Ratings agency AM Best has maintained troubled New Zealand insurer AMI’s downgraded financial strength ratings following the insurer’s reinsurance negotiations, but changed the ratings from being under review with negative implications to a stable outlook.

AMI says it is confident it will have finalised “comprehensive and affordable” reinsurance cover for July 1. However, CEO John Balmforth has said the cost of reinsurance is likely to double.

Christchurch-based AMI was forced to negotiate a $NZ500 million ($385 million) rescue package from the New Zealand Government in May after fearing its $NZ600 million ($462 million) reinsurance cover for the February earthquake might be inadequate to meet claims.

AM Best downgraded AMI in April, dropping the insurer’s financial strength rating to A- (excellent) from A+ (Superior) and its issuer credit rating to a- from aa.

It put the ratings “under review with negative implications”, saying it was concerned with AMI’s risk management in relation to its aggregate catastrophe exposures.

AM Best says the change to a stable outlook reflects AMI’s adequate risk-adjusted capital position, with the government support and strengthened reinsurance protection. Offsetting factors include a potential unfavourable impact on the business profile and weaker profitability in the near future. 

AM Best Associate Director Stella Ng told insuranceNEWS.com.au that rating is an ongoing process.

“If AMI’s reinsurance is not within our expectation, we might revisit the rating,” she said. “However, if the reinsurance program is within our expectation, there won’t be a need for us to revisit the current rating.”

Mr Balmforth has presented to 46 reinsurers after visiting companies in Sydney, Bermuda, continental Europe and Britain, and says they are not deterred by the earthquake risk in Canterbury but will price according to their risk assessments. He says several new companies asked to be included in discussions.

He was reported in New Zealand media as saying the company paid $NZ14 million ($10.8 million) for a $NZ600 million reinsurance package last year and this was likely to cost at least $NZ28 million ($21.6 million) this year. Premiums will jump more than 20% for South Island policyholders from July 1.

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

AMI Chairman Kerry Nolan says an initial assessment of claims for the February earthquake should be available by the end of August. He says prior to the earthquakes, AMI was on track to post a $NZ50 million ($38.5 million) profit this year.