The Reserve Bank of New Zealand estimated Christchurch home insurance firm AMI had net assets of between NZ$200 million and negative NZ$1 billion following the February earthquake in an assessment prepared for Cabinet over the insurer's request for financial assistance.
The New Zealand Government announced its financial support for an insolvent AMI, including the right to take control of the mutually owned insurer, in the first week of April.
Yesterday, the NZ Treasury published a raft of
documents relating to the rescue of AMI, as well as documents relating to the small insurance firm Western Pacific Finance, which was allowed to pass into receivership.
The Treasury analysis, dated 31 March 2011, noted the worries of AMI's board and management over a policy-holder flight to other insurance companies if there were concerns about AMI's ability to meet its obligations.
This became a topic of public discussion, and was canvassed by financial media, including the news service Interest.co.nz.
Treasury had already provided a letter of comfort, dated 21 March 2011, to AMI, intended to reassure the insurance rating agency AM Best. It stated its willingness to "enter into discussions with AMI over necessary measures".
Nevertheless, AM Best still cut its credit rating on AMI that week.
In its Financial Stability Review this week, the Reserve Bank of New Zealand - which now regulates insurers - wrote that its "assessment so far is that the insurance sector overall is sound and functioning well.
"However, some insurers may fall short of the standards expected under the new licence requirements, and this could lead to some industry consolidation and exits."
The RBNZ said that for banks the effects of the "temporary disruption to economic activity in the region is likely to be manageable.
"The major banks have an exposure to Christchurch customers amounting to around 10 per cent of their loans and advances, while feedback from contact with the banks suggests initial provisions for bad debts could amount to a modest 0.1 percent of total loans and advances."