Tower suffers $7m loss as it increases its Canterbury quakes provisions by $53m; Business grows otherwise with underlying profit up 30%

Tower’s bottom line is being hit hard, as it increases its provisions to pay for the remaining Canterbury earthquake claims.

The general insurer reports suffering a $6.6 million net loss after tax in the year ended September 30, off the back of it increasing its provisions for the February 2011 quake by $53.2 million before tax. It says the total impact of the increased quakes claims provision was $36.2 million after tax.

It has increased quake provisions as the cost and complexity of the remaining claims have become clearer.

Tower has also used up the additional reinsurance cover it received in April for the February quake, meaning it’ll have to tap into its own coffers to pay for remaining claims related to this event.

It estimates net outstanding claims from the quakes to be $46.2 million after reinsurance recoveries and other receivables.

Having settled 96% of quake claims by number and 88% by value, it still has 703 claims to go. Yet Tower assures it still holds capital above target solvency levels of $73 million.

New Zealand’s largest general insurer Insurance Australia Group (IAG) is in the same position, increasing its quake claims provisions by $150 million last year, also having exhausted its reinsurance cover for the February event.

Tower is the country’s fourth largest general insurer, with a market share of around 4.7%.

Quakes aside, Tower has had a good year

Tower chairman, Michael Stiassny, says “Despite the increased provisions for Canterbury claims cost, our underlying results were very good and reflect the potential of the General Insurance business”.

Its underlying profit after tax was up 30% to $28.2 million, while its Gross Written Premium was up nearly 3% to $305.6 million.

Tower says its Pacific business lead this increase as it experienced policy growth of 4.6%, supported by a number of new alliances in the region targeting the “high growth” motor segment.

Stiassny says, “In line with Tower’s 90-100 percent NPAT payout policy, the Board announced a final dividend of 7.5 cents per share unimputed. This brings the full year dividend to 16.0 cents per share, an increase of 10.3%.

“We hold considerable capital and will be continuing with our on-market buyback and current dividend policy.”

80% of policies sold through Trade Me are for motor insurance  

Looking ahead, Tower says it “recognises the significant opportunity to improve sales, service and its cost position by using technology to engage both direct and alliance customers.

“The Internet and mobile apps like SmartDriver have become attractive channels for insurers like Tower to promote and sell insurance products.

“The Trade Me Insurance alliance is an example of TOWER participating in this form of industry innovation, entering new markets and establishing an online presence and skill base.”

Having launched in mid-August, Tower says 80% of policies sold through Trade Me Insurance are in motor insurance, where value is an important factor and where Tower remains underrepresented compared to other segments.