380 million for AMI's good book, while Treasury estimates the government, which provided a NZ$500 million backstop for AMI following the Christchurch earthquakes, will take a NZ$120 million hit from the company's earthquake liabilities, and manage those claims through a new company, Southern Response.

Southern Response was now responsible for more than 11,000 claims to 6,670 Canterbury properties where damage exceeds EQC’s $100,000 plus GST ‘cap’; nearly 22,000 ‘out of scope’ claims, for damage to paths, driveways and other external structures which are not covered by EQC; over 3000 temporary accommodation claims which are not covered by EQC; and around 1500 other claims including contents, loss of rent and motor vehicle.

AMI had so far paid out about NZ$300 million in earthquake claims, and it was estimated Southern Response would settle another NZ$1.5 billion.

'Welcome to IAG'

In a media statement, AMI said its 500,000 customers, including CLIC Car Insurance customers, had their insurance cover transferred automatically to a new company, sold to IAG and trading under the AMI name, without having to take any action at all and with their insurance cover continuing unchanged.

AMI policyholders with earthquake-related claims were now customers of both the 'new AMI’ and Southern Response until their earthquake claim was settled.

Southern Response was also financially responsible for a small number of claims resulting from events occurring before today, such as those arising from the recent Nelson floods, which were not part of IAG’s purchase of AMI, although these claims would still be managed by AMI, the statement said.

The new AMI, owned by IAG, would be responsible for all claims for earthquakes and other events occurring after today.

Separation of AMI into two companies and the change of ownership came into legal effect around noon today. Both companies will operate with limited hours over the Easter weekend and will open for business, fully operational, at 8.30 a.m. on Tuesday morning.

'A good deal'

Former AMI Chairman Kerry Nolan said the previous company’s Board, which resigned to coincide with the changeover, unanimously endorsed the split of AMI as being in the best interests of all policyholders and the sale of AMI to IAG as bringing further financial security to policyholders.

“From a very difficult situation early last year following the first major earthquakes in Canterbury, a situation has been achieved – with the Government’s help – where all policy holders have had certainty that their claims could be met in accordance with policy terms, the well-known AMI brand has been preserved and all customers continue to have appropriate cover available to them,” Nolan said.

'AMI a great brand'

IAG’s New Zealand CEO Jacki Johnson said IAG was pleased to be able to bring certainty to AMI’s 500,000 customers by successfully concluding the purchase.

“AMI is a fantastic brand with a strong and proud heritage. We are thrilled to welcome a business that fits well with our strategic direction and has such a strong market presence, together with loyal customers and dedicated professional staff," Johnson said.

“With AMI, we will be able to offer more choice as to how and where customers interact with us. Our focus is now on achieving a smooth integration and looking for ways to prove our worth to customers through our expanded direct insurance network," she said.

Quake claims

The new government-owned company for AMI's earthquake claims, Southern Response, said in a statement that AMI had already paid out around NZ$300 million in settlements for earthquake damage claims. Over the next five years, it was estimated Southern Response would settle a further NZ$1.5 billion of claims.

Despite the separation of AMI into two companies, AMI policyholders were insured with the new AMI and would also be customers of Southern Response only if they had claims for earthquake damage occurring prior to today’s sale.

Should an earthquake or other catastrophe occur after today, claims for any damage from these events would become the responsibility of the new AMI Insurance, not Southern Response.

As at 5 April, Southern Response said it was responsible for settling earthquake claims involving:

• more than 11,000 claims to 6670 Canterbury properties where damage exceeds EQC’s $100,000 plus GST ‘cap’
• nearly 22,000 ‘out of scope’ claims, for damage to paths, driveways and other external structures which are not covered by EQC
• over 3000 temporary accommodation claims which are not covered by EQC
• around 1500 other claims including contents, loss of rent and motor vehicle.

AMI policyholders with an ‘over cap’ house claim were entitled to choose either a cash settlement to buy another home or to have their homes repaired or rebuilt in accordance with their AMI Insurance policies. Current estimates indicated this work would involve Southern Response being responsible for the rebuild or repair of over 6500 homes, the government-owned company said.

The Government appointed Nelson-based company director Ross Butler to chair Southern Response. Butler has a background in financial services and insurance related companies. He is currently chairman of Nelson Marlborough Institute of Technology, Mercer Investment Nominees, and The Code Committee, Financial Advisers Act, it said in the statement.

“Southern Response’s role is to settle the earthquake claims of AMI policyholders for events up to today and make sure they get what they are entitled to under their AMI insurance policy,” Butler said.

“While this sounds simple, it’s going to take a while as we work through the complex issues associated with this series of earthquake events. These include the need to work through apportionment issues with EQC, uncertainty in relation to land zoning, and need to address damage to land in the TC3 zoning," he said.

“We're going to take a collaborative approach to working with the other government agencies and insurers so our customers can get on with their lives, and rebuild their city and region as quickly as possible.”

Following an externally managed global recruitment process, the Southern Response Board had appointed Peter Rose as CEO. Rose has been leading AMI’s earthquake claims team since May, 2011, it said in the statement.

Much effort had been expended over recent months of planning to ensure AMI policyholders experienced a seamless service in the transfer of their earthquake claims responsibilities to Southern Response, Rose said.

“Customers with an AMI earthquake claim will notice very little difference and don’t have to do anything differently in their claim dealings," he said.

“Southern Response is staffed by the same team of around 160 people who’ve been managing earthquake claims by AMI policyholders since September 2010. So it’s the same people, with the same direct dial phone numbers, using the same processes – all that’s changed is the name, there’s a new 0800 number (0800 501 525) and the company they work for is now government-owned.”

When the last claim was closed, so would Southern Response.