Finance Minister Bill English says the Government may eventually have to pay nearly $340 million to support insurance company AMI, which has announced a loss of $705 million in the year to June.
AMI believes it will not have to draw on the Government's support package, but Mr English is not so sure.
He says AMI is only solvent because of the Government guarantee - "without that, they would be a business in pretty serious trouble".
The company does have reinsurance and cash reserves, he says, so it could be a couple of years before it has spent all that on covering earthquake-related claims.
At that point, the Government might have to provide about $340 million to support it.
Mr English says that money would come from the $5.5 million the Government set aside in this year's Budget for earthquake recovery costs.
Turnaround from $33m profit
AMI chairman Kerry Nolan says he is the confident the company will not need to draw on the Government's backstop package.
The company's loss of $705 million is a turnaround from the previous year's profit of $33 million.
It says the cost of claims from the Christchurch earthquakes, particularly the 22 February one, is more than the $500 million it has in reinsurance cover. The final cost remains unknown, it says, and it is drawing on its reinsurance and reserves to meet claims as they come due.
Mr Nolan says AMI has $2.3 billion in assets and will use those assets and reserves before going to the Government.
He says the company remains solvent and profitable and is seeking fresh capital to strengthen its financial position.