Tower posts first-half loss on increased quake costs 26 May 2015
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Tower posts first-half loss on increased quake costs, underlying earnings rise in line with guidance
By Paul McBeth
May 26 (BusinessDesk) - Tower, the general
insurer, reported a loss in the first half as the cost of
earthquake claims from the Canterbury earthquakes rose,
exceeding its reinsurance cap for the February 2011 event,
even as underlying earnings rose in line with
expectations.
The Auckland-based company reported a
net loss of $4.9 million, or 2.99 cents per share, in the
six months ended March 31, compared to a profit of $13.1
million, or 4.96 cents, a year earlier, it said in a
statement. Tower increased provisioning for costs associated
with the Canterbury quakes by $22.6 million, slightly above
the top of the forecast range flagged earlier this month, as
projected rebuild costs rose due to labour and material
shortages and higher building costs. That pushed the
insurer's projected claim expense above it $325 million
reinsurance limit for the major 2011 event.
Stripping
out the increased quake provisioning, Tower's underlying
earnings climbed 36 percent to $17.9 million, near the top
of guidance, as the industry benefited from rising premiums
and fewer large claim events. Gross written premium rose 4.9
percent to $145.9 million, while favourable weather across
New Zealand and the Pacific helped cut the insurer's claims
ratio to 44.5 percent from 50.4 percent a year
earlier.
"We are very pleased with the improvement in
our underlying general insurance profit over the past six
months," chief executive David Hancock said. "We have been
busy implementing our growth strategy: transforming our
customer interactions to drive revenue and efficiency,
building our digital capability to take us into new
distribution channels, and increasing our very strong
position in the Pacific Rim."
The company signalled it
would face higher claims expenses from the Canterbury
rebuild earlier this month to reflect an industry-wide
increase in costs and delays for repair and rebuild work,
higher costs of complex multi-unit claims, and a clearer
understanding of where claim costs fall between Tower and
reinsurers. That increased cost was also captured in the
Reserve Bank's recent financial stability report, which
raised its estimate for industry claims to between $33
billion and $38 billion from a previous range of $32 billion
to $37 billion.
The insurer settled 94 percent of all
claims relating to the Canterbury rebuild as at April 30,
and was carrying $51 million in capital above its minimum
solvency requirements under the central bank's prudential
regime.
Chairman Michael Stiassny today confirmed plans to implement an on-market share buyback of up to $34 million, or 10 percent of Tower's stock, which he said will commence shortly.
The board declared an unimputed interim dividend of 8.5 cents per share, payable on June 30 with a June 12 record date.
The company's shares last traded at $2.11, and have declined 1.9 percent this year. The stock is rated an average 'buy' based on four analyst recommendations compiled by Reuters, with a median target price of $2.31.
Tower didn't provide full-year earnings guidance, saying it was focusing on growing New Zealand gross written premiums, managing costs, and pursuing opportunities across the Pacific. It aims to have 95 percent of Canterbury claims settled by the end of the year.
The company said the insurance industry will see growth in reinsurance costs following the Canterbury quakes which will put upward pressure on premiums, while technology advances provide opportunities to improve service while reducing costs.
Tower anticipates consolidation in the sector to continue, and it will participate where there is benefit to shareholders, it said.
(BusinessDesk)
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