Tower may record small net loss in first half on quake adjustment as underlying earnings grow

The company it expects claim costs in relation to the Canterbury quakes will increase by between about $20.9m and $22.4m.

Tower [NZX: TWR] may record a small net loss for the first half after flagging an increase in provisions for Canterbury earthquake claim costs, while saying underlying earnings from its general insurer business grew strongly.

The company said today that it expects claim costs in relation to the Canterbury quakes will increase by between about $20.9 million and $22.4 million after tax to a range of $388 million to $397 million. The adjustment is based on the latest quarterly actuarial review by Deloitte, and reflects 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, it said.

As of last month, Tower had settled 94 percent of quake claims by volume and 85 percent by value. By the end of 2015 it expects to reach 95 percent by volume. The increased provisions have no implications for Tower's solvency as it had about $110 million of capital above the current solvency minimum required by the Reserve Bank as at March 31. The company said it will continue with its capital management programme, under which it expects to return $34 million via a buyback of shares.

"The resolution of Canterbury claims remains a key operational priority for TOWER, with a dedicated team committed to providing certainty for customers and shareholders as they work through outstanding claims," the company said. It will release the final figure for its claims provision and associated impact on earnings with its first-half results.

Underlying earnings in the first half were $17 million to $18 million, which would be as much as 37 percent up on last year's net profit of $13.1 million.

"The anticipated improved earnings result has been supported by premium rate increases, growth in Pacific earnings and investment earnings, in a benign claims environment," chief executive David Hancock said.

Tower's shares resumed trading after the announcement, having been halted on Wednesday pending the release. The stock dropped 2 percent to $2.16, having surged 32 percent in the past 12 months. The stock is rated a 'buy' based on the consensus of four analysts polled by Reuters.