Tower shares plunge on news of extra Canterbury quake provisions
Tower has about 560 claims remaining of the almost 16,000 claims lodged.
Tower has about 560 claims remaining of the almost 16,000 claims lodged.
Tower [NZX: TWR] 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.
The shares plummeted 20% to $1.10 following the announcement.
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 insurer says.
Tower signalled it will review its dividend and its dividend policy at its full-year earnings result.
Tower says it has about 560 claims remaining of the almost 16,000 claims lodged.
The insurance industry has received more than 800 new claims over the past six months as EQC accelerates its programme. It's estimated more than 6000 EQC claims require remediation, and some of these will exceed the $100,000 EQC threshold, resulting in the cost being borne by insurers, Tower says.
"The Canterbury earthquakes continue to present a globally unprecedented challenge for the insurance industry and along with other New Zealand general insurers, Tower continues to manage this issue closely," the company says.
"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 says it has experienced a greater number of disputes and extended time to reach agreement with customers, which has 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% , 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.
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. Tower also has a $50 million standby credit facility which may be drawn at any time and could be used to support Tower Insurance if required, the insurer says.
Tower noted that it has a commercial dispute with Peak Re, the provider of the Adverse Development Cover from April 2015. It remains confident in its position on the basis of strong legal advice, and will take every step to fully recover the amounts due.
(BusinessDesk)
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