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AMI Insurance - Source: ONE News -
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My heart sank a little on Thursday when I first learned that the
government was keeping a "close eye" on the financial stability of
local insurer AMI.
Experience of reporting on the global financial crisis and finance
company collapses has taught me that when the authorities confirm
something like that... the outcome isn't likely to be overly
positive.
And so it proved when the government subsequently announced AMI was
in some difficulty and that if need be it would bail out the
company to the tune of $500 million.
It is an extremely disappointing development, especially since it
came just days after the government informed us that the cost to
the taxpayer of its last 'bailout' - South Canterbury Finance - had
jumped another $300 million.
Unfortunately worst case scenarios in the finance company sector
have a nasty habit of happening.
Let's hope it's different with AMI Insurance.
No option
However, as much as it annoys me that the government has stepped in
to fix up another private sector problem, I do support this action.
There was no other option.
To have allowed a company with 85,000 policy holders in
Christchurch to go to the wall, would have - as the Finance
Minister Bill English says - set back the quake recovery effort
hugely.
Not to mention also being a huge blow to economic confidence in
general.
As I say, hopefully the government money won't end up being
needed.
And there is a chance it won't.
AMI could dig itself out of this hole if quake claims don't end up
exceeding its current reserves.
Or it could sell (not AMI's preferred option) to another player in
the insurance industry. And there are likely to be willing
buyers.
Listed insurer Tower for one has certainly wasted no time letting
it be known that it would be keen.
Two major earthquakes in the space of six months is surely a big
ask for any insurer, with the second quake in particularly regarded
by some as potentially one of the costliest insurance events
anywhere in the world.
So there should be some sympathy for AMI's plight.
However questions will be asked of AMI management in months to
come. Did they spend enough on re-insurance?
Why haven't other insurance companies got similar problems?
Should they have been more diversified and not had so many policy
holders in Christchurch?
AMI is adamant it has followed all insurance regulations and will
come through the expected scrutiny of its management.
English's nightmare
What a nightmare for Finance Minister Bill English as he tries to
prepare his Budget.
Balancing the books just keeps getting harder and harder and you
have to wonder when the credit rating agencies will come a knocking
again.
However amidst all this doom and gloom there have been a couple of
bright spots lately.
Firstly the country's terms of trade hit a record level this week,
with commodity prices continuing to boom.
And secondly Auckland house prices made a serious and significant
jump in March.
These are indicators (or at least reason to hope) that things will
get better.
It might take a year of so, but once the rebuild in Christchurch is
really underway, we may well get some very fast growth happening in
this country and with it rising real time wages.
Problem is we have a long hard winter to get through first.
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