UPDATE 1-Insurance Australia buys NZ's AMI Insurance

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* Buying AMI for NZ$380 mln * Funded from internal resources * NZ govt to take over AMI's earthquake claims (Adds detail, quotes, background) WELLINGTON, Dec 16 (Reuters) - Insurance Australia Group Ltd, Australia's top home and car insurer, is to buy troubled New Zealand insurer AMI Ltd for NZ$380 million ($286 million), the company said on Friday. AMI, mutually owned and New Zealand's second-largest residential insurer, AMI Insurance, had been looking for an injection of capital since April, after it was badly hit by claims in the wake of two devastating earthquakes in Christchurch. IAG said the acquisition would boost growth in a core market using a strong local brand, which would fit with its other New Zealand units, State and NZI. "Our approach will be to embrace the best from both of our direct insurance brands while realising the benefits that can be achieved through greater scale," said IAG New Zealand chief executive Jacki Johnson. The deal, which will need New Zealand regulator clearance, will be funded from within IAG's internal resources. IAG shares closed on Thursday at A$3.10. It does not include AMI's NZ$1.8 billion of earthquake claims, which will be taken over by the New Zealand government. AMI had been supported by a government promise to back it up financially if it could not meet claims arising from the Feb. 22 shake in Christchurch, which killed 182 people and destroyed large areas of the central city and suburbs. Finance Minister Bill English said the government's net liability would be reduced to around NZ$120 million after NZ$1.3 billion of reinsurance and the NZ$380 million purchase price. Christchurch is AMI's home base and it had around a third of the residential insurance market in the city.

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