Papers released by the Treasury reveal that AMI Insurance only approached the Government for support after Prime Minister John Key said up to 10,000 homes in earthquake-hit Christchurch might have be demolished.
The Government announced a $500 million financial backstop package for the Christchurch-based insurance company in April.
The Treasury on Thursday released several documents on the deal, which confirms that AMI could be short of between $200 million and $1 billion from quake claims.
A Treasury report at the end of March argued that if AMI was to fail, it would delay and constrain the re-build of Christchurch and create significant disruption in the insurance market nationwide.
AMI said on Thursday it expects insurance claims from the 22 February quake will exceed the $600 million it holds in reinsurance cover.
The deadline for claims is 22 May and AMI expects to know how much is being claimed by August.
Until then, it says it will seek fresh capital to strengthen its financial position and has appointed investment bank Goldman Sachs to help.
AMI chairman Kerry Nolan says the Crown's support means it can use the $350 million it holds in reserves once the $600 million in reinsurance cover is exhausted, without breaching insurance industry rules.
AMI says it has had a net loss of fewer than 1% of customers switching to other insurers since the February quake.