Tower expects quake claims blowout of $20 million
Tower emerged from its self-imposed trading halt on Friday, saying it expects provisions for claims costs related to the Christchurch earthquakes to rise by up to $NZ22.4 million ($21.5 million).
The announcement to the Australian and New Zealand stock exchanges followed an earlier market update (see earlier story) stating Tower has added $NZ50 million ($47.9 million) to its reinsurance for remaining Canterbury quake claims.
Tower requested trading in its shares be suspended from last Wednesday until markets opened on Friday as “part of its preparation of its financial accounts for [the] six-month period ended March 31”.
The insurer was reviewing its “Canterbury [quake] provisions and related matters, which may have a material impact”.
On Friday CEO David Hancock said the company “remains well capitalised at both the corporate level and general insurance business level, holding significant capital above the current solvency minimum required by the Reserve Bank of Zealand”.
At March 31 it held about $NZ110 million ($105 million) above those requirements.
On April 16, when Tower announced its $NZ50 million reinsurance top-up, it said at the end of 2013/14 it held $NZ135 million ($132 million) above the solvency minimum.
Tower has now revealed that a regular quarterly review of its claims provisions for the Canterbury quakes by Deloitte shows claims costs have increased because of a rise in repair and rebuild costs, time delays affecting all outstanding construction and an increase in costs associated with settling complex claims from multi-unit dwellings.
Another factor is “greater clarity of the apportionment of claims costs between Tower and its reinsurers”.
Tower expects the increase in claims provisions for the quakes will be $NZ20.9-$NZ22.4 million ($20-$21.5 million).
As of last month Tower had settled and closed 94% of all claims relating to the Canterbury earthquakes.
It remains on track to complete 95% by the end of this year.
“The resolution of Canterbury claims remains a key operational priority for Tower, with a dedicated team committed to providing certainty for customers and shareholders as they work through outstanding claims,” Mr Hancock said.
Tower has also issued an earnings forecast for the first half of this year, expecting a general insurance underlying net profit, excluding the impact of the Canterbury quakes, of $NZ17-$NZ18 million ($16-$17 million).