AMI specialised in residential insurance and offered lower-than-normal premiums to attract business, he said.
Because the EQC paid out the first $100,000 on property damage and $20,000 on contents, it appeared the insurer had relied on the EQC to meet the majority of the costs for earthquake damage.
"They worked on the presumption they could be more adventurous with reinsurance because EQC would pick up some of the risk," Mr Taylor, the principal of Peter J. Taylor and Associates, said.
On Thursday, Finance Minister Bill English provided AMI with a $500 million support package of "last resort", which could rise to $1 billion if AMI failed to meet its claims.
That move, which could see the Government taking over AMI at some stage, has caused outrage in the insurance industry.
Mr Taylor said it appeared as if AMI did not have have robust reinsurance because the insurer believed the EQC would step in.
However, the risks changed with two earthquakes in a matter of months.
AMI put about 3% to 4% of its premium contributions towards reinsurance, while mainstream insurers put in a higher contribution.
"This has led to the Government having to provide the support package, in my view. The taxpayer has stepped in to do the business. It is not a good look."
The National Party, the party of capitalism and market forces, had stepped in to save finance companies, radio networks and now an insurance company, he said.
At some stage, the market had to decide what was worth saving and what was worth letting fail. Failure for the small business person was just as much of a catastrophe as it was for a larger business, Mr Taylor said.
AA Insurance chief executive Chris Curtin said there were no shortcuts with insurance.
AA Insurance received many calls on Thursday from people who were reviewing their insurance after the AMI bailout.
Many callers now understood price should not be the only consideration when deciding with whom to place their insurance and that the low premiums, particularly for home insurance, many New Zealanders had enjoyed to date were not sustainable.
Insurance premiums for all New Zealanders now looked certain to rise after the Canterbury quakes, he said.
The Government had already announced the cost of earthquake insurance would increase and international reinsurers had increased their premiums for New Zealand earthquake cover.
AA was advising people to shop around to see what benefits companies were offering and to make sure they were getting the cover which best suited their needs.
"Most importantly, satisfy yourself that the company will be around to cover you when you need them," Mr Curtin said.
AMI approached the Government on March 9 with concerns it might not be able to meet all its obligations from its reinsurance and reserves.
Mr English said, since then, officials had been working closely with the company to gather information about what were complex issues and to consider the best option for taxpayers and AMI policyholders.
AMI would seek to raise the capital it needed elsewhere and, if it did, it would redeem the preference shares issued to the Crown.
The full extent of the claims AMI might face would remain unclear for several months. It depended on the final cost of damage in Christchurch, which was still highly uncertain, Mr English said.
