Tower says Christchurch quakes boosted costs by up to $20m

Friday 11th March 2011

Insurer and fund manager Tower says the Christchurch earthquake and its aftershocks will boost its costs by up to $20 million - after taxation - and the money cannot be recovered in the current financial year.

Part of the costs include purchase of extra re-insurance in the wake of the catastrophic February 22 aftershock which killed over 200 people, and they will carve into the company's net profit for the year to September 30, 2011.

"It is also expected that, given the increase in re-insurance premiums, customer premiums will increase in the future," the company told the NZX today.

Separately, some observers predicted that insurance cover could become so expensive or even unavailable for some Christchurch property owners, to the point where it may cast doubt over some rebuilding in the city.

An insurance expert at law firm DLA Philips Fox, Crossley Gates, has said insurance could become extremely expensive.

This could have implications for reconstruction efforts, and the extent to which banks were willing to lend money for reconstruction.

Early estimates from insurers and financial analysts put the cost of the damage as high as $16 billion, with the September 7.1 magnitude shake estimated to have accounted for about $5 billion.

But the extensive use of re-insurance cover has meant that big general insurance companies such as Tower, Vero, NZI and State will pay out little more than $100 million between them. Global re-insurers will be called on to pay for most of the reconstruction, along with the Earthquake Commission (EQC).

In addition, the Earthquake Commission will shoulder the first $100,000 on each claim for damaged homes and up to $20,000 for contents plus GST.

Insurance companies will then pay for any amount over the combined $120,000 up to the limit of a policy. Most policies provide for full replacement of a home.

The EQC also covers the cost of repairing the land a home sits on.

The EQC had a pool of nearly $6 billion available before the September quake and can call on re-insurance of another $8 billion.

Tower directors said they did not expect to finalise a decision on a return of capital to shareholders in the short term.

Tower shares last traded down 0.5% at $1.93.

NZPA

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