Insurance Australia Group will buy New Zealand's second-largest general insurer, AMI, for $290 million. However, the purchase excludes all of AMI's liabilities related to the Christchurch earthquake in February 2011.

AMI, which is based in Christchurch, was bailed out by the New Zealand government for $380 million. The tremor liabilities will be transferred to a new state-owned company.

A $500 million bailout by the New Zealand government allowed AMI to cope with rising reinsurance costs and pay from the Christchurch temblor gross claims which reached almost $2 billion.

With the buy-in, IAG would become the largest general insurer in New Zealand, where it operates under the brands NZI and State. Its New Zealand operation is expected to add almost 30 per cent to IAG's premium income and yield $30 million a year of net synergies.

It would give IAG a 40 per cent market share in New Zealand and more exposure to vehicle insurance.

Despite the higher cost of earthquake reinsurance, IAG Chief Executive Mike Wilkins said the firm's long-term growth prospects in New Zealand's general insurance market remains strong.

"Following these events reinsurance costs are understandably increased, and that's led to a market hardening of the market both in commercial and personal lines. ... Despite speculation to the contrary, I can confirm reinsurers still have the appetite to insure earthquake risks, and they share our longer-term outlook about the attractiveness of the New Zealand market," The Sydney Morning Herald quoted Wilkins.

Besides its New Zealand buy-in, IAG will continue to assess promising business opportunities in Asia, Wilkins said.

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