Opinon: Is it one rescue package too many for minister?

The Government is risking another fiscal blowout with its last resort $500 million support package for AMI Insurance.

Already this week, Finance Minister Bill English has been criticised for his handling of the South Canterbury Finance situation, which has seen a $331 million spike in the retail guarantee deposit scheme.

The Government now expects a net loss from the scheme of about $1.2 billion, compared with earlier estimates of about $900 million.

Yesterday, Mr English announced the Government would provide a back-up financial support package for AMI to give policyholders certainty and to ensure an orderly rebuilding of Christchurch in the aftermath of the two earthquakes.

While there are plenty of assurances around from Mr English and AMI that the package is of last resort, and even though AMI itself said it remained in a sound financial position, the reality with policyholders will be different.

Some AMI policyholders will be expected to change insurers and the danger will be that a trickle becomes a flood.

Without ongoing premium payments, AMI will face a tightening of its financial position. That could take two years as the claims process unravels itself.

Christchurch earthquake claimants have no option but to remain with AMI, which holds 35% of the residential market in the city.

However, policyholders in other centres will be free to make another choice.

Mr English warned that the total payout could rise to $1 billion if AMI could not meet is claim obligations.

With all the best will in the world, the last thing the Government needs is another $1 billion bail-out on top of the $1.2 billion from the retail deposit guarantee scheme.

If another insurer starts to get nervous and approaches the Government, what will be the response?

The next few months will determine whether the limits of Mr English's help have been reached.

 

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