AMI plunges into the red on $760 mln charge for quake costs

Tuesday 20th September 2011

AMI Insurance, the Christchurch insurer that sought government support after the Canterbury earthquakes, sank into the red after booking a $760 million charge on claims from the quakes.

The company made a net loss of $704.6 million in the 12 months ended June 30, compared to a profit of $31.3 million a year earlier, it said in a statement. That came from the massive costs of the Canterbury quake, and was eased only by $25.4 million of investment income. The insurer estimates gross claims from the quake will be just shy of $2 billion, with some $1.2 billion covered by reinsurance.

Premium revenue climbed 8.8% to $361.8 million, though net income slipped 1.4% to $315.7 as reinsurance costs almost quadrupled to $46.1 million.

“These calculations are the best estimates available, but it will be the middle of next year before the company has reliable projections based on resolution of claims to that point,” chairman Kerry Nolan said. “We believe we have allowed for worst-case scenarios and added an appropriate contingency sum, but only time will tell what the final figures may be.”

AMI was forced to go cap-in-hand to the government in the wake of the Feb. 22 quake, the worst of the series of disasters, when it became apparent claims would exceed its then-$600 million cover. It paid $15 million for a backstop agreement where the Crown stumps up cash if needed, and if the insurer calls on public funds, the government can take ownership of AMI for a partial payment of $100 million.

Finance Minister Bill English said the insurer’s loss will likely cost the government $337 million, which will be booked in this year’s financial statement.

“AMI Insurance has set aside a large amount of money in anticipation of future claims from the Canterbury earthquakes, which is the prudent thing to do,” English said.

The insurer needs to raise new capital to meet minimum capital requirements set by the Reserve Bank under new prudential supervision, and Nolan said “several potential investors have already made approaches.”

Investment bank Goldman Sachs & Partners is advising the firm on raising new capital.

(BusinessDesk)

BusinessDesk.co.nz

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