Christchurch-based insurer AMI Insurance has reassured its customers it is financially strong, a week after negotiating a bailout from the New Zealand Government.

In a letter to the mutual’s customers, CEO John Balmforth says the company is “in a position to pay claims for all our customers across New Zealand as well as those directly affected by the Canterbury earthquake”.

AMI was forced to accept a rescue package from the Government last week after fearing its $NZ600 million ($445 million) reinsurance for the second earthquake might not be enough to meet claims.

The Government has offered the insurer $NZ500 million ($372 million) under a deal that allows the state to take it over by paying $NZ100 million ($74 million).

“This substantial capital will ensure that, even though there is still uncertainty concerning the total cost of claims associated with the February 22 earthquake, as a policyholder you can have confidence that AMI can meet current and future claims,” Mr Balmforth says.

The Government decision has attracted criticism – from competitors who say AMI underpriced risks and may also have minimised its reinsurance cover, and from clients of failed insurer Western Pacific, who are asking why the same support isn’t being provided to them.

While the questions relating to AMI’s prudential arrangements have yet to be examined, it’s generally agreed the company is too big to be allowed to fail. It is New Zealand’s second-largest residential insurer with 485,000 policyholders and holds about 35% of the Christchurch residential insurance market.

Finance Minister Bill English has said the Government acted to prop up AMI to assist the orderly rebuilding of Christchurch.

“No one wanted to see Christchurch householders, whose homes were destroyed or badly damaged, not receiving full insurance payouts,” he said last week. “That was a very real prospect if we did not act.”

Meanwhile, the Government has appointed former State Insurance MD John Pritchard to the board of the troubled company to “work through issues that it currently faces”.