Two years to the day from the first Christchurch earthquake, insurer Tower says the ongoing impacts of the earthquakes in the Garden City will slice NZ$9.4 million off its September year profit.
Tower said today the impact of the Christchurch earthquakes continued to involve "elements of uncertainty." Given this, Tower's board believes it ought to be conservative in providing for the amounts that will be paid out to affected policy holders.
"While claims have not dented Tower’s underlying financial strength, market expectations of Tower’s net profit after tax for the year ending 30 September 2012 should be reduced by NZ$9.4 million to take into account increases in claims provisions relating to the February 2011 event. This equates to a one-off impact of 3.5 cents per share," Tower said in an NZX release.
The consensus of analysts' expectations had been for Tower to post annual profit of about NZ$50 million, meaning a NZ$9.4 million reduction is about 19%.
Reinsurance limit lifted
Tower added that while its reinsurance cover for the February earthquake hadn't been fully utilised; "Continued notification of claims and the application of an appropriate risk margin, together with an inflationary allowance, will bring the total claims and provisions over Tower’s NZ$325 million of cover. Since the Christchurch earthquakes, Tower has increased the limits on its reinsurance program to NZ$500 million per event," Tower added.
The statement quoted Tower's managing director Rob Flannagan saying Tower remained well capitalised with about NZ$475 million of equity, "well in excess" of regulatory capital requirements set by the Reserve Bank.
For the six months to March 31 Tower recorded an 82% rise in net profit after tax to NZ$23.6 million and paid an unimputed interim divided of 5 cents per share. Its half-year results included a loss attributable to the Christchurch earthquakes of NZ$3.1 million, less than half the NZ$7.5 million of the previous year.
For the year to September 30, 2011 Tower posted profit of NZ$33.4 million , down 43% from NZ$58.1 million in the previous year.
Flannagan also said Tower had concluded a strategic review involving a comprehensive evaluation of aspects of the Tower Group, which includes funds management. The review covered capital structure, Tower's existing four business units (Health, Life, Investments and General Insurance), and strategic acquisition and divestment opportunities. Tower would provide further information on this next week.
(Update adds figure for analysts' expectation of annual profit).
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