As part of the deal, a new Government-owned company will take over the estimated $1.8 billion of Canterbury earthquake claims against AMI, but after reinsurance claims of about $1.3 billion and the $380 million sale proceeds, the Crown's exposure will be slashed by more than half from $335 million to an estimated $120 million, Finance Minister Bill English said yesterday.
Amid mounting market speculation that a sale agreement was imminent, IAG announced the $380 million purchase yesterday, saying funding was from internal IAG resources and that the acquisition excluded Canterbury liabilities.
AMI is New Zealand's second largest residential insurer and has a 35% share in the Christchurch market with an estimated exposure of up to $600 million from earthquakes, which prompted the Government to pledge an up to $500 million back-up package in May.
Craigs Investment Partners broker Peter McIntyre said the purchase was good for AMI policy holders as it offered them certainty that IAG had reinsurance cover in place for their policies, and the buyer, a large global company, therefore had diversification in the insurances offered.
He described the $380 million as a "fair price", noting it was higher than market expectations.
While there was widespread interest in AMI, IAG had recently raised $325 million of retail bonds in New Zealand and "crucially" already had reinsurance policies in place, making it a more attractive buyer, Mr McIntyre said.
Mr English said the IAG purchase would strengthen the Canterbury insurance market and reduce the Crown's financial liability.
"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," he said.
IAG had also agreed it would continue to offer insurance to AMI's customers, as well as to all of its existing customers, on renewal and transfers in Canterbury and throughout New Zealand.
"We welcome this assurance, which will ensure ongoing insurance cover for 60% of the Canterbury market," Mr English said.
IAG is yet to obtain consents from the Reserve Bank, Commerce Commission and Overseas Investment Office before the purchase can become unconditional, which is expected to be early 2012.
AMI chairman Kerry Nolan said AMI customers would not notice any difference "in their normal day to day dealings with AMI" or in progress of their earthquake claims.
• Nelson-based company director Ross Butler, who is widely experienced in finance and insurance-related companies, will chair the yet to be named company.
Mr Butler is chairman of Nelson Marlborough Institute of Technology and deputy chairman of GNS Science.
