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Tower first-half loss narrows as Canterbury quake bill rises again

Wednesday 24th May 2017

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 Tower narrowed its first-half loss as its underlying earnings improved, offsetting yet another unexpected increase in the cost of the Canterbury earthquakes six years ago.

The Auckland-based insurer reported a loss of $8.4 million, or 5.01 cents per share, in the six months ended March 31, from $8.7 million, or 5.42 cents, a year earlier, it said in a statement. While underlying earnings rose 7.6 percent to $8.1 million, the general insurer added another $9.8 million to its provisioning for the Canterbury earthquakes which levelled the country's second-biggest city in 2011. 

Tower's claims from the Canterbury quakes totalled $892.7 million at March 31, of which $744.1 million was covered by reinsurance, and the cumulative impact has climbed to $124.3 million after tax from $91.3 million a year earlier. 

"Tower continues to make solid progress settling claims in Canterbury. However, issues with EQC (Earthquake Commission) continue to confront the entire industry," said chief executive Richard Harding. "Against this difficult industry backdrop and challenges with Canterbury provisions in the past, Deloitte has advised Tower to increase provisions." 

The insurer increased provisioning for the Canterbury quakes by $25.3 million in the 2016 financial year and carved out those problematic claims in a separate entity called RunOff, to preserve the value of the underlying business. 

Tower is in dispute with EQC over a portion of $66.6 million of Canterbury quake claims and has filed a statement of claim against the Crown entity. It is also in a commercial dispute with its reinsurer Peak Re over its 2015 adverse development cover agreement, which will go to arbitration in the second half of this year. 

The insurer is weighing up overtures from two suitors, with the Commerce Commission set to rule at the end of June on whether rival Suncorp Group can go ahead with a planned takeover, which would trump an earlier bid from Canada's Fairfax Financial Holdings. 

Harding said the company's board was working with Fairfax Financial on the timing for a vote unless a formal offer is made by Suncorp, but that it would be after June 30, when the commission is scheduled to rule. 

The shares last traded at $1.125, below the $1.17 per share offer from Fairfax Financial and the $1.30 that Suncorp paid some shareholders to build a 19.99 percent stake. 

This month Tower drew down $30 million of a $50 million facility with Bank of New Zealand to prop up its solvency margin, lifting it to $37.4 million above the minimum requirement of its licence as at May 31, or a 255 percent solvency ratio.

The company's operating cash outflow widened to $23.3 million in the half from $19.8 million a year earlier, and after financing and investing activities, it was left with cash and equivalents of $70.1 million at March 31, compared with $94.7 million a year earlier. 

Also weighing on the bottom line was a $7.2 million expense for the Kaikoura earthquake and a $3.6 million hit from the Tasman Tempest storms and Port Hills fires. 

The board continued to suspend dividend payments. 



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