Tower annual profit drops 32% from 2013 asset sales, flags share buyback

Tower insurance reported a 32% drop in annual profit.

Tower [NZX: TWR], which sold its health, life, and investment units to focus on general insurance, reported a 32 percent drop in annual profit, while improving its underlying earnings in general insurance, and signalled plans for another share buyback.

Net profit fell to $23.6 million in the 12 months ended Sept. 30 from $34.4 million a year earlier, the Auckland-based insurer said in a statement. Underlying earnings from its general insurance business, which excludes the impact of the Canterbury earthquakes and the sale of its Australian business, rose 32 percent to $25.1 million. Gross written premium rose 6.6 percent to $297.6 million.

"We are pleased with the improvement in our underlying general insurance in FY2014," chief executive David Hancock said. "We are exploring opportunities to further expand our presence in the Pacific, which represents exciting growth opportunities aligned to core competencies."

Tower returned $56.7 million to shareholders through buybacks in January and September of this year after a series of asset sales to streamline its business to focus on general insurance. In July it sold its life business to Foundation Life (NZ) Holdings for $36 million.

The insurer flagged another buyback of $34 million or up to 10 percent of Tower's issued capital in the first three months of 2015, and will announce more details once the board has signed off on it.

Tower's board declared a final dividend of 8 cents per share, with a Jan. 22 record date, payable on Feb. 3. That takes the annual payout to 14.5 cents per share, up 32 percent from 2013.

The shares fell 1.5 percent to $1.94 yesterday, and have gained 11 percent this year. The stock is rated an average 'buy' based on four analyst recommendations compiled by Reuters, with a median price target of $1.85.

The insurer's general business had claims of $120.5 million in the year, up from $110.9 million in 2013, which included large claim events of $14.4 million, largely due to storms over Easter and in June and July. The claims ratio was 50.8 pecent, compared to 50.6 percent in 2013.

Tower said it has settled and closed 88 percent of all claims from the Canterbury earthquakes, and was on track to complete 95 percent of those claims by the end of 2015. The insurer reported gross ultimate incurred claims of $706.9 million in respect of the quakes as at Sept. 30, up from $600.4 million a year earlier.

In October it placed a reinsurance programme to cover two catastrophe events, with the limit increased to $682 million per event for 2014/15 with excess at $10 million.

"For the industry, growth in reinsurance costs and premiums is easing post the Canterbury earthquakes, but both the cost of compliance and capital requirements have increased," Tower said. "Adverse weather events have been an issue for industry costs in recent years and this may further support premiums."

Tower held $380.5 million of cash and investments as at Sept. 30 and is debt free, with capital $141 million above the regulatory minimum requirement.

The insurer anticipates more consolidation in the sector and "will look to actively participate in this where there is benefit to shareholders," it said.