AMI Insurance Gets Good News on Credit Rating

8 June 2011

AMI Insurance’s A- (Excellent) financial strength rating has been confirmed with a stable outlook, by leading international insurance ratings agency A.M. Best Company.

The company’s rating had previously been assigned a negative outlook following the uncertainty created by the February earthquake in Christchurch, where the company is the biggest single insurer of houses.

Making the announcement today, A.M. Best Co. said its decision to raise AMI’s rating reflects AMI’s adequate risk-adjusted capital position, with a back-up capital support facility from the New Zealand Government for the company after its financial position had been significantly affected by the two Christchurch earthquakes. The rating also recognises the company’s strengthened reinsurance protection.

AMI Chairman Kerry Nolan today welcomed the upward revision of the company’s credit rating position as the company nears finality of its new reinsurance package and reviews its options to recapitalise the company at an appropriate time in the future when the full extent of claims relating to the Christchurch earthquake has been established.

The company has received strong support from international reinsurance companies and is confident that by the start of the financial year beginning 1 July 2011, it will have finalised comprehensive and affordable reinsurance cover for its normal business and for any future catastrophes.

Chief Executive John Balmforth, who has just returned from the annual round of negotiations with reinsurance companies in Sydney, Bermuda, continental Europe and Britain, says the companies are not deterred by the earthquake situation in Canterbury.

“Reinsurance companies have had to face a number of catastrophes around the world in the last year, with major damage arising from floods, tsunamis, earthquakes, tornadoes and other natural disasters.

“However, they continue to assess risks and to price their cover accordingly – that is the business they are in. For New Zealand this means higher reinsurance costs affecting the whole insurance industry and making higher premiums for policy holders inevitable. The good news for AMI policyholders is that they will continue to have reliable insurance cover, backed by sound international reinsurance.”

Mr Balmforth says the reinsurance companies he negotiated with understood the impact of the February earthquake on AMI and the fact that the Government had provided AMI a ‘backstop’ arrangement to ensure the company had adequate time in which to arrange new capital and strengthen its balance sheet.

“They like AMI’s mutual structure, quite common overseas, which means that nearly 500,000 individual New Zealanders own the company by virtue of being an AMI policy holder.

“They were also impressed that we continue to enjoy strong support from our customers.”

Mr Balmforth made face-to-face presentations to 46 companies, including a number of new companies which asked to be included in the discussions this year.

“What happens now is that, having received indicative pricing from our lead reinsurance companies, AMI in conjunction with our reinsurance brokers Aon Benfield, have put together a reinsurance programme that meets our needs. AMI’s reinsurers will now consider the level at which they wish to participate in the programme. Everything will be finalised by 1 July and we will be able to release further details at that stage

“Until then, we still have in place $1 billion of reinsurance cover for any catastrophe under the existing arrangement.”

AMI policy holders will be advised progressively of premium increases, resulting from increases in the cost of reinsurance and other cost increases, as their premiums fall due.

AMI Chairman Kerry Nolan said it will take time before a reliable calculation can be made of the total extent of claims resulting from the February earthquake, for which the company had $600 million of reinsurance cover available. “However there is no question that the company will be able to meet all valid claims.”

Mr Nolan confirmed that an initial assessment should be available by the end of August but it would not be for quite some time later, after detailed assessments of damaged properties had been completed, that reliable figures would be available to clarify the company’s actual obligations and its exact financial situation.

“AMI is very grateful for the Government’s five-year financial ‘backstop’ arrangement which enables AMI to use its own capital to settle claims if necessary, without breaching regulations, and also gives the company time to raise capital and strengthen its balance sheet once the need can be quantified.

“AMI has been a successful and consistently profitable company – prior to the earthquakes we were on track to post a $50 million profit in the current year. Now that we have time to make a proper assessment of the extent of our need for new capital, we have every confidence in our ability to raise whatever new capital is shown to be desirable.”

For more information and the A.M. Best Co. press release, visit: www.ami.co.nz

ENDS

© Scoop Media