The Commerce Commission has cleared IAG to buy cash-strapped AMI Insurance for $380 million.
As part of the deal announced last year, IAG will take over AMI's nearly 500,000 customers.
However the comapny does not want the $1.8 billion of claims relating to the Canterbury earthquakes, so the Crown is taking ownership of them.
Commerce Commission chairman Mark Berry says the commission is satisfied the proposed acquisition will not substantially lessen competition in the house, contents, and motor vehicle insurance markets.
The sale has already been approved by the Overseas Investment Office.
The Reserve Bank is still reviewing the acquisition.
IAG New Zealand chief executive Jacki Johnson said the insurer's looking forward to receiving the final approval from the Reserve Bank, so it can provide certainty for AMI customers and staff.
But IAG does not yet have a time frame for the decision.