Thursday, April 07, 2011

Broken AMI [update 3]

AMI The AMI insurance company and every one of its policy holders now lies shattered by the Christchurch earthquake.

If you still needed convincing that there is no economic silver lining from the black cloud of Christchurch’s destruction—if you thought the Broken Window Fallacy was refuted by all those fabulously rich insurance companies who would sprinkle economic largesse from some unspecified financial heaven across the plains of Canterbury at no cost to ourselves—if you remained unpersuaded by Kris Sayce’s explanation of how there is no free lunch from insurance companies after a natural disaster—then perhaps today’s public announcement of AMI’s meltdown might bring the message home.

There is no free lunch from insurance companies.

There is nothing good about destruction.

It is rubbish to say the earthquake was good for the economy because the money for rebuilding comes into New Zealand from insurance companies, and won’t be taken from elsewhere in the economy.

To borrow from the title of Bastiat’s essay (just as Kris Sayce did) this only considers that which is seen but not that which is not seen.

All the money AMI had invested in New Zealand is now gone. It won’t be replaced. We will now never see what it would have bought.

Instead we see only another $500 million of your money heading AMI’s way to help bail it out, sent there by a Finance Minister as generous with corporate welfare as he is with his own housing supplements.

And we’ll never see what that half-a-billon might have bought either.

The earthquake was an unmitigated disaster.

And so, it should now be clear, is this government—who knows only how to compound it.

UPDATE 1: Felix Marwick: “National-led Government owns a rail company, a finance company, and about to pick up an insurance company. We're all socialists now.”

UPDATE 2: Felix Marwick again: “Probably they could pick up the Chch casino pretty cheap right now…”

UPDATE 3: Matt Nolan on AMI and moral hazard:

_Quote So when a disaster hits, the government is willing to bail out domestic insurance companies to “provide certainty for claimants” …
    As a result, insurance firms will discount these large-scale low-probability events – and take on more risk when providing loans.  Their willingness to take on more risk than is socially optimal [sic] will be paid for by tax payers…

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5 Comments:

Blogger Adolf Fiinkensein said...

I suggest you stick to architecture.

4/07/2011 12:39:00 pm  
Blogger PC said...

And you to sticking your tongue down John Key's throat.

4/07/2011 01:01:00 pm  
Anonymous Anonymous said...

so we bail out the incompetents again......
they didn't take out enough re-insurance. But other insurance companies are ok? Most insurance companies would have included major eartquake risk - albeit based on the Wellington scenario

4/07/2011 01:14:00 pm  
Anonymous Matt said...

it's all rubbish, AMI has good reinsurance covers. media is just causing fear once again

4/07/2011 01:49:00 pm  
Anonymous James said...

Adolf...you done got served by PC....heh! ;-)

4/07/2011 10:14:00 pm  

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