'THE NATION'

ROB FLANAGAN & DAVID CUNLIFFE
Interviewed by DUNCAN GARNER

Duncan So the government's stepped in to help stop AMI Insurance from going under this week, it's putting up half a billion dollars in back up financial support, but that figure could go past one billion dollars and higher. Meantime there's fury from inside and outside the insurance industry that AMI undercut its competitors' policy premiums and then forced this big helping hand we saw this week from the government. With me now is Rob Flanagan who's Tower's Groups Managing Director, and also joining us is Labour's Finance Spokesman David Cunliffe out there in Mt Wellington. Good morning gentlemen.

I just want to start with you first Mr Flanagan. Is Tower interested in buying AMI, as it's been reported over the last 24 hours?

Rob Flanagan – Tower Group Managing Director
Tower's interested in supporting what's going forward. Obviously the framework the government 's put over gives us time, or gives the whole industry time to appraise and see what's actually going on, cos it's still early days as far as the impact of Christchurch on the insurance industry. So it'll be some time before the real numbers are really known, and this puts a framework round, gives a bit of stability around it, and more importantly it gives the protection for a lot of houses in Christchurch that otherwise may not have been rebuilt.

Duncan But you put your hand up so you are showing interest.

Rob Well we're definitely very interested because we're very compatible businesses. Their business is almost the same as ours as far as the clientele, it's a general insurance business, it has branches, we don’t have branches, it has very good staff, it has a computer system that’s old, about to change, we've got a new computer system, and so it goes on. There's some good synergies for us and we hope there's an opportunity for us.

Duncan Obviously you’ve looked closely, that’s due diligence. I want to talk about insurance premiums in a second but have you met Treasury yet or do you plan to?

Rob No, we certainly plan to.

Duncan Next week?

Rob Next week we'll be making contact etcetera.

Duncan So you want to get in there and look at the books and perhaps put an offer in?

Rob Well it'll be a slow process. All the government has done is put a parachute around it to protect everybody to make it an orderly process, so there's no rush if you like. It'll take time.

Duncan Just before I go to David Cunliffe – premiums – a lot of New Zealanders are interested in this. Are we going to see – there's been talk of 20% increases, what's your feeling?

Rob Yes and I think that’s very real. The reinsurance premiums just from this event have gone up, the contracts for next year will go up, and they’ll go up considerably. They’ll probably double in effect the reinsurance premiums we pay.

Duncan So it could be higher than 20% or that’s just your reinsurance?

Rob No, no. Remember the reinsurance premium is a low percentage, it's about 10% of the actual premium, so that'll probably go to something like 20% we would suspect in the new round.

Duncan But your warning to New Zealanders is get ready, you’ve got higher premiums?

Rob Well yes, and we collect the money for the government earthquake as well, and of course their premiums are going up, that'll flow through, that'll be seen as an increase that we're putting up as well. So unfortunately that’s the real world, it's going to go up and I would think 20% isn't far away.

Duncan Part of the real world also David Cunliffe if I could just bring you in here, Labour's Finance Spokesman is these bailouts, they just keep happening. Is there a time when these bailouts in the Labour Party do you have to stop or is it just a continued open chequebook?

David Cunliffe – Labour Finance Spokesman
Oh there can't be an open chequebook Duncan, we accept it as a special case for AMI given the importance of earthquake reconstruction, but after the hash that’s been made of South Canterbury Finance I think the public needs to be very very wary about the government riding in on every white charger.

Duncan So if you were in government at the end of the year would you say enough's enough and stop the bailouts, or are simply these companies too big to fail?

David Well we can't predict the future and I can't make a categorical statement Duncan about events that haven’t happened yet.

Duncan Rob, should customers stick with AMI? Because I mean their renewals are coming up obviously month by month by month and everyone's different, should they stick with AMI or not?

Rob Well you're talking to a competitor which of course I would say no they should come across to Tower, so but they are secure. What the government has done puts everything in a controlled pattern and I think you know it is stable for them.

Duncan Just a reference to David Cunliffe talking about bailouts there. Are there other insurance companies that you know of, bigger ones of course, that are potentially going to the wall?

Rob I'm not aware of that at all. I think the industry is pretty strong but it's being pushed pretty hard with this earthquake, it is a major – it's an historical event – it's a major event, and Christchurch wasn't anticipated, it wasn't on anyone's real risk radar of being a vulnerable area. We always thought Wellington would be the one, but that hasn’t happened. So you know it's a major event and I think everyone's pushed, everyone's taken extra reinsurance I think in the marketplace, so the industry's pretty sophisticated and I think generally speaking it's pretty strong.

Duncan David if I could just throw you a question here. Brian Gaynor wrote in the Herald this morning that both National and Labour find it very difficult to make tough decisions, because well over half the electorate in New Zealand are getting direct or indirect assistance from the government when it comes to big decisions like this, and there are two choices, you either blow out the deficit or you make massive spending cuts. Now National's approaching this around the spending cuts here and the deficit's blowing out. What would Labour do here? I mean there's got to be a time when these bailouts stop, and Brian Gaynor sums it up pretty succinctly I think.

David Well there's basically four options Duncan, you can grow your way out, you can cut your way out, you can borrow your way out, or you can spend your way out, and look we think there needs to be a balance here, that the government's been all over the map. Two weeks ago they said we'll borrow the lot. Last week they said we're gonna have a zero budget, and it appears that they’ve spent the whole budget again this week on AMI Insurance. So it's been a very very interesting time.

Duncan Labour's talking about growing its way out of this problem, but you look at the GDP figures last quarter 0.2%, the quarter before that minus 0.2%.

David Absolutely shocking, absolutely shocking.

Duncan There is now growth, but I mean in terms of that it looks like they're dreaming?

David No that doesn’t have to be how it is Duncan, I mean it's a long time since people believed the there no alternative line. Look at Australia, 34,000 jobs added in the last month, and Treasury's telling us that two thirds of the problem here has nothing to do with earthquakes, the earthquakes were serious but that is only one third of the problem. The real problem is the government doesn’t have a plan for growth in jobs. They don’t have an economic development strategy at all.

Duncan If you go back to what George Frazis said at the start of this programme, he said that there was a confidence lacking in the New Zealand economy, and until you get the confidence back you know there will not be a revival.

David And it is the government's role to underpin that confidence, the government needs to stop thinking, and the Minister of Finance needs to stop thinking his job is just to balance his books. The government's job is to lead the country through this crisis to a better place, to describe a vision for what New Zealand could be and to get us there together.

Duncan Alright final question. Do you think Labour's got a plan to get us out of this economic crisis ….?

Rob I'm not aware of any plans of the Labour from my point of view no.

Duncan You don’t think that they are the answer.

Rob No I think the future looks pretty good for New Zealand and we're starting the journey, it's certainly been delayed because of the earthquake, but I think we're heading in the right direction, but it's a slow process.

Duncan Thanks for your time today and Treasury's looking forward to the phone call and their appearance next week. Rob Flanagan from Tower and David Cunliffe from Labour, thanks for your time.

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