Govt 'can't bail out bad business decisions'

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Thu, 07 Apr 2011 10:30p.m.

ACT Finance spokesman Sir Roger Douglas (NZPA)

ACT Finance spokesman Sir Roger Douglas (NZPA)

By Laura Frykberg

The 85-year-old insurance company AMI could be bailed out by you, the taxpayer.

The Government has guaranteed $500 million if the company needs it, because it doesn’t have enough in its reserves to pay out all of its Christchurch earthquake claims.

But today, ACT questioned why the taxpayer should bail out what it calls a “bad” business.

Two of James Cowles’ houses were damaged in the Christchurch earthquake. He hadn’t heard from his insurer – AMI – so for him, today’s news comes as a relief.

“It’s great news that the Government are prepared to look at under riding them and making sure that we’re all going to get taken care of,” he said.

It is customers like Mr Cowles that Finance Minister Bill English says the Government couldn’t ignore.

“Uncertainty about the financial viability of the company could have led to long delays in processing claims, many claims only being partially met,” he says.

More than 85,000 Christchurch residents are insured with AMI – more than one in three home owners.

But ACT says people need to face the economic reality.

“All of us need to understand that there is some economic reality and we can’t continue to bail out bad business decisions,” says ACT Finance Spokesman Sir Roger Douglas.

“If we do that, we’re going to go broke.”

Ami has $600 million in reinsurance and $350 million in cash – that’s $950 million available to pay out insurance claims. But, it’s going to get more claims than it can afford to pay out. So the Government has offered a guarantee of $500 million.

But if the Government bails out AMI it will be on its own terms.

Mr English is encouraging the alternative.

“If they want to continue the business as it is now, then they need to find another commercial solution,” he says.

For now, AMI is still unsure how much it will have to pay out.

“Whilst we have sufficient reinsurance and sufficient reserves at the current time to cover the claims we’ve got in, it’s what might develop down the track,” says AMI chief executive James Balmforth.

Those numbers may not be known for at least three months, which would mean pay outs could take between eight months and two years.

Claims for the first quake could cost around $450 million, so there’s a good chance AMI will need to dip into the Government’s cash reserve.

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Comments

13 Jun 2011 07:05p.m.

mark wrote:

Look i live in my car, life is hard and with winter cold. We cannot afford to pay out after each new quake and there will be more. Chch people need a reality check, this cannot contiue. Move or stay at your own risk you idiots

11 Apr 2011 09:35a.m.

Marina wrote:

We are insured with AMI and live in Christchurch. It is a Christchurch company and has a very high proportion of its customers in Christchurch and surrounding districts. AMI is a very sound company and has been less likely to take on 'bad business' than other insurance companies as AMI does not sell policies via brokers. AMI has a market share of about 30% in Canterbury - larger than any other insurance company. Had the earthquakes hit Wellington, AMI would still be standing strong as their exposure in Wellington is minimal compared to their exposure in their home district of Canterbury. Should we Cantabrians be punished for insuring our properties and cars with a local company? And btw - Sir Roger - nobody knew that there were fault lines right under Christchurch and by making these comments you are adding insult to injury as far as we are concerned. You just wait until it's Wellington's turn and you'll see that AMI will be just fine. Also you kept quiet when the government bailed out finance companies to ensure that rich people who have no other use for their money than play with it get paid out. But when it comes to mums and dads who work their butts off to be able to afford a home for their family then you say they should loose everything they've worked for.

09 Apr 2011 02:36p.m.

John Davis wrote:

Im sure Roger Douglas and his cronies would make a nice profit from the resulting firesales if the government took his advice, nice advice so long as it doesn't effect you. Hes right but in this incidence failure to help would effect a hell of a lot of middle class people not to mention be political suicide unlike that other huge bailout.

08 Apr 2011 03:47p.m.

James J..REad wrote:

Ideologically I support Sir Roger. However, somehow Christchurch needs to be rebuilt and if it is not to be like Pompeii, someone will have to come up with a lot of money.Whilst there are several cases of whole cities being abandoned and written off, I don't believe we can afford that solution, as the people would need new homes and infrastructure.

08 Apr 2011 03:01p.m.

Robo wrote:

I wonder how forgiving AMI have been to policy holders in the past regarding claims or AMI trying to get out of them.
If we the tax payer have to bail them out then I agree that absolutely no bonuses should be paid for several years to any mamnagement and an appointed person representing the tax payer be put into a directors position.
I once heard a insurance person tell me "Ya can never have enough insurance cover and ya should always cover for the unexpected". Well AMI "read those words".
I would like to know why they invested so little in under written insurance??

08 Apr 2011 02:05p.m.

Monty wrote:

The govt does not have any money. It borrows it from others. Despite that, its program of socialising anything that disadvantages a New Zealander is in full cry. On borrowed money we are bailing out SCF investors, AMI policy holders, any uninsured Cantabrian, Leaky home owners, as well as paying for plastic wakas, a bloated public sector, beneficiaries (some but not all are acceptable)and the like. Not very sound financial decisions from the Key people.

08 Apr 2011 12:14p.m.

Doofus wrote:

From what I have read, AMI have made very sound business decisions. So are you saying that they should have taken the Moon Man's advice instead? They have in fact very high reinsurance, their only problem is that they are owned by New Zealanders and can't pull in funds from overseas partners. Does Mr Cowles understand the process? In this situation EQC are first responders, but in spite of this AMI has been advertising non-stop locally that if you have a problem you can contact them. Let's not think of a news story then shape some facts to fit.

08 Apr 2011 11:58a.m.

Ricardo wrote:

Sadly the government should let AMI sink or swim on it's own. However, in this specific instance the people of Christchurch rightly want payouts from their insurers. The compromise should be for the government to appoint receivers, effectively shutting out AMI management from bonuses, etc and see what assets can be turned into dollars for Christchurch. Then the company should be wound up. This is a very bad time for Christchurch, but some very important questions need answering here. If AMI is bailed out and left to run, with shonky management and very dodgy undercut pricing then will we expect all other poorly companies to get bailed along the way too. Responsible insurance companies will be hurt if AMI is bailed by taxpayer dollars. There is also the question of punters opting for the lowest prices for their insurances without looking hard at AMI. This is not a simple case of throwing taxpayer dollatrs at AMI. AMI was poorly run, bad business model.

08 Apr 2011 11:49a.m.

Luke wrote:

Ruz, you are wrong! Those Christchurch home owners who have AMI Insurance would get paid out, just not the full amount that is in the policy contracts they hold with the company that they themselves own. The company would FAIL and the customers would then shift to another safer company that is not sailing so close to the wind. This is how the system is supposed to work, survival of the fittest. But now businesses are going to all become high risk. Why would an insurance company throw away good money on reinsurance when they can simply pay it out to the management as profits, when you have an environment where the Tax payer comes to the rescue in times that should be insured. We are heading down the same track as USA and it is a dangerous path.

08 Apr 2011 10:58a.m.

Ruz wrote:

This is more evidence that Roger Douglas is out of touch with reality. The AMI bailout is needed because if the Government does not step in then those Christchurch homeowners who were insured with AMI and who had houses damaged in the earthquake would not get paid. It's all very well for Douglas to push his unwanted ideology but in the end what this case shows is that there is a strong case for making sure that essential services such as power and water supply always remain in taxpayer ownership.