Tower is assuring customers and shareholders it has a decent amount of cushioning in place to take a punch from the North Canterbury earthquakes.
The insurer has announced to the NZX its reinsurance programme provides over $700 million of cover for events such as this, which can be called upon if the cost of claims surpasses $10 million (before tax).
It says the “maximum possible impact” to the company will therefore only be $7.2 million after tax.
Put in context, Tower ended up footing a $75 million bill for the February 2011 Canterbury earthquake, as it ran out of reinsurance to cover this event.
It did however only have half the amount of regular reinsurance it has available for the North Canterbury quake.
In relation to yesterday’s quakes, Tower CEO Richard Harding says: “Given the continuing aftershocks and difficulties in reaching some impacted areas, Tower will not have a thorough understanding of the damage – and therefore the financial implications of the earthquakes – for some days yet.”
Starting a new task on a back foot
Tower’s announcement comes further to Tower’s share price falling by nearly 12% from before the North Canterbury quakes, to a low of $0.76. That's a 60% drop over the year.
The North Canterbury quakes have made investors jittery, as Tower will have to tackle the disaster, carrying a lot of baggage from the 2010/11 Canterbury earthquakes.
$50 million of reinsurance in dispute
It is currently in a commercial dispute with one of its reinsurers, Peak Re. This has put $43.5 million of additional reinsurance, known as adverse development cover (ADC), for the February 2011 quake at risk, according to Forsyth Barr analyst James Bascand.
The insurer in September told the NZX, “Tower will take every step to fully recover the amounts due."
Tower is reliant on receiving this ADC, worth $50 million in total, to meet the Reserve Bank’s solvency standards.
If it settles its dispute with Peak Re and secures the funds, it will have solvency of $11.7 million above the RBNZ’s $50 million requirement.
Tower says it's unable to further comment on the issue as "the matter is about to enter arbitration".
The insurer in September said that “outside of the regulated insurance entity, Tower Limited holds $11.2 million of excess cash."
“Additionally, Tower Limited has a $50 million standby credit facility which may be drawn at any time and can be used for general corporate purposes, including the support of Tower Insurance Limited should it be required.”
2010/11 Canterbury claims costs still rising
Further to this Peak Re issue, Tower expects its profit after tax to take a $16.2 million hit, when its results for the year ended September 30 2016 are announced on November 29.
It warned shareholders of this in September, explaining that Deloitte, in its draft actuarial review, had instructed it to strengthen its provisions for the 2010/11 earthquakes.
Tower suffered a $6.6 million loss after tax in 2015, as a $53.2 million (gross) increase in quake provisions had a $36.2 million impact on its bottom line.
Tower assessing impact of 14 November 2016 earthquake event Tower Limited (NZX/ASX: TWR) said today that it is in the early stages of assessing the impact of the 14 November 2016 earthquake event in New Zealand.
Chief Executive Officer Richard Harding said Tower’s immediate thoughts are with the people in the various areas affected. The company’s focus is on assisting those customers to get their homes and businesses restored and their lives back on track.
Given the continuing aftershocks and difficulties in reaching some impacted areas, Tower will not have a thorough understanding of the damage – and therefore the financial implications of the earthquakes – for some days yet. However, Tower’s reinsurance programme provides over $700m of cover for events such as this. Tower advises its reinsurance programme provides cover once the excess of NZ$10 million has been surpassed. Therefore the maximum possible impact is NZ$7.2 million after tax.
Tower will make a further announcement to the market in due course.