Christchurch's largest insurer AMI has announced it has secured reinsurance, less than a day before its last round of reinsurance was due to expire.
The mutually owned AMI has been hit hard by the September 4, February 22 and June 13 earthquakes in Canterbury. It is currently backed by a government credit line, which would have been vulnerable if it had not been able to secure reinsurance and Christchurch had been hit by another earthquake.
Civic Assurance, the council-owned insurer, was unable to obtain reinsurance cover earlier this week because the Swiss and Bermuda based reinsurers behind such catastrophe insurance deals were wary of extending their exposure to Christchurch.
AMI said the catastrophe insurance secured on Thursday was greater than its previous cover, but had cost more than twice as much.
AMI said it was trading profitably and had begun seeking new capital.
AMI CEO John Balmforth said it was now more difficult and more expensive for New Zealand insurance companies to buy reinsurance, as the international providers had been hit by the Christchurch earthquakes, floods in Australia, a tsunami in Japan and other natural disasters.
"Paying more for this enhanced level of protection is inevitable, and is a major factor in premium increases for AMI policy holders as they fall due," Balmforth said.
Premiums are expected to rise 20-50% across the industry. See our earlier article.
"Everyone is having to pay more for insurance - that is just the new reality," he said.
AMI said its catastrophe re-insurance programme has been more than doubled from NZ$600 million in the year to June 30 expiring today to NZ$1.3 billion per event in the year starting July 1 tomorrow.
"The increased cover has an automatic reinstatement cover of up to NZ$1.3 billion should the first cover be called on during the year," AMI said, adding AMI was protected across New Zealand, including Christchurch.
AMI paid around NZ$46 million for re-insurance, including additional catastrophe re-insurance cover purchased following the September 2010 and February 2011 earthquakes in Christchurch. A more than doubling of the cost implies AMI is likely to pay more than NZ$100 million for its reinsurance cover this year.
AMI held NZ$600 million of re-insurance for the September 2010 earthquake and had a further NZ$600 million for the February 2011 earthquake, which AMI said would not be sufficient to fully cover claims.
AMI said it would dip into its NZ$350 million of reserves to help pay claims.
AMI also has a NZ$500 milion backstop credit line with the government, which was agreed on April 7. See our article on that announcement.
"This “backstop” agreement enables AMI to use its own NZ$350 million of reserves in settling claims, in addition to the NZ$600 million of re-insurance available, without being in breach of regulations governing the insurance industry," AMI said.
It said it was confident it would secure new capital from other sources without asking the Government to provide the NZ$500 million credit line.
After the February 2011 earthquake, AMI increased its re-insurance cover to NZ$1 billion, enabling it to deal with the claims resulting from two earthquakes on June 13.
“We can settle all valid claims,” said Balmforth.
“We are enjoying strong support from our customers throughout the country and they will welcome confirmation that an enhanced re-insurance package is now in place.”
Hunt for new capital
AMI Chairman Kerry Nolan said the company was trading profitably and had already begun the process of strengthening its balance sheet.
However, Nolan said the company is not involved in any discussions with other insurance companies about the possibility of investing in AMI, despite reports that Tower was in discussions with AMI.
“We have a number of options that would bring more capital into the company, but we are fortunate to have the support of the Government, which allows AMI to take a measured approach to this capital raising process," Nolan said.
“Until we have been able to assess all claims relating to the February earthquake, the full extent of our liabilities, and how much of our own reserves will be needed to help meet these claims, cannot be calculated. Nevertheless we have already established a task force and appointed Goldman Sachs, to examine our future capital needs and options,” he said.
“While we are able to call on the “backstop” agreement with the Government to provide more capital if necessary, we are confident that we will have secured whatever new capital we need, from other sources.”
AMI has more than 450,000 customers, 1.2 million policies, 73 branches and 21 agencies.
(Updates with detail from AMI statement)