AMI lays out recapitalisation plan

Photo / Natalie Slade

AMI Insurance says it has begun the process of recapitalising the company to strengthen its balance sheet in the wake of the February earthquake.

Although all claims are not yet in, AMI believes they will exceed the $600 million of re-insurance cover.

"AMI's recently announced arrangement for the Government to provide up to $500 million in extra capital, if necessary, has freed the company to use its own capital of $350 million to meet claims once the $600 million of existing reinsurance cover has been exhausted, without breaching the regulations governing the insurance industry," it said today.

AMI paid the government a $15 million fee upfront to establish the preference share facility, which Finance Minister Bill English has described as a last resort in the event the company exhausts all other options.

Under the agreement, the government could take ownership of AMI by making a partial payment of $100 million.

"This arrangement means that every AMI policy holder, not just those affected by the Christchurch earthquake, can be completely confident that their claims will be met", said Chairman Kerry Nolan in a press release.

"We do not have a cashflow problem, but we need to address the company's capital structure for the long term."

Fresh capital, once raised, would enable the company to redeem the unpaid convertible preference shares it issued to the Government as part of the recently announced support arrangement, before any Government money is actually drawn down.

Goldman Sachs is advising AMI during the recapitalisation process and capital raising process.

Nolan said there were a number of capital raising options available to AMI.

"Given the complexity involved, Goldman Sachs will assist in determining the level, type and structure of capital required to both settle claims and to satisfy the prudential regulatory requirements the company must meet now and into the future."

Nolan said the recapitalisation project will "take some months" because AMI needed to determine the extent of its liabilities arising from the February 22 earthquake.

AMI is a mutual, meaning it is owned by its policyholders. Nolan said that despite recent negative publicity, "healthy new business" was being written with a net loss of fewer than 1 per cent of policies since February 22.


- NZ HERALD ONLINE/ BUSINESSDESK