RBNZ, Treasury watching AMI closely

Insurance

Spokesman for Finance Minister English says RBNZ, Treasury watching AMI as report says govt has come to a deal with troubled insurer

7th Apr 11, 8:31am by Alex Tarrant

<p> Should the government bail out AMI?</p>

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)

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69 Comments

by John | 7th Apr 11, 8:45am 1302122741

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.

by south paw | 7th Apr 11, 8:52am 1302123127

My understanding is they went way out on a limb to undercut competitors prices. Snap!

by south paw | 7th Apr 11, 8:50am 1302123018

Bail out is a "nice to have". Let AMI crash and burn if it will, 'free' market rules right?

by Elley | 7th Apr 11, 8:55am 1302123313

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...

by Wolly | 7th Apr 11, 9:03am 1302123783

But elley....did you go to AMI because their premiums were lower?

by Christov | 7th Apr 11, 9:07am 1302124022

Jesus Wally...! it's not 60minutes here.

by Wolly | 7th Apr 11, 9:10am 1302124206

Isn't it?

by Christov | 7th Apr 11, 9:18am 1302124692

owwwwerrr !

by Donald MacRonald | 7th Apr 11, 9:44am 1302126270

btw...i was only winding that gym freak up

by Christov | 7th Apr 11, 9:56am 1302126960

yup Ah know.......me too.!

by Gummy Bear Hero | 7th Apr 11, 9:18am 1302124719

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 !

by Christov | 7th Apr 11, 9:25am 1302125124

When the camel collapses at the knees ...spits in their face....and says no more....now...where's my bloody kufiya and saif....i feel a lawrence coming on.

by powerdownkiwi | 7th Apr 11, 9:43am 1302126185

Christov - you need a Beau Gueste. (or maybe your wife does...........:)

by Christov | 7th Apr 11, 9:50am 1302126617

My wife is well catered for in the french liqour dept....but your thought for her is touching.....

I .....good Sir need only a camel to complete my new revolutionary wardrobe...but I fear the only available one has it's backfull of bailouts.

by powerdownkiwi | 7th Apr 11, 10:20am 1302128417

careful Christov - humping has always lead to trouble. Make sure your asp is covered.

by Christov | 7th Apr 11, 10:24am 1302128669

Trouble is my middle name PDK.....I will however be carefull to position myself between humps.............rest "assured"

by powerdownkiwi | 7th Apr 11, 10:28am 1302128924

Then your only problem will be Legionnaire's Disease - which I think is where you're in hot water, but not hot enough. Try goat's milk after a long day in the ............saddle.

by Christov | 7th Apr 11, 10:31am 1302129076

P.S.Your apprehensions of a rear guard action did not go unnoticed....thanks for the tip.

by Donald MacRonald | 7th Apr 11, 10:42am 1302129759

stay away from Aquaba unless you want a little bit of you know what, Rear Gunner ?

by Christov | 7th Apr 11, 10:52am 1302130329

Cheers For that DonnyMac.....I have always found a well placed cork to be a sufficient substitute for not having eyes in the back of my head........however if you meant the lovely eatery in that God awful Palmerston North I think they need a relocation bailout.

by Donald MacRonald | 7th Apr 11, 12:30pm 1302136200

Lawrence of Palmerston North , huh?

that could be marketing...i'd walk a mile for a ..nope that's been done before...now let me see?

by AndyC | 7th Apr 11, 12:51pm 1302137461

......... 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?

by Gummy Bear Hero | 7th Apr 11, 1:29pm 1302139763

AMI itself , principally , but on guidence from Christov & PDK , I may include policy-holders who own camels ......... Dromederies are clumsy feckers about the house , particularly prone to little accidents around the china cabinet , so I am informed .

by Elley | 7th Apr 11, 1:19pm 1302139192

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.

by Gummy Bear Hero | 7th Apr 11, 1:24pm 1302139498

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 .

by Elley | 7th Apr 11, 1:34pm 1302140049

Ah, thanks for the clarification. You've gone back up in my esteem :) (not that that's worth much).

by Gummy Bear Hero | 7th Apr 11, 1:44pm 1302140690

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 ?

by Elley | 7th Apr 11, 9:08am 1302124087

Nope Wolly I didn't. Shame on me but as new immigrants in Chch, we just went to the insurer that people (including the bank) pointed us to. From all we knew, and it appears to be true, they are the main insurer in Chch.

by Wolly | 7th Apr 11, 9:14am 1302124496

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.

by Elley | 7th Apr 11, 9:29am 1302125354

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!

by Wolly | 7th Apr 11, 9:33am 1302125623

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....

by Elley | 7th Apr 11, 9:40am 1302126045

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 :)

by Christov | 7th Apr 11, 9:04am 1302123862

Good call Elley......this is not apples with apples and southpaw's comment was probably a little too fast off the finger.....

But I would say in terms of bailouts the straws are starting to creak the camels vertebrae.

by Christov | 7th Apr 11, 8:53am 1302123196

And as usual it will be the policy of ....Wait..n...See.....do nothing....wait see some more....then try to deliver a cogent comment in a very retrospective manner......better start warming up your disheviled look Bolly....it passes for overworked on the telly.

by scarfie | 7th Apr 11, 9:08am 1302124096

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.

by Christov | 7th Apr 11, 9:16am 1302124570

I don't disagree scarfie......it's just the encapsulation had all the tact of a pointed barb....

AMI should be completely accountable for it's business model and if that means liquidation then so be it......but there's no need to salt down the wounded.

by Wolly | 7th Apr 11, 9:28am 1302125301

Fat chance scarfie..What odds they are National Party rump mate?.....

by scarfie | 7th Apr 11, 9:39am 1302125977

Oh I realise that. Lol. It is what should happen, not what will happen.

But who knows down the track a couple of years when peoples hunger might refresh their memories.

by FCM | 7th Apr 11, 9:17am 1302124626

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.

by Wolly | 7th Apr 11, 9:26am 1302125200

If the govt bails out this private company, leaving fatcat managers to reward themselves with salaries for being failures...that will sound the death of National's moral position for good.

by Kunst | 7th Apr 11, 9:18am 1302124738

Please John, bail AMI out at least until the 12th of March 4pm 2012 - that's the date when my car insuance is running out.

by Andrewj | 7th Apr 11, 9:22am 1302124964

>>>

In the fiscal 2010 year the company reported policy growth that helped it to a "record" net surplus after tax of $31 million.

>>>

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…

by FCM | 7th Apr 11, 9:34am 1302125641

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.

by Snarlypuss | 7th Apr 11, 9:39am 1302125944

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?

by Wolly | 7th Apr 11, 9:40am 1302126016

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.....

by speckles | 7th Apr 11, 9:44am 1302126243

They say it because it is not them potentially going to lose. Get wolly on the pension and then see self interest take over :-)

Can we afford either, no, will we do it, yes

by Wolly | 7th Apr 11, 9:53am 1302126818

Do try to understand speckles....govt should not bail out private company profits....the outcome of a bailout here will have the public shifting to AMI to get the govt subsidised insurance premiums!

It has nothing to do with pension payments.

by speckles | 7th Apr 11, 10:00am 1302127239

I do understand and you live in a socialistic country Wolly and you know better. You paid in over your working life for the pension, just another form of insurance.

ps check out where the so called profits go re AMI hint hint

by Mark74 | 7th Apr 11, 9:36am 1302125765

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.

by Wolly | 7th Apr 11, 9:42am 1302126136

Too bloody right Mark74.....but the pisspoor re insurance cover was never disclosed to the public...just the low premiums.....utter farce.

by Mark74 | 7th Apr 11, 10:01am 1302127286

Yep, they reinsured $3.70 out of every $100 premium income while the company we use (Lumley General) reinsured $16.30 out of every $100.

by speckles | 7th Apr 11, 9:40am 1302126013

All may be true however a lot of people went to AMI as they have a broad branch network in canterbury and reputation for good support at claim time. Better than just a call center like some of their competition.

by powerdownkiwi | 7th Apr 11, 9:49am 1302126583

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.

by Bernard Hickey | 7th Apr 11, 9:56am 1302126980

FYI Bill English is holding a news conference on AMI at 10am.

Alex is in the news conference. We will publish details as soon as we have them.

cheers

Bernard

by President of P… | 7th Apr 11, 10:02am 1302127341

to big to fail...

by President of P… | 7th Apr 11, 10:09am 1302127774

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.

by FCM | 7th Apr 11, 10:10am 1302127816

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.

by Wolly | 7th Apr 11, 10:15am 1302128124

Dont be so silly FCM...English has just provided govt financial support to prop up cheaper insurance premiums and ensure AMI management carries on as before.

Why didn't English demand premiums be raised to provide the missing capital.....care to answer that?

by Donald MacRonald | 7th Apr 11, 10:45am 1302129918

Take your meds, Wally...you're having an episode obviously...and play Nat King Cole singing " Rambling Rose"..that'll focus you ?

by Wolly | 7th Apr 11, 10:50am 1302130250

I don't take no 'meds' DM.....not regular like....only pain killers when a tooth explodes. Seems AMI is now saying premiums must rise across the country...woopdeedooo...the bosses finally get the message...but their salaries will also go up...count on it...

by Bernard Hickey | 7th Apr 11, 10:10am 1302127820

All details here in fresh story

http://www.interest.co.nz/insurance/52965/govt-announces-will-bail-out-…

by Wolly | 7th Apr 11, 10:12am 1302127970

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..........?

by VeeDub | 7th Apr 11, 10:33am 1302129217

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?

by Wolly | 7th Apr 11, 11:00am 1302130853

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.

by VeeDub | 7th Apr 11, 12:22pm 1302135724

Lol, that woluld be me (in Wgtn)......

by kjbxtc | 7th Apr 11, 10:42am 1302129720

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.

by Donald MacRonald | 7th Apr 11, 10:48am 1302130134

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!

by Christov | 7th Apr 11, 10:59am 1302130795

I commend you DonnyMac on your handling of the terrible news, delivered with all the aplomb of "dry ice" to the now deflated Bronwyn........

by Donald MacRonald | 7th Apr 11, 12:27pm 1302136031

It wasn't easy, Jesus-stove...it wasn't easy.

To compensate for the sorrow and to spend the savings i made by going to AA i went out and bought a dozen bluff oysters and a small bottle of stout.

like my AMI policy..they're gone toooooo!