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Reserve Bank, fresh from unheeded Ansvar warnings, staying mum on major insurers' capital and reinsurance positions

Reserve Bank, fresh from unheeded Ansvar warnings, staying mum on major insurers' capital and reinsurance positions

By Gareth Vaughan

Two of the country's big three Australian-owned insurers have again received capital injections from their parents as they continue grappling with the costs of the Christchurch earthquakes and the new Reserve Bank prudential regulations.

Companies Office records show IAG New Zealand, which owns NZI, State and now AMI, issued NZ$320 million of shares to its parent Insurance Australia Group in March. IAG completed the NZ$380 million acquisition of AMI (excluding the company's earthquake liabilities) from the Government on April 5, however, a spokesman from IAG NZ said the share issue wasn't related to the AMI acquisition.

"IAG manages its capital (including reinsurance) at a Group level, and capital movements of this nature will occur across the individual entities within the Group from time to time," the spokesman said.

Meanwhile, rival Lumley General New Zealand issued 12.9 million shares to its parent (the Wesfarmers-owned Lumley Insurance Group) in late January. A spokeswoman for Lumley declined to comment other than to point interest.co.nz to an announcement in mid-January where Wesfarmers said Lumley had increased its reserves in relation to the February 22, 2011 Christchurch earthquake resulting in an expense for the period ending December 31, 2011 of A$26 million.

Interest.co.nz reported last November that Companies Office filings by Lumley show it issued a combined total of 26.4 million shares to parent Lumley Insurance Group through two batches, in March and July last year, lifting its total number of shares on issue by about 28% to 121.5 million. This came as Vero and IAG also quietly received capital injections from their parents likely to be worth tens of millions of dollars in the wake of the Christchurch earthquakes and ahead of the Reserve Bank taking on regulatory oversight of the insurance sector, which it did in March this year.

Reserve Bank's lips sealed

The Reserve Bank, fresh from raising unheeded concerns about a scheme of arrangement from ACS (formerly Ansvar) designed to let the church insurer wind down its New Zealand business, including that earthquake claims were likely to exceed reinsurance coverage, is declining to comment on whether it's aware of any other insurers struggling with reinsurance. Instead a Reserve Bank spokeswoman referred interest.co.nz to the bank's recently released Financial Stability Report  for its "latest comments" on the insurance sector.

In this it says insurers' estimates of their claims costs stemming from the earthquakes now total more than NZ$30 billion. It notes additional insurers have been supported by capital injections from their parents and says a further increase in reinsurance premiums is likely on top of the very large increases experienced last year. (Insurance companies' customers faced premium hikes of up to 50% last year). The Reserve Bank also notes that as of March 31 this year, insurers had paid out NZ$7.6 billion in quake related claims, including NZ$4.6 billion from private insurers and NZ$3 billion from the Earthquake Commission.

The spokeswoman also declined to comment on whether the prudential regulator was comfortable with the current capital levels at New Zealand's major insurers, or whether it expects them to require additional capital within the next couple of years.

Meanwhile, asked about reinsurance, a Vero spokeswoman said the firm had "adequate" cover. And an IAG NZ spokesman said the group was in the process of renewing AMI’s standalone catastrophe cover with effect from 1 July 2012.

"We have found reinsurance capacity has remained resilient and has continued to be available in all risk categories, including earthquake," the IAG NZ spokesman said.

Post the AMI deal, IAG's share of the general insurance market rose to about 40% from 31%, well ahead of second placed Vero, owned by Australian rival Suncorp Group, with 23%. Third is Lumley with 9%.

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1 Comments

The insurance industry uses the same funny money that we all use, ......Just ask AIG about that one......when your faith in the money backing your policy fades away,  as it will,  then your paper policy document will be of no more value than the paper money the document  promises to pay come claim time, .......ie, just more paper....... just pieces of paper that you & everyone else here today will have no use for  ............. except the the obvious in the the absence of a comfortable two ply.

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