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AMI Insurance - Source: ONE News -
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The cost of insurance could spike 20% as a result of the Government bailout of AMI Insurance and the mounting cost of the Canterbury earthquakes.
AMI customers are also being advised to change insurers to protect themselves against the firm's precarious financial position.
Finance Minister Bill English announced yesterday a $500 million package that AMI can call on if it runs out of money to cover earthquake claims.
The uncertainty around the cost of future claims, however, meant taxpayers could face a $1b bill under the worst scenario.
"The intent of the package is to give certainty that all claims will be met," allowing Canterbury's rebuilding to continue smoothly and give AMI time to find new investment funds, English said.
If AMI called on the package, the Government would take ownership and control of the insurer, something it can also do at any time with the payment of $100m, if it is in the public interest.
AMI Insurance is New Zealand's second-largest residential insurer with 485,000 policyholders and 1.2 million policies. But in Christchurch it covers about a third of homes and property.
Consumer New Zealand chief executive Sue Chetwin said most insurance premiums rose more than 10 per cent last year as insurers tried to recover the cost of the September earthquake.
She expected more rises in the next few months as the total value of claims from February's more damaging quake became clear.
That could potentially push the increase in 18 months to about 20%, she said, adding about $340 to a typical Wellington household's yearly bill. "Consumers are already facing big increases in their premiums simply because insurers will be nervous about the whole country now."
AMI's situation would probably exacerbate that. Premiums would continue to rise if insurers were to stay in business after paying out on big quake claims.
Chetwin also said AMI customers outside Christchurch should consider a new insurer.
Although she believed they were safe because of the state backing, "the fact of the matter is they [AMI] have had to go into talks with the Government ... You might be able to get a better deal somewhere else anyway."
Massey University's financial expert David Tripe said AMI customers were likely to renew their insurance only while the gov guarantee existed. "People seeking insurance will become more desperate." He expected a substantial increase in premiums.
AMI's SOS call to the Government on March 9 came despite its investment grade A-plus credit rating. Ratings agency AM Best downgraded the rating to A-minus two weeks ago as the potential need for the insurer to raise more money became apparent.
But English revealed yesterday that the new rating had been propped up by a letter of support from the Government sent before the rating review.
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