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AMI credit outlook improves

Wednesday 8th June 2011

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The Government's $500 million backstop for AMI Insurance has helped the company lift the outlook on its credit rating.

AMI today said ratings agency AM Best Co had confirmed AMI's A- (Excellent) financial strength rating, with a stable outlook.

Previously the company's rating had been assigned a negative outlook following the uncertainty created by the February earthquake in Christchurch, where it was the biggest single insurer of houses, AMI said.

Two months ago the Government announced a back up support package for AMI, to be called on as a last resort if AMI's own reserves had been exhausted.

If the package is called on, it would involve the Government investing up to $500 million of equity in AMI, with the right to take ownership and assume control of the company if it needs to.

AM Best Co said today its decision to raise AMI's rating reflected its adequate risk-adjusted capital position, with a back-up capital support facility from the Government for the company after its financial position had been significantly affected by the two Christchurch earthquakes. The rating also recognised the company's strengthened reinsurance protection.

AMI chief executive John Balmforth, who has just returned from the annual round of negotiations with reinsurance companies in Sydney, Bermuda, continental Europe and Britain, said the companies were not deterred by the earthquake situation in Canterbury.

Reinsurance companies continued to assess risks and to price their cover accordingly.

For this country that meant higher reinsurance costs affecting the whole insurance industry and making higher premiums for policy holders inevitable, Balmforth said.

AMI in conjunction with its reinsurance brokers had put together a reinsurance programme, and its reinsurers would now consider the level at which they wished to participate in the programme. Everything would be finalised by July 1.

"Until then, we still have in place $1 billion of reinsurance cover for any catastrophe under the existing arrangement," Balmforth said.

AMI policy holders would be advised of premium increases, resulting from increases in the cost of reinsurance and other cost increases, as their premiums fell due.

AMI chairman Kerry Nolan said it would take time before a reliable calculation could be made of the total extent of claims resulting from the February earthquake, for which the company had $600 million of reinsurance cover available.

"However there is no question that the company will be able to meet all valid claims."

An initial assessment should be available by the end of August but it would not be for quite some time later that reliable figures would be available to clarify the company's actual obligations and its exact financial situation, Nolan said.



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