Tower first-half loss widens as insurer takes $19.6M charge for IT system with 'limitations'

Tuesday 24th May 2016

Tower posted a wider first-half loss after writing down the value of its information technology system, which it says is weighing on its ambitions and needs improving.

The Auckland-based insurer reported a net loss of $8.7 million, or 5.42 cents per share, in the six months ended March 31, from $4.9 million, or 2.99 cents, a year earlier, it said in a statement. That included a $19.6 million impairment charge on its IT system after a review found "our current systems pose limitations to our high performance ambitions," chairman Michael Stiassny said.

The general insurer reviewed the value of its software on changing expectations for what new technology platforms will be needed to drive growth in its New Zealand and Pacific businesses, and including amortisation Tower's software was valued at $29.2 million as at March 31, compared with a net book value at cost of $73.1 million.

Tower plans to simplify its IT infrastructure that currently operates on multiple platforms, which it said are "difficult for our service people to navigate" and "lack flexibility to price at a granular level or change products and pricing with ease."

The insurer is investigating its options to increase productivity, cut costs and improve customer experience.

Tower won't renew its on-market share buyback as it enters an investment phase, it said.

The general insurer's bottom line has been weighed down by more expensive claims from the spate of Canterbury earthquakes in 2011, and today it recognised a further provision of $2.1 million after tax, down from $22.6 million a year earlier.

Tower has settled 15,260 claims as at March 31, representing 96 percent settled by the number of claims and 89 percent by value. It estimates gross ultimate incurred claims of $822.3 million and continues to receive 'over-cap' claims from the Earthquake Commission.

Underlying earnings dropped 57 percent to $7.6 million in the half with gross written premium flat at $146.2 million, which Stiassny said reflected higher claims and static premiums. Tower's claims ratio rose to 52.1 percent from 44.5 percent a year earlier, and its expense ratio was up to 42.2 percent from 40.9 percent.

The board declared an interim dividend of 8.5 cents per share, payable on June 30 to shareholders on the register on June 10, and plans to maintain the annual payout at 16 cents.

The company didn't provide annual earnings guidance.

The shares last traded at $1.77 and have dropped 6.8 percent so far this year. The stock is rated a 'buy' by Forsyth Barr analyst James Bascand who has a target price of $2.10.

BusinessDesk.co.nz

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