The support package offered to AMI Insurance offered certainty to policyholders their claims would be covered, Finance Minister Bill English said yesterday.
"This applies to all AMI policyholders - not just those in Christchurch."
Mr English announced the Government would provide a "last resort" package of $500 million of equity if AMI's own reserves had been exhausted in the aftermath of the two earthquakes in Parliament.
The package would give AMI the time to seek a market solution to the challenges it faced.
The minister later indicated up to $1 billion could be paid out if AMI was unable to pay its claims, although AMI said it was still in a sound financial position.
AMI approached the Government on March 9, concerned its reserves and reinsurance might not be sufficient to cover the total value of claims resulting from the Canterbury earthquakes, 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's policyholders.
Because of the uncertainty around the cost of earthquake damage, it was too early to tell whether AMI would have sufficient resources to cover all the claims.
"Ministers have decided to act now. This provides a financial backstop for policyholders so the rebuilding of Christchurch is not jeopardised by potential solvency or liquidity issues and so confidence is maintained in the insurance sector."
AMI had confirmed it would seek an alternative commercial arrangement to replace the Government's support package as soon as possible.
The alternative of doing nothing would likely have been severe, potentially leaving many thousands of AMI policyholders without the insurance cover and financial resources needed to rebuild, Mr English said.
It would have led to long delays in processing claims, other claims being only partially met and many of AMI's customers in Christchurch not having insurance cover for future risks.
With AMI having about 35% of the residential insurance market in Christchurch, a significant proportion of residential repairs and rebuilding in the city would be funded by insurance payments to AMI customers, he said.
"This is an unusual situation requiring a special response," he said.
AMI Insurance chief executive John Balmforth said AMI had $600 million in reinsurance and $350 million in reserves to cover the February earthquake.
It also had $600 million reinsurance to cover claims for the September earthquake, with claims of around $450 million having been settled.
It was a question of where the claims from the February quake, now around $660 million, would end up. The flow of claims had slowed significantly in recent days.
AMI said there had been no evidence an extension to its reinsurance cover above $600 million for the second event had been warranted.
"However, the occurrence of a second earthquake in the same area, resulting in a much higher level of damage, was unprecedented and has made heavier demands on AMI's resources."
AMI had further reinsurance cover of $1 billion to meet a third event and additional back-up cover to meet a fourth event should they happen before June 30. Arrangements were being negotiated for the period after that.
