29 Nov 2016

Tower full-year loss widens, proposes new quake claims company

11:14 am on 29 November 2016

The insurance company, Tower, has reported a bigger full-year loss after writing down the value of its IT systems and putting more aside to cover Canterbury earthquake claims.

Christchurch construction.

The cost of claims from the Canterbury earthquakes has contributed to Tower's full-year loss. Photo: RNZ / Alexander Robertson

Its loss widened to $21.5 million in the year to September, compared with a $6.6 million loss the previous period.

Excluding one-off costs, the underlying profit fell 33 percent to $20.1 million, while its revenue was essentially flat.

The company said the Canterbury quake claims continue to be complex for the industry and reflect poorly on the company's performance, so it plans to set up a new company to deal with the claims.

That company will be called RunOff Co and will handle the 564 outstanding claims, while the rest of the 'new' Tower would focus on general insurance.

Tower has previously said it expected to settle the Canterbury claims in about two years.

"In our view, the industry model is broken with claims inflation continuing unabated, construction far slower than anticipated and little effective co-ordination between the EQC (Earthquake Commission) and insurers," said Tower's chair Michael Stiassny.

He said without the burden of the quake claims, along with planned investment in IT, the new Tower would be better equipped to take on large Australian rivals and expand in the Pacific, and investors would be able to more transparently value Tower.

"The component parts - RunOff Co and New Tower - are undoubtedly worth more than the whole."

Mr Stiassny said Tower met all the necessary standards of solvency and financial stability, but did require new capital and the new structure would create options for that.

The proposal is expected to go to shareholder vote in March.