Thursday 8th September 2016 |
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Tower expects to take a $16.2 million hit to its after-tax profit as the general insurer increases claims provisions for the Canterbury earthquake due to greater-than-expected new claims from the Earthquake Commission and increased litigation and customer disputes.
Deloitte advised Tower in a draft of its latest actuarial review of a "significant escalation in costs and the need to increase provisions" as a result of the 2011 Canterbury earthquakes, the Auckland-based insurer said in a statement. Tower signalled it will review its dividend and its dividend policy at its full-year earnings result.
Tower said today that it has about 560 claims remaining of the almost 16,000 claims lodged. Still, it said the insurance industry has received over 800 new claims over the past six months as EQC accelerates its programme. It's estimated more than 6,000 EQC claims require remediation, and some of these will exceed the $100,000 EQC threshold, resulting in the cost being borne by insurers, Tower said.
"The Canterbury earthquakes continue to present a globally unprecedented challenge for the insurance industry and along with other NZ general insurers, Tower continues to manage this issue closely," the company said. "The average cost of the claims received has been greater than initially expected and, contrary to expectations, the EQC's projected slowdown in new claims has not materialised. The EQC process continues to create significant uncertainty for the insurance industry."
Tower said it had experienced a greater number of disputes and extended time to reach agreement with customers, which had been further exacerbated by "opportunistic advocates" who created "unfounded fear" regarding the statute of limitations, which resulted in a higher number of disputes and litigation than expected.
Following the expected increased provision, Tower Insurance will have a solvency ratio of 213 percent, which is above the long-term operating range. The insurance unit retains excess solvency of $11.7 million over and above the minimum regulatory position, it said.
Taking into account $11.2 million of excess cash held by Tower, the Tower Group has $22.9 million of capital available above the minimum regulatory requirement, the company said. Tower also has a $50 million standby credit facility which may be drawn at any time and could be used to supporter Tower Insurance if required, it said.
Tower noted that it has a commercial dispute with Peak Re, the provider of the Adverse Development Cover from April 2015. It said it remains confident in its position on the basis of strong legal advice, and will take every step to fully recover the amounts due.
The company's shares last traded at $1.37 and have shed 28 percent this year.
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