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January 2022 Edition

Well 2022 started with the news that the Southern Response issue had been settled. This was clearly a secret arrangement by politicians to mislead the public.

It all goes back to the Canterbury NZ earthquakes of 2010 and 2011, particularly the one of February 2011 which devastated much of Christchurch. Now following such of a disaster the first duty of involved Insurance companies is to check whether they are solvent This will involve statistical work from study of value of claims made or likely to be made by a selection of clients. If they are insolvent then they should declare such and call in receivers before any claims from the disaster are paid out. The receiver can then access claims and pay out a fixed percentage of valid claims which will exhaust the available funds giving all the claimants a fair share.

The AMI insurance company was a local company insuring quite a large portion of Christchurch properties at what property owners might have thought were �competitive� and so acceptable rates. Some other companies charged significantly higher rates and probably (but in any case not necessarily) meant that these companies were more able their obligations in the event of a large disaster or close successions of same. Property owners would be able to establish this by studying the reserves and security ratings of companies with varying premiums. Such a study will show that higher premiums will quite invariably mean that the company will survive a bigger disaster. At the same time property owners should consider whether a company has a high degree of localised cliental. If this is so it is probably obliged to carry out more re-insurance which would, one expects, increase its costs and premiums charged. But the average property owner probable does not consider such issues. If he/she dose think of these issues they will still possibly think �nothing is perfect� and the company that many choose will be good enough for them.

Well it may be that immediately after the earthquake AMI did come to the conclusion that it was insolvent and told the Government about it. The Government has been keen not add to the stress of property owners and we think said �just carry on as if your finances are OK or something like that. Claims would start to be paid out in full which would be unfair if there were not sufficient funds available to meet the valid claims of everybody. Eventually there was an announcement that the Government was helping AMI out with finance. Sometime later it was announced that AMI was insolvent and would be wound up. There was some sort of promise that the Government would take responsibility for outstanding claims. We are not sure that we heard the exact wording of this undertaking.

Well the receivers easily sold off the accounts of policy holders less the liability for earthquake claims. The name AMI went with the policies and remains in operation. The liability for outstand earthquake claims was transferred to a company, registered under the Companies Act as we understand it, owned by the Government. The company�s name was Southern Comfort. We claim that the company structure was not an appropriate type of entity for doing this work which involved checking and paying out claims as AMI would have done were it solvent. A company is for a trading entity wanting to earn money. A trust or and arm of the public service would be far more appropriate. It appears that the Government was not happy with paying the huge deficit of the former AMI. It adopted a policy of making two valuations of the amount due. One of the amount due to the policy holder which was kept secret and a considerably lower payment that was offered in settlement of the claim. Eventually this two valuations practise leaked out and after a lot of legal action the higher amounts were paid out but nobody seemed to get into trouble. The pay out is now completed.

We were concerned that before the pay-out of the full amount, claimants and there legal reps referred to Southern Comfort as an insurer and not as an organisation charged to make good the Government promise. It is not appropriate for the Government to make good the shortfall of companies that might go insolvent in the future.

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