Tower to lift insurance premiums due to extra NZ$1.7 million reinsurance bill

Insurer Tower has increased its premiums after facing an extra NZ$1.7 million bill to secure reinsurance for the 2012 financial year.

Tower will pay NZ$6.7 million for its reinsurance programme for two catastrophe events, compared to NZ$5 million a year earlier, it said in a statement. The higher costs are being passed on to Tower’s customers through higher premiums for its house, contents and motor policies. Tower kept its forecast earnings range of between NZ$22 million and NZ$28 million, and said it meets solvency requirements under the Reserve Bank’s new prudential supervision regime.

Insurance companies have been struggling to secure reinsurance cover for the Canterbury area after a series of earthquakes over the past year caused billions of dollars in damage and killed 181 people. Tower has previously flagged the cost of the quakes at between NZ$22 million and NZ$26 million. The insurer said it’s looking for growth opportunities, and has shown interest in buying rival AMI Insurance after the Christchurch-based insurer was forced to ask the government for a bail-out following the February earthquake.

Last year, Tower made noises about a potential hostile takeover of Fidelity Life Assurance. In August, Tower’s chairman Tony Gibbs resigned from the board, ending his five-year tenure that began when the Australasian businesses were separated. He had acted as Guinness Peat Group’s representative until last year, when he fell out with the investment company’s board over its plan to carve itself up along regional lines.

GPG, which owns 35% of Tower, has since installed former Westpac Institutional Bank chief Mike Allen to the Tower board, as it looks for ways to exit its holdings. Because GPG owns more than 20% of Tower, any sale would demand either a full takeover offer or an exemption from the Takeovers Panel.

Tower's shares fell 1.4% to $1.37 and have shed a third of their value this year.