Finance Minister Bill English's office says the Reserve Bank and Treasury are "taking an interest" in speculation that Christchurch-based insurer AMI is at risk of a capital shortage due to claims from the Christchurch earthquakes.
The Dominion Post this morning reported an unnamed source saying AMI was in talks with the government over its position, and that government had "come to some arrangement with them" in order for AMI to continue trading.
A spokesman for Bill English said he could not go further than what the Finance Minister's office had told the Dominion Post, which was they were aware of the speculation and that Treasury and the Reserve Bank were taking an interest in the situation.
The spokesman would not be drawn further into the claims made by the source, other than to say that English's office was not the source.
Regular readers will know Interest.co.nz have been following the AMI story closely.
Here's Amanda Morrall's March 11 article questioning AMI's capital strength
And here's our March 24 article reporting AM Best's credit rating downgrade
Announcement at 10am
Meanwhile, English is holding a press conference in the Beehive at 10am this morning on a "Canterbury earthquake-related announcement".
(Updated with press conference time, links to previous articles)
69 Comments
Probably a good business that has unfortunately had the odds go against them, I am not able to comment on managements risk policies to mitigate the odds, as hind sight is pure science.
Looking at the bailed out insurers overseas they seem to get on their feet quite quickly, suggest bailout if required includes 100% loss of shareholders capital and 100% ownership by govt and then partial float.
Thanks, what about all the people who've been (and are still) paying their premiums? We're not talking about people who've invested in a dodgy finance company to try and make money here, but about insurance!! Been paying them premiums for 9 years in exchange of cover in case something happened. Well, that was my understanding of it anyway.
In any case, it's crap news. So now and considering we live not too far from Chch, how likely are we to find another company to insure our house, contents & car even though we haven't sustained any damage?? Will have to make some calls today...
AMI was able to offer cheaper policies to the public , because they operated on insufficient catastrophe reinsurance cover .......
......... When will the bailing out of the greedy , the stupid , and the incompetent ..... end in this country ? ....... Why are taxpayers continuously on the hook for someone else's cock-ups !
......... When will the bailing out of the greedy , the stupid , and the incompetent ..... end in this country ? ....... Why are taxpayers continuously on the hook for someone else's cock-ups !
Gummy, are you including the policy holders in that, or just AMI itself?
GBH, and in what way offering cheaper policies should entitle them to trade while unable to meet their basic obligations as an insurance company? The very fact that they were allowed to call themselves an insurance company seems wrong.
From a customer perspective, there are many reasons why they could have been able to offer cheaper policies, other than the one you mention. Eg, cutting cost on customer service, hiring more young graduates than other companies, not upgrading their equipment (PCs etc) as regularly, having offices in cheaper parts of town etc. And it's definitely not an excuse to not provide the service they claimed to provide, or a reason for the customer to think that they would not provide the said service that they were paying for.
Have you ever flown on Jetstar or Ryanair? Many people do, and I'm pretty sure that while they probably expect the pathetic customer service, delays, more frequent cancellations that go with flying on a low-budget airline they also most likely do expect to get the service they are paying for, ie, being flown from A to B and getting there in one piece. Charging a lower fee for a service does not entitle anyone to not provide the said service. In fact, if I took on contracts, got paid a deposit and then failed to deliver I'd probably be taken to court, whether I was charging above or below market rate. Similarly, if a client failed to pay for the service provided it'd go to court. And the party in the wrong would quite rightly be called a thief.
I fail to see how it's different for AMI. They took the responsibility to offer a service, no one forced them to take more policies than they could handle, they signed on the dotted line just like their customers did, therefore they are liable to provide the said service. You calling the customers "the greedy , the stupid , and the incompetent" instead of focusing on AMI's failure as an insurance company is a bit rich.
No ! ........ I was referring to AMI , not to their customers ......... Mummy Gummy is one of their customers . But I am not .
........ But for what it's worth , you get what you pay for , and AMI under-cut their more prudent competitors by being under-funded . .... Hardly an ethical business strategy .
Not sure if that's a compliment ...... or a further insult ......... But when there's so much brilliant news in the world today , and the courier has just dropped off a fresh carton of Gummy Bears , who cares !
...... Thanks Elley ..... see you at the Farmer's Market , next Sunday ?
I am flying blind Elley...I have no idea what salaries are paid to AMI bosses and whether they get or got bonuses and I am wanting that information to be made public here and now....
Were I the ceo in any other insurance company in NZ I would be asking English to explain....what's with the govt being prepared to use taxpayer funds or borrowed loot to bail out a failed management of a private company.......are we really seeing an expansion of the SCF rorting behaviour by govt.
I agree but to me, paying for insurance is totally different to willingly investing funds/savings in a finance company or in the share market or whatever. In one case, one pays in exchange for a service that may be needed at some point in the future, in the other case, one decides to take risks with their money in the hope of making more of it and implicitely accept the fact that they may lose it all instead .
Heck, like my husband said if all you have to do to be an insurance company and get paid premiums every month is to offer policies not backed up by actual money in case of a large pay-out, however unlikely, I'm starting an insurance company tomorrow!
Pat him on the head Elley because he has it right. The 'insurance scam' has been no different to the finance company scam...and it looks as though AMI went for the fat profits....I still want to know what the salaries and bonuses were...and likely will remain in place, getting a free handout from Bill English....
Care to tell me what isn't a scam in NZ? You see, when I came here I expected building companies to build houses that didn't rot after a few years, insurance companies to pay for claims etc. Turns out I was completely wrong (or according to some here, stupid, but that must be because where I come from building/insurance/whatever companies seem to do their job properly, as one would expect!!).
Gotta go ladies & gents, will leave you to the discussion :)
I would suggest that Wally is right and that most AMI customers are there because of the lower premiums.
If they have delivered these lower premiums through under insurance themselves, then they have taken money fraudulently. The excutives and directors should be held criminally liable if this all proves to be correct.
10.00am Bill English is holding a press conference.
They will have a government bail out.
Unless with this one we may get our money back, as their Bal Sheet seems to be straight up, and they should be able to climb there way out of this, unlike SCF which was always over valued and dodgy as hell.
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In the fiscal 2010 year the company reported policy growth that helped it to a "record" net surplus after tax of $31 million.
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Is this just another company using leverag to create an image of wealth, to pay huge wages to those at the top?
http://www.stuff.co.nz/business/money/4856873/AMI-has-no-capital-left-a…
It wont go under...simply becuase they hold such a market share and there are a huge number of claims to be settled, if they shut up shop, who is going to tidy that up? They will need the experience and the staff to do that, or the only losers are going to be the people whose houses are destroyed by the earthquake.
Insurance companies are already struggling to find experienced people to handle the situation, the government knows this, the poeple on this website should know this, top simpy says oh you gone belly up oh dear, the only losers will be those already with there lives turned upside down.
Agreed. But what prescedent does this set for the smaller or other firms eg: Herbet's etc? Do all insurance companies now get a de-facto guarantee? Because, if so, is it not probable that those firms/brokers who may be currently 'closely studying their situation', hold up their hands; knowing they can be let off the hook?
Leave off with the BS FCM....the question is not whether the govt funds the cover AMI fails to provide...the issue is whether the govt keeps in place failed managers and directors on salaries they clearly do not deserve...and please explain how every other insurance company is to respond in a market where AMI premiums are to be subsidised by govt bailout money....answer that one.....
I am still wanting someone to post what the salaries there have been and any bonuses.....
As an insurer, I can safely say that 99% of clients insured with AMI because the premiums were cheaper. Most NZ'ers do not care about the finer details of their policy wording and are just interested in being covered economically.
I will welcome higher premiums in the future from AMI and the possibility of a level playing field.
Now, what happened to AIG?
Seems to me that a bailout is just socialising the debt - maybe they're going to announce a re-launch of State Insurance.....
The working title for the book would be 'Anno Domini 2100'.
Elley - the scam is global, not just NZ. The claimed 'book wealth' can't be underwritten anymore - and inevitably it will manifest in various defaults - whether private, sovreign or corporate is kind'a immaterial.
it is in these times that people will understand why welfare benefits and handouts were created, it was to help those in need, not those struggling to get their barefoot kids off to school in time because they are hungover after spending the shoe money on grog. this is a great time for new zealanders to put down the xbox or playstation, and go to work to help those who cannot, and to shelter those without homes.
Cheez Wolly if only everything was as simple as you make it out to be. As i said it Government let this fall over THE ONLY losers would be the public whose houses are destroyed....but I guess for people like you that don't care then thats fine, heartless to the core.
All details here in fresh story
http://www.interest.co.nz/insurance/52965/govt-announces-will-bail-out-…
OK AMI is owned by the premium holders....and English has just said "NO one benefits" from this bailout...wrong English...those taking the lower premiums benefit from lower premiums.....and the other companies with quality policies in place take the hit....
And I still want to know who is paid what at AMI..........?
OK, so answer me this. Suppose every AMI policyholder suddenly ditched AMI because they were "cheaper" and went to the next cheapest insurer instead. AMI is left with no clients and folds. That makes the next cheapest option the cheapest. Rinse and repeat. AMI has a rating of A- currently, which I would've thought was perfectly adequate. If all AMI customers jump ship and pay another couple of hundy in premium, will that help matters?
Thing is Veedub...the 'corporate' attitude seemed to be...cheaper is better cos profits is larger....
AMI will not survive because their management policies are flawed....they gambled on not needing the re insurance....it is as simple as that.
Those who opt to have insurance from here on in and with the massively higher premiums, expect many to opt out, they will go to the better companies...the ones that charged more but provided the re insurance cover.
Clearly once again we see the consequences of there being pisspoor govt regulation of criticial structure within the economy..."Oh they have a pretty logo and spend lots on advertising so they must be good".....
Sodding useless govt again. Insurance companies will have to come under some serious Treasury controls. That means lower profits, lower salaries and an aim to have efficient management in place instead of imprudent policy aimed at growing market share......
Pretty bloody simple really.
By the way....a third equally destructive earthquake has not been ruled out...just ask people in wgtn.
quite right ivan,ami have a branch in my town i went over to them because of the way they handled a accident claim caused by one of their clients to my son.we have numerous bodies in nz ie insurance council who you would expect would ensure due diligence is carried out .only freehold homeowners have the option now to walk away from house insurance but not 3rd party vehicle ofcourse.
I felt sorry for Bronwyn at AMI this morning when i rang to cancel my home and content policy with them...it only had a fortnight left to run and the deal AA ( whom i also insure with) gave me wasabout 80 dollars cheaper...Bronwyn had a sound of resignation in her voice and didn't ask me why i wanted to cancel....such is life, said ned kelly on the gallows.
where there's smoke there's fire, said me!
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