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UPDATED: Tower lifts premiums on bigger reinsurance bill

Monday 3rd October 2011

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Tower, the insurer whose cornerstone shareholder Guinness Peat Group is looking to sell its stake, has increased its premiums on rising costs of reinsurance.

The Auckland-based company is passing on the increased costs to its customers through higher premiums for its house, contents and motor policies, it said in a statement. That comes after it secured reinsurance cover for two catastrophe events in the 2012 financial year with excess an of $6.7 million for an event, up from $5 million a year earlier."

The higher costs are being passed on to Tower’s customers through higher premiums for its house, contents and motor policies.

Tower kept its forecast earnings range of between $22 million and $28 million, and said it meets solvency requirements under the Reserve Bank’s new prudential supervision regime.

Insurance companies have been struggling to secure reinsurance cover for the Canterbury area after a series of earthquakes over the past year caused billons of dollars in damage and killed 181 people. Tower has previously flagged the cost of the quakes at between $22 million and $26 million.

The insurer said it’s looking for growth opportunities, and has shown interest in buying rival AMI Insurance after the Christchurch-based insurer was forced to ask the government for a bail-out following the February earthquake. Last year, Tower made noises about a potential hostile takeover of Fidelity Life Assurance.

In August, Tower’s chairman Tony Gibbs resigned from the board, ending his five-year tenure that began when the Australasian businesses were separated. He had acted as GPG’s representative until last year, when he fell out with the investment company’s board over its plan to carve itself up along regional lines.

GPG has since installed former Westpac Institutional Bank chief Mike Allen to the Tower board, as it looks for ways to exit its holdings.

Because GPG owns more than 20% of Tower, any sale would demand either a full takeover offer or an exemption from the Takeovers Panel.

The shares fell 1.4% to $1.37 and have shed a third of their value this year.

"Note: An earlier story saying the cost of the reinsurance programme increased $1.7 million was incorrect. That figure related to the increase in excess if an event occurs."

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