AMI bailout cost doubles

ROB O'NEILL
Last updated 05:00 25/11/2012

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The bailout of failed Christchurch insurer AMI will cost the taxpayer more than double the amount estimated in March after the sale of the company's assets and brand to Australian insurance giant IAG.

According to Southern Response, the company set up by the Government to administer AMI's Christchurch earthquake liabilities, the Government's total claim exposure is now $1.934 billion after EQC contributions, up from an estimated $1.8b.

Subtract from that the $1.3b AMI had in re-insurance cover and the $380 million received from the sale to IAG and that leaves a rump of $254m for the taxpayer to pay, up from the $120m March estimate.

Peter Rose, chief executive of Southern Response, said there were many reasons for the increase but the Christchurch Earthquake Recovery Authority's final definition of the Green Zone in which rebuilding is allowed was a significant contributor to the extra costs.

Green Zone land was broken into three categories with different foundation requirements.

Rose said Technical Category 3, in which moderate to significant land damage from liquefaction is possible in future large earthquakes, has pushed up the cost of house foundations.

While there remains uncertainty about the final earthquake cost, Rose said he felt the number is now stabilising. In March, only around 80 per cent of assessments had been completed, but now that sits at around 99 per cent with a trickle of new claims still coming through.

He said there is a significant risk margin in the figures.

One danger area for further cost escalation would be inflation in the cost of building, but so far, such costs have been kept within estimates, he said.

Rose said Southern Response will be wound up when all exposures have been addressed. He estimated the company would exist for about four years.

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