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AMI socialises its losses

Written By: - Date published: 10:30 am, April 8th, 2011 - 70 comments
Categories: capitalism - Tags: , ,

Another week, another massive corporate bailout as National reaches into our pockets to aid a company. He’s got the pot out and is saying ‘right, I need another $125 each from you, but keep your wallets out, it could be $250 in the end’.

Whatever happened to free-market ideology? Isn’t failure of bad businesses healthy? When did every financial sector company become ‘too big to fail’?

Yes, we’re protecting the policyholders – we can’t let all these people who have dutifully paid their premiums lose their coverage or not get their payouts. But remember, AMI is a mutual insurer. That is, the policyholders are also the owners.

In many cases of financial collapse, we look back and see years of owners creaming off huge dividends up to the point where disaster struck and the company had too little capital to see it through.

That happened with AMI too, except it didn’t pay its owners dividends, it offered cheap premiums instead, and the capital it was lacking was inadequate re-insurance. The policyholders effectively got a ‘dividend’ from under-capitalisation in the form of a lower bill for their insurance.

Now, on the one hand we might say ‘don’t blame the policyholders, they’re just people trying to get the best deal for their insurance, what do they know about capitalisation levels?’ but that logic is a lot like saying ‘don’t blame the finance company investors, they were just after the best rate’. Low premiums for insurance, like high interest on savings means greater risk that the money won’t be there when you need it.

Well, it used to. Now it means that when the business model collapses the rest of us pay out the people who have benefited from doing business with an under-capitalised company.

OK. Maybe it’s too harsh to put the cost on the individuals who just thought they were getting a good deal but we’re actually undermining New Zealand business with all these bailouts. The advantage of the capitalist free-market is supposed to be its Darwinistic survival of the fittest. It used to be that a company that had a shonky business model got wiped out when the times got tough and you were left with only the better business models standing. Now, good business models are effectively being punished and bad ones subsidised.

No wonder Vero and other insurance companies are fuming. They’ve seen AMI stealing their customers for years with too-low premiums and now that it can’t pay its bills the government is, whereas poor old Vero’s reward for being a better-run company is that it has to carry its own losses.

Hopefully, AMI will be able to raise the cash it needs (via de-mutualising and selling shares) and the government back-stop won’t be called upon. Ideally, the government back-stop would never have been needed in the first place and the government would just have worked to find a good insurance company to buy up AMI’s business so that coverage would continue while a bad business died. But we are were we are, all that can be said now is this situation must never to allowed to be repeated.

Just as finance companies need to be compelled to have better asset ratios to prevent SCF-style collapses, insurance company rules need to be tightened. It is scandalous that an insurance company in New Zealand can be allowed to operate with too little cover (particularly, re-insurance) to survive a large earthquake in a major city. It’s hardly an unprecedented event. Being under re-insured for a major earthquake is like saving costs by not buying a seatbelt for your car and then expecting the taxpayer to dive in between you and the steering wheel when you crash.

When Bill English is finished doling out our money to private risk takers once more, I hope he’ll get around to looking at those rules. Better yet, he could raise the disaster coverage limits for the EQC, which should be funded through rates, so that we’re not making such a large call on the reserves of private, under-capitalised companies when large-scale disaster strikes.

70 comments on “AMI socialises its losses”

  1. Dan 1

    Sorry – just seen the warning on the other post. Probably should rethink this 🙂

    • lprent 1.1

      Well this post is written by Marty G. Sure it sometimes it feels like he writes everything here (he writes a lot of posts). But his output is less than a fifth of the posts on the site at present.

      It is a multi-author site. You can’t treat the authors as if they were all just some kind of machine component. The authors have some quite differing views from Bill’s anacho tendencies to my conservative reluctant socialist ideas.

      Don’t treat the programs as having the ideas, and I’ll treat you as an person well.

  2. Bored 2

    ……the story of the world since the bail outs during the Crash. One questions why two things have not happened:

    the companies bailed out have not been nationalised by the parties bailing them out (or standing gaurantee).
    the people who took the profits leading up to the bail outs, in particular directors, majority shareholders and senior executives have not had their assets and earning siezed. 

    • As I just said on Open Mike …

      “Maybe AMI should be nationalised? Whatever did happen to Government Life? Oh, that’s right – ‘Tower’, which now wants to buy AMI.”

      • Colonial Viper 2.1.1

        KiwiSure: New Zealand’s own Government backed insurance company – forcing down insurance profit margins and creating better insurance behaviour for all NZ’ers.

  3. Lanthanide 3

    It makes AMI’s old advertising campaign rather ironic – “Am I insured?”
     
    Also I haven’t actually found AMI’s premiums to be substantially lower than other companies. When looking to ensure my car, I got online quotes from multiple places. Tower came out the cheapest anyway.

    And yes, I really think this is different from other companies being bailed out – many companies undercut other companies on price all the time, either through cost efficiencies or offering a lower quality product. It turns out in the case of AMI they’re offering a lower quality product, but insurance isn’t a tangible thing you can appraise just by looking at it. Often many people buy insurance and never even deal with their company within a 10-15 year time frame, so have no idea if the quality (which is first and foremost customer service response) is worth what they’ve been paying, let alone have any idea about the re-insurance deals the company has set up (do they even publish this anywhere for interested customers to find out?).

    • Simon 3.1

      I hadn’t found their premiums to be lower at all… but that’s not how I judge insurance companies. I judge them by how good they are to deal with – one example is when my dad’s house started sliding down the hill. He was one of two conjoined houses… he was with AMI, his neighbour with State. My dad called AMI and they told him to move to a motel, and have the bill sent to them. State advised his neighbour that they had assessed their property would have had a rental value of $XXX a week, and that they would contribute 80% of that towards accomodation while the houses were sorted out. I’ve had other similar experiences… this doesn’t mean I support bailing companies out that fail – but AMI failing is a bit of a shame, they are the best insurance company I’ve dealt with and I’ve dealt with a few (personally and working in IT).

  4. prism 4

    It seems that AMI are suffering from one of the downfalls of competition which is that there is a need to compete at the lowest price level, and cut spending on proper procedures, quality and reserves and safety and the factors that result in company probity.  It all seems famliar – sounds like the neo liberal financial stuff of operating for highest profit and never mind the downside.

    As someoneI insured with AMI, I notice they have a well run office, and I haven’t heard any bad reports about them. Fair Go would be one of the places where I would gain information about fairness to customers. So I don’t really know whether they are good or not. But I expect that NZ will have suitable controls. Trusting eh. All insurance seems to be expensive when I pay it, I didn’t go just for the cheapest. I don’t like companies that advertise on tv about being quick and easy though. They make me wary to insure with them.

  5. Johnm 5

    These bailouts show the neo-liberal free market system doesn’t work and can lead to social chaos when the weaker players go the wall. Why do they then cling blindly to the doublethink of selling off  our public assets to the failed private business sector? If they had their way 100% The state reduced to bath tub proportions wouldn’t be able to bail out anyone including deprived kiwis! Madness!
    Thank Goodness for the PUBLIC which means we can pay homeowners to repair their homes and enable CHCH to recover eventually! Note Roger the neo-liberal dodger said in Parliament this AMI bailout is wrong! The likes of him and ACT are the sort that cause eventual revolutions against despicable inequalities.

  6. randal 6

    hanover and ami. both adverised heavily and both were houses of straw.
    somebody wants to buy ami.
    if english borrows to bail out ami then the tower of credit just gets bigger and bigger.
    soon someone will come along and buy new zealand.
    silly captions about socialising the company will make even less sense then.

  7. Two words for you all – “Moral hazard”. AMI was arguably hit hardest by the Canterbury Earthquakes, as it has larger percentage of its customer base in Christchurch.
    Notwithstanding, even as a client, it should have been allowed to fail. Surely it would have been cheaper for the Government to simply make good on the claims for individuals and businesses affected than to bail out the company. And in doing so, it would upheld both the principle of moral hazard without unduly causing a massive loss of confidence of the insurance market within New Zealand.
    If AMI does now accept this assistance, I hope their executives and board reduce their pay to the minimum wage on a pro-rata basis for time worked.
    N.B. This is a slightly different scenario from Air New Zealand in 2001, partly because critical operational staff had significant wages and entitlements outstanding which would have been forfeited if Air New Zealand was not bailed out, but the assets sold and the airline reconstituted as “NZ Air”, as some commentators were calling for at the time. The Government still held a significant cornerstone shareholding as well (20-23%) and would have also lost out if it failed.

    • toad 7.1

      AMI was arguably hit hardest by the Canterbury Earthquakes, as it has larger percentage of its customer base in Christchurch.

      So why didn’t it occur to them to assess the cumulative financial risk of a second quake in Christchurch after the first one, and to purchase reinsurance accordingly?

  8. vto 8

    Well I am just completely gobsmacked by Key and klowns.

    They are the socialising sluts from hell.

    Does anyone know what the rules are anymore?

    • Daveo 8.1

      Yep. If you’re our mates we’ll give you heaps of cash if you’re a dirty bennie or someone else that’s never gonna donate to us you can starve.

  9. HDS 9

    This is what will happen too, if ACC is privatized.

    • sean 9.1

      What, a natural disaster cause an ACC insurer to fall over?
       
       

      • Lanthanide 9.1.1

        It’s quite possible. ACC pays for accidents, which includes those from natural disaster. There’s also going to be a lot of physical therapy to get people back in to work, and while you’re out of work ACC pays a large chunk of your regular salary.

  10. ianmac 10

    SCF guaranteed against failure so  invest plenty. You get your bet back if you lose.
    Insurance company guaranteed against failure so next Insurance company can take risks because you get your money back if you fail.

  11. ghostwhowalksnz 11

    Remember too, Key  offered to  save ‘iconic’ companies who found their big

    mistakes caught up with them during the GFC, such as  Fisher & Paykel.

    Key and English talk like Reagan or Thatcher but act like Castro & Chavez

  12. randal 12

    no they act like predators looking to grab a piece of the action at every opportunity.

  13. Peter Rabbit 13

    I have two questions from all of this:
    1) What actions is AMI now taking to minimise the risk to NZ tax payers, for example are they refusing new policies? 

    2) What actions should current AMI customers who don’t have claims be taking?  One of my workmates was commenting that when news of this first appeared in the media on Wednesday that they were considering moving to another insurer but now with this guarantee they see no need to as they are guaranteed coverage and their current premiums.

    • ghostwhowalksnz 13.1

      New policies are not at risk. Its the existing claims that are a problem

  14. Kleefer 14

    This analysis is spot on.

    • ZeeBop 14.1

      I disagree.  Sure AMI is heavily exposed to the Earthquakes that have hit. Sure it just lost lots of money having to re-assess all the properties again. But AMI seems to had a cash flow crisis, happens to all kinds of business all them time, they go back to the banks and get a loan. Now AMI being so big and given the current world financial crisis the bank of last resort has been called on. I don’t think its fair to speculate that they were not covered or are not covered, only that black swans happen, we’re not in the ACT party, we don’t believe the market is perfectly functioning, and its astonishing that so many seen to lap up that particular boogeyman. Government rightly steps in when the loses to the economy would be greater if it had not done anything. Whether its low cost health care to the poor, or saving the insurance industry in NZ. For if AMI had gone under who would trust insurance again?? As to the argument AMI policies were cheaper, that’s be counter by the argument that AMI is a small player globally and doesn’t have the benefit of a large global footprint of risks, those argument might work for a private company, but this was a mutual society and all the benefits flow directly back to the NZ community. So this is actually a better deal than the SCF which just got a whole lot dirtier.

  15. infused 15

    It’s not a bail out. Labour have supported this. They could be nationalised. Tower are looking at buying this. When did you write this, two days ago?

    • Bright Red 15.1

      If there’s a net cost to the taxpayer, it’s a bailout. We bailed our AirNZ but effectively nationalising it.
      Yesterday in the House, Cunliffe said, as Marty and others have, ‘yup, we have to pay but it’s a disgrace that things got to this situation in the first place’

      • Tangled up in blue 15.1.1

        Isn’t it an opportunity cost to the taxpayer? We get the money back don’t we? If the Govt. gets a stake in the company maybe they can sell it off down the track for a profit.

        • Bright Red 15.1.1.1

          i don’t think you know what opportunity cost is. You’ve described an investment.
           
          If you think that the Crown ought to be in the insurance game, like it used to (State Insurance), that’s one thing. But if you think it ought to be buying up failing companies and speculating on on making a profit flogging it off later, that’s another thing entirely. Why not let other insuance companies purchase AMI’s books? They’re already lining up.
          Remember, the Crown won’t necessarily own AMI as a result of the bailout.

          • Tangled up in blue 15.1.1.1.1

            I meant it’s an opportunity cost because arguably the money could have been of better use elsewhere (or not extra borrowing if that’s the case).
            And letting other insurance companies purchase AMI’s books sounds like a good idea. Though I wonder why National & Labour have not supported this option.

          • Puddleglum 15.1.1.1.2

            If you think that the Crown ought to be in the insurance game, like it used to (State Insurance)…

            As I alluded to above, Government Life was the first nationalised insurance scheme – it became ‘Tower’, which now wants to buy AMI. Here in Christchurch we still talk about the ‘Government Life’ building in Cathedral Square.

  16. tsmithfield 16

    I can see from your article that you are pissed off, Marty. But do you disagree with the government for taking the action it did with AMI?

    • Marty G 16.1

      my position is perfectly clear from the post. We’re being forced to carry the losses from others’ risks. The regulations should never have allowed it. And I’m not convinced the crisis has been well handled. English and Key kept this secret for weeks when they should have been negotiating another insurance company to but AMI’s policy book

      • sean 16.1.1

        So, you must’ve found it pretty hard to stomach when Goff said it was the only choice also eh?

        • Sean 16.1.1.1

          To avoid confusion, this is a different Sean from me, quite probably new.

          I’ve been posting here for a few years now.

      • tsmithfield 16.1.2

        “my position is perfectly clear from the post.”

        You are still only telling me that you are pissed off. However, you haven’t answered my question.

    • todd 16.2

      If AMI is not re-insured properly, that is not our fault. We should not pay to keep a company afloat that does not have enough intelligence to re-insure itself against such circumstances. It is basically greed that’s to blame. What should happen is that the company adheres to a free market ethos. If it cannot meet its legally binding obligations, the Government should help those people that are affected.

      No tax money should go to a failing private company. The Government and those concerned should take legal action against any business that falsifies information and cannot meet its obligations. AMI should be allowed to fail for having an unsustainable business model
 that is what capitalism is all about. There is no safety net for the impoverished if they get in trouble; they have to suck it up and go without. Awarding AMI with millions of dollars for their failure sends the wrong message.
       
      This is an interesting reply:

      http://nz.news.yahoo.com/a/-/top-stories/9155582/ami-bailout-should-be-last-critics/

      AMI’s name and ownership structure appear to have been created to hide who actually owns the company. The primary company is owned by a holding company which in turn is owned by a trust (which doesn’t declare who the actual owners are). The company claims to date back to 1926, but was not incorporated as AMI until 1978. And was formally called Australian Mutual Insurance

  17. lyndon 17

    The critical difference is that if AMI actually calls on any of the capital it will likely get taken over. Hardly encouraging copycats.
    Thing that strikes me is that, once agin, the rating agencies were a bit shit.

  18. bobo 18

    Think this is the first standard post I can remember that agrees with Roger Douglas regarding not supporting the AMI bailout. I’ll state my conflict of interest having my car insured with AMI. So its the consumers fault for not realizing AMI was under-insuring its risk… maybe the lack of gov regulation is to blame on this too.

    • todd 18.1

      I think Act are just fishing for whatever votes they can get. I doubt that Douglas really believed what he was saying… He’s always been into getting the poor to pay for everything after all. What’s a few bucks to a beneficiary when we need to bail out another failed private business? A few million dollars going over seas into private hands is the same dynamic with privatization, so what’s the difference? Nothing! Douglas is a two faced twat! Hopefully we will never hear from the dead wood again after the next election.

    • Jenny 18.2

      bobo, Sir Roger sez, ‘this is our very last bailout of the wealthy, we won’t do it again, I promise’.

      Like problem gamblers or a drug addicts always promising that this is the last time,
      We won’t do it again,
      I promise,
      Please believe us. 

      Dealing with drug addicts and other shifty con-artists, you have  look at their actions rather than their words. 

      Throughout his long political career Sir Roger has always sought to soak the lower paid tax payers to be able to gift huge amounts of money to the wealthy. (ie. people like himself).

      A lifelong proponent of flat taxes,  Douglas was the author of GST which switched a bigger burden of tax to the lower paid. Once this flat tax was in place, it was cemented in place with massive tax cuts for wealthy.

      Sir Roger is a supporter of bailing out the wealthy and would do it again if given the chance. But Douglas knows that his long political career is nearing it’s end and probably he will never have the opportunity to support another massive bailout before he retires, and so he figures he can afford to make statements that he knows he will never be called on. 

  19. Jenny 19
    So the government has been able to majik up $300 million to bail out AMI. (possibly increasing to $1billion)

    Only last week the talk was all about “Austerity”

    “There is no money” we were told.

    Well, well, how to be proven a liar. 

    Any attempts now to oppose Austerity on the rest of us, must be treated with the contempt it deserves. 

    • Jenny 19.1
      Ostentatious Consumption vs Austerity?

      More evidence that the government has money to burn, “literally”

      Hundreds of $millions is being spent on expanding Auckland’s already extensive motorway system. The latest piece, of this jigsaw white elephant, an underground tunnel, 400metres long, most of it below sea level and whose exit is only a matter of metres above the high tide mark.

      Just like the much vaunted South Western Wiri interchange, price tag $1billion, which was supposed to relieve congestion but actually made it worse by transferring the traffic jam from Wiri Station Road directly onto the Southern Motorway, catching thousands of extra North South traffic bound commuters in the jam, making the jam up much bigger. 

      The most likely result of the Victoria Park tunnel will be to move the bottleneck to Green lane, where like the South Western example, the jam up will be much bigger than the jam at Victoria Park because it will catch all the city workers heading south, plus all those who join the Southern Motorway from the North Western, plus all the port traffic. 

      All the evidence points to all this motorway expansion to be a colossal waste of public money.
      $Billions for bailouts, $Billions for Motorways?

      Austerity? my eye.

    • Draco T Bastard 19.2

      Any attempts now to impose Austerity on the rest of us, must be treated with the contempt it deserves.

      FIFY

  20. Innocent bystander 20

    Allow me to disagree. When I hand over my monthly payment to AMI I expect to get what I’ve paid for (should I need it) just like any other good or service. I do not expect to be taking on a financial risk. In fact that whole idea of insurance is quite the opposite. 

    There is actually a much bigger hazard here which is that if AMI can’t pay claims and falls over it sends people a strong message that having insurance is completely worthless.

    It is near impossible to judge the merits of one insurance company over another, other than through price and service. The average consumer has no idea whether a given company has enough assets or re-insurance cover and its completely unreasonable to expect that they should. I see that as the role of government basically to ensure that there is a strong set of rules for these companies to operate in to protect consumers.

    AMI may have just been unlucky or it may be that the regulations around assets and re-insurance need to be strengthened or that legislation needs to be put in place to limit exposure / market share  within a given geographic area. This is worlds apart from the deliberate greed surrounding the finance company collapses and subsequent bailouts.

    • Jenny 20.1

      “This is worlds apart from the deliberate greed surrounding the finance company collapses and subsequent bailouts.”

      Innocent Bystander

      I beg to differ, I think we need to take a hard line, to protect Innocent Bystanders.

      • Innocent bystander 20.1.1

        Um….except there’s been no suggestion that any criminal behaviour has taken place or that anyone will benefit from this other than policy holders. 

        I guess a few company employees will benefit by actually getting to keep their jobs….yes that includes some managers it also includes other rich pricks including office staff, receptionists, secretaries, Derek from accounts and possibly the tea lady. Better crack down on those fuckers they deserve everything they get.

        I’m all for getting tough on the finance sector but AMI are so the wrong target.

        • Draco T Bastard 20.1.1.1

          except there’s been no suggestion that any criminal behaviour has taken place or that anyone will benefit from this other than policy holders.

          Legal != moral and the policy holders definitely benefited but the problem is that the taxpayers now have a possibility to lose which shouldn’t be there from the immoral, if not illegal, actions of the managers of AMI.

          I’m all for getting tough on the finance sector but AMI are so the wrong target.

          They are merely one in a show of missing and inadequate regulation.

          • PeteG 20.1.1.1.1

            Yep, we should regulate earthquakes, limit them to about one damaging one a decade, the rest can be off in the backblocks. We might as well, we regulate most other things.
            (I do support some financial sector regulation, but sometimes unexpected shit just happens.)

            • MrSmith 20.1.1.1.1.1

              “(I do support some financial sector regulation but sometimes unexpected shit just happens.,)”
              Pissing in the wind again I see Pete , “But sometimes unexpected shit just happens”. that’s why we have insurance ! You right’os change your color depending on where the biggest hand out is, beneficiaries the lot of you.

              • ZeeBop

                Who owns AMI? Why are there discussion about forced takeover of the company in its entirety? I thought AMI had a capital problem, a cash crunch, and given the size and nature of the beast (and the conditions of the capitalist forest) the park ranger was asked to man up with a loan. How many companies give $15 million to the government if they are bankrupt? It does not mean that anything untoward has happened if AMI passed on its profits to its customers and got into trouble because it was heavily exposed in the ChCh earthquakes – that nobody predicted and nobody though would happen so severely. AMI STILL seems to have enough cover, just doesn’t have enough cash in the short term – just like many people and businesses suffering in ChCh due to the Earthquake with or without insurance. So this is not a bailout, its part of the regional rescue effort. If it does not pay one dollar of the money it borrows back the government will own it.

    • Puddleglum 20.2

      And if I buy a book voucher from Borders or Whitcoulls I assume I’ll get what I paid for. Problem is, if the company goes belly up I don’t get what I paid for. I’m an ‘unsecured creditor’. No-one worries that it will send a message to people that they shouldn’t buy book/gift vouchers.

      Sorry IB, you’re collateral damage in the free market. Don’t you just love the free market?

      • Innocent bystander 20.2.1

        The difference is that the consequences of people getting burned by whitcoulls and choosing not to buy gift vouchers in future are pretty trivial. The consequences of people choosing not to have insurance are serious. Therefore I support a bail out for one and not the other. The government’s actions shouldn’t stop there though. They should review the regulations that insurance companies operate under and take steps to reduce the chance of this happening again in the future especially given the relatively high risk of a disaster of a similar scale happening somewhere else in the country or even again in Christchurch.

    • Jenny 20.3

      “Allow me to disagree. When I hand over my monthly payment to AMI I expect to get what I’ve paid for (should I need it) just like any other good or service. I do not expect to be taking on a financial risk. In fact that whole idea of insurance is quite the opposite.”

      Innocent Bystander

      In fact the whole idea of insurance is quite the opposite?

      Well not anymore, it seems. Insurance companies are quite free to take people’s premiums and not pay out, and get away with it. 

      There has not been even the slightest censure from the law. 

      As you put it:

      Um
.except there’s been no suggestion that any criminal behaviour has taken place or that anyone will benefit from this other than policy holders.

      Innocent Bystander

       

      So Innocent, tell me how this works again?

      Innocent, as your first comment hints at, this sort of malfeasance undermines the whole premise of taking out insurance. Even more so now, now that the government has said this is the very last time they will cover an insurance company failure.

      You would have to be an idiot to take a new policy with AMI in light of their wilful refusal to meet their responsibilities to those who have paid money to them, and not facing any punishment at all.
      The government said they won’t be bailing out insurance company failures again. (and certainly not AMI) But what would AMI or any other insurer care whether the government pays out their policies or not.  Whether the government pays out insurance policies or not, all the insurance companies now know, that they can get away with not paying out, and they will be let off. 
       
      capcha – “rubber” as in cheque. 

  21. Jan 21

    The link and and quote above from Todd
    AMI’s name and ownership structure appear to have been created to hide who actually owns the company. The primary company is owned by a holding company which in turn is owned by a trust (which doesn’t declare who the actual owners are). The company claims to date back to 1926, but was not incorporated as AMI until 1978. And was formally called Australian Mutual Insurance?
    are to an unsubstantiated quotation not the NZPA article linked to.
    AMI’s ownership structure and directors are available from the companies website just like all other NZ owned companies.  It’s annual report is on it’s website.
     
    Are Todd and other posters against a bailout saying that: NZ is too small to have home-grown insurance companies? ( I hope not)
    That insurance companies never struggle even when overwhelmed by the most extreme conditions? (I’m afraid they do – even the big ones)
    That early declaration of a possible financial issue is irresponsible? Insurance companies have some legal responsibilities in this context related to ratings downgrades (It would in any case be far more irresponsible to go into receivership or bankruptcy without giving due warning especially given the enormity of the aftermath of the quakes).
    That insurance companies are required to purchase re-insurance in NZ or that buying re-insurance is mandated to a particular level of the property covered by law? (I’ve looked briefly at the industry code of practice and the insurance ombudsman’s site and neither mentions re-insurance) Neither does the Insurance Companies (Ratings and Inspections) Act 1994 which, while it mandates rating inspections, does not appear to demand a specific re-insurance level as part of the registration.
    If this were such an issue then I daresay that the foreign insurance companies (now casting themselves as ’responsible’ when they may merely be more diversified) would have been calling enthusiastically for all companies to be re-insured to a set level. I’ve looked back through a year of stuff business news (although this is not exhaustive research of course) and can find no such evidence.
    I think it’s important to differentiate between different kinds of financial difficulty. Calling companies crooked and citing moral hazard is sometimes (often even?;-0) appropriate but I fear not so straight-forward in this case.
    I’ve read that AMI has $600M of re-insurance that can be triggered –which seems reasonable when compared to the total bill to government including EQC payouts at this stage is $1.2BN.
    I can’t help thinking that a lot of the comments above are simply following the herd of dismay which may work against what is a reasonably good NZ mutually-owned company and certainly preferable to a share traded  variety rather then spending a bit of time checking at least some of the facts. BTW  – I don’t work in the insurance industry

    • todd 21.1

      Jan

      home-grown insurance companies?

      AMI is no longer a home-grown company. What I am saying is that we should not bail out privately owned companies with unknown owners. If you know who the owners are, then please let us know so that we can allay any fears that there is a conflict of interest similar to the Mediaworks debacle?
       
      Does not appear to demand a specific re-insurance level as part of the registration.
       
      It is not the Governments job to ensure a privately owned company undertakes its business in a manner that does not require assistance when the business fails. You do realise that AMI is a private business with none of the profits going to New Zealanders and they operate under a capitalist structure?
       
      I think it’s important to differentiate between different kinds of financial difficulty.
       
      So while we have a horrendous amount of childhood poverty in New Zealand which the Government makes worse by their policy changes that favour the already wealthy, they are all too happy to give billions of tax dollars to their rich mates. You are right
 we should differentiate between types of financial difficulty. The type that causes starvation, homelessness, third world diseases and other social ills should take precedence.
       
      I can’t help thinking that a lot of the comments above are simply following the herd of dismay which may work against what is a reasonably good NZ mutually-owned company and certainly preferable to a share traded variety rather then spending a bit of time checking at least some of the facts.
       
      The herd mentality is not particularly relevant to the Standard. The facts are that the New Zealand population is once again required to bail out a privately owned business. National are so quick to stump up with the dosh it is hard to take their claims that the country is so in debt we have to sell our assets and cut social spend seriously. It is simply bullshit! Those are the facts lady!

      • RobC 21.1.1

        Todd, you have fallen into the trap of reading something someone has said and believing it is true.

        AMI is a mutual company, owned by its policyholders. And the “Australian Mutual Insurance” previous name is just crap; it’s history is as a car insurance cooperative and its name is derived from AA Mutual Insurance as it used to be known for a while.

  22. HC 22

    Well – could we not use Key’s and English’s actions in regards to SCF, AMI and whatever may come next as the best argument for nationalising key companies and assets in NZ?
    Maybe the time has come to seriously rethink the agenda followed since the mid to late 1980’s?
    If we want certain “standards” to prevail and the law to be enforced we may as well consider going down this way. The laissez faire approach has brought about all this madness we have to tidy up and pay for now.
    And wait for the further fall out from the World Fiancial Crisis down the road. Governments – being the sum total of tax and levy paying citizens and residents – have bailed out banks, finance companies and so forth, we as tax payers are going to be forced to pay for the insane speculations, fraud and deception that went on large scale for decades now.
    All these modern financial instruments that were created to make money for the few selected entrepreneurs involved in the finance and banking industry did originally come from Wall Street and London. That is what caught on all over the world, so we know who we should blame.
    And now JK and consorts want to make us pay for the damages done.
    Thank you very much, the bill will be presented to you in November, that is provided enough New Zealanders bother to think ahead and get the message!

    • MrSmith 22.1

      Fast forward a couple of years:
       
      So gentlemen I see Johnny has lined us up a few strategic assets in New Zealand these come with a government guarantee of-course.

      The stupid kiwis are all a bunch of right wing socialists so we can’t lose, they still think these companies are to big to fail . So we buy them sit on there boards collecting millon dollor salaries while striping them bare, then wait for the government bailout , the easiest money we will ever make, another pinot anyone.

  23. RedLogix 23

    I’m reluctant to get into bashing AMI.
     
    It is after all one of the few examples of anything that looks like a cooperative in this country.
     
    It was not one earthquake, but two. The latter one of the the most intense ground accelerations ever recorded and highly damaging.
     
    And as bad luck would have it, being a SI company AMI was especially exposed to a quake in ChCh. We’ve long known that insurance companies were vulnerable to large scale events like this.. which is why we have the EQC.

    My thoughts are that AMI has been let down by the EQC component of cover having been fixed at $100k for far too long, allowing inflation to erode away it’s effect.

    Now I understand that none of this is rocket science and AMI could have arguably covered itself better, but even the big re-insurers the world over are also being hit hard at present….it’s easy to selectively criticise AMI in hindsight… when black swan events like this confound the actuary’s  predictions.

  24. RobC 24

    I am reluctant to AMI-bash, too. Their position is not helped by the large differences in damage assessments from EQC and other assessors meaning they cannot accurately calculate their potential liability.

    However I do criticise the action taken, on the basis it is corporate welfare. But 85,000 (?) policyholders = 85,000 voters and I am trying to keep my cyncism in check.

    • PeteG 24.1

      There may be more voters than that due to jointly held policies.

      Would many people vote based on one issue like this?
      If so, which of the parties that supported the measure would they vote for?
      Would some people who are against the measure vote based on this one issue?

  25. Afewknowthetruth 25

    Another turn of the screw overnight, which will devalue all the money in the ststem,  as we proceed along the path to total collapse of the present economic arrangements.

    Dated Brent Spot
    126.74

    • johnm 25.1

      Hi AFKTT
      Even now most people don’t understand how totally we depend on cheap oil (Now Gone) to keep the current show on the road now falling off the road!

      • Afewknowthetruth 25.1.1

        johm.

        I know. cheap oil underpins EVERYTHING…..money, housing, food, clothing ….the whole lot.

        It’s quite surreal how contributors to forums prattle on about all sorts of irrelevant matters and never notice the ‘elephants in the room’ that are demolishing all the furniture and are about to start demolishing the walls.

        After a decade of denial the International Energy Agency finally indicated we were in trouble with respect to oil last year. Now even the IMF has admitted we are in very deep trouble. Yet most people still remain completely clueless (and don’t want to know). They probably won’t even notice when petrol goes to $2.30 a litre.

        I guess they will notice when the ‘elephants in the room’ have knocked down the walls and the roof has fallen on them. That might take another couple of years.

        • Jim Nald 25.1.1.1

          Almost everything. Don’t forget electricity which is driving most household appliances and also heating. And electricity will be our fallback source of energy.
          Our hydrodams will be more valuable. Just watch who will want to get their hands on that. Actually, they are really cheap to buy and control now for the future.  *Cough

          I would like to think most of my fellow Kiwis are not clueless, ignorant or don’t care. We can see how urgent it is to prepare for the future. When will the political parties campaign on policies that will really matter to us?

          • HC 25.1.1.1.1

            Most fellow Kiwis are addicted to mad modernday consumerism and brainwashing, that is the truth! The ones that realise what is going to happen are far and between. We are all well advised to learn basic gardening, horticultural and other survival skills, because the shit will soon really hit the fan. There won’t be any money to cover costs for welfare, retirement, health and more, because the money may be worth a lot now, but eventually it will not be worth the paper it will be printed on.
            Sadly most are so deluded, they continue to dream that some miracle will happen and all continue as we have been used to since the boom after WW2. That was a very extraordinary period in history. It will be known hereafter for the immense wastage of resources and energy that happened.

  26. Tangled up in blue 26

    Could all of this have been avoided if in Labours three-terms it had properly regulated the Finance & Insurance industries?

    • jbanks 26.1

      Haha Speaking of elephants in rooms

    • Pascal's bookie 26.2

      Probably. But labour was and is still pretty much toeing the imf, neo lib, self regulating market, bullshit, line. Only marginally better than nats.

      Seemt o remember Brash saying that we needed o dergulate the financial sector even more so that e could experience the full awesome of innovative financial product development like what they had in the US.

      ‘Bullet dodged’ is about the best one could say on labour’s record.

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