8 Sep 2016

Tower expects $16m hit from quake claims

7:15 pm on 8 September 2016

Tower Insurance expects to lose more than $16 million off its profits as it puts more aside to settle a backlog of complicated claims from the Canterbury earthquakes.

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Photo: Google Maps

It said a review had found a significant rise in costs, a greater-than-expected number of new claims and growth in legal action and disputes.

Tower said it had about 560 outstanding claims to settle.

It was also in a dispute with the overseas company it had arranged extra financial cover with last year to cover rising claim costs, but said it was confident of its legal position and would take every step to recover outstanding amounts.

Tower said its finances were above its minimum requirements with $11.2m of excess cash, and a $50m standby credit facility also available if needed.

The company said it would review its dividend and dividend policy when it released full-year results for the year ending in March.

However, it said the insurance industry had received more than 800 new claims in the past six months as the Earthquake Commission (EQC) had accelerated its programme.

"The average cost of the claims received has been greater than initially expected and contrary to expectations, the EQC's projected slowdown in new claims has not materialised," Tower said in a statement.

As well it said there were potentially 6000 claims requiring remediation, which were expected to exceed EQC's $100,000 threshold.

"The general environment in Canterbury, six years after the event, has resulted in a greater number of disputes and extended time required to reach agreement with customers."

It said the situation had been exacerbated by "opportunistic advocates who created unfounded fear", which has resulted in a higher number of disputes and litigation than expected.

Tower had to make significant provisions last year for higher-than-expected costs from the Canterbury earthquakes.

In May, chief executive Richard Harding told RNZ Business he expected to have most if not all earthquake claims settled by the end of 2017.

Tower shares on the NZX closed 19 percent lower today at $1.11.