AMI deal to reduce Crown liability

The Government will pick up $1.8 billion of earthquake claims as part of a deal for Insurance Australia Group (IAG) to buy AMI, but Finance Minister Bill English says the agreement will reduce the Crown's liability .

AMI has been seeking new capital since the Government provided a $500 million backstop to help with reinsurance costs and claims from the Canterbury earthquakes, and an agreement for IAG to buy the Christchurch-based company for $380 million was announced this morning.

As part of the deal, the Crown takes ownership of AMI's estimated $1.8b of earthquake-related claims.

"The part of AMI dealing with earthquake claims - along with its reinsurance for those events - will be retained as a new Crown company and will continue to manage AMI's customers' earthquake claims,'' Mr English said.

The Australian company had also agreed to continue to offer insurance to AMI's customers, as well as all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand.

"For earthquake-affected AMI policyholders, this means their existing earthquake claims will be managed by the new Crown company, while the IAG group will manage their ongoing insurance cover. For AMI policyholders around New Zealand, the IAG group will manage their insurance cover.''

Mr English said the $1.8b claims liability was offset by about $1.3 billion in reinsurance, and further reduced by the $380 million purchase price agreed by IAG.

"As a result Treasury estimates that the Crown's liability will drop from $335 million, in the last published set of full-year Crown accounts, to about $120 million.''

Nelson-based company director Ross Butler, currently the Nelson Marlborough Institute of Technology chairman, has been appointed to chair the new Crown company.