TWR
20/11/2015 08:36
FORECAST
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REL: 0836 HRS Tower Limited
FORECAST: TWR: Increase in Claims Provisions for Canterbury Rebuild
20 November 2015
Market Information
NZX Limited
Level 1, NZX Centre
11 Cable Street
Wellington
New Zealand
Company Announcements Office
Australian Securities Exchange Limited
Exchange Centre
Level 6, 20 Bridge Street
Sydney NSW 2000
Australia
INCREASE IN CLAIMS PROVISIONS FOR CANTERBURY REBUILD
TOWER Limited (NZX/ASX: TWR) today announced that it expects to increase its
provisions for Canterbury earthquakes for the second half year ended 30
September 2015 resulting in a $13.6 million impact on TOWER's net profit
after tax.
TOWER is currently completing its full year financial statements and audit,
which it expects to finalise for release to the market on Tuesday 24 November
2015. After reviewing the actuarial analysis as part of its review of the
draft unaudited financial statements, the Board considered it material to
notify the market prior to the results announcement without delay.
When added to the first half provision increase for the Canterbury
earthquakes, the total impact for the full year ended 30 September 2015 is
$36.2 million after tax. This results in an unaudited full year loss after
tax of approximately $7m.
TOWER expects its full year underlying earnings will be approximately $28
million after tax.
The gross increase in the second half provision for the February 20112 event
is $53.2 million before tax. The higher claims provision is driven by
increased repair and rebuild costs for the remaining claims, and an increased
risk margin.
TOWER maintains a strong balance sheet and will be well capitalised following
the increase in provisions, holding excess capital above minimum solvency
requirements of more than $70 million at 30 September 2015. Consequently, the
company expects the increase in provisions will not require an increase in
its solvency reserves, nor result in any alteration to TOWER's capital
management programme including the dividend policy or current on-market share
buyback.
Canterbury claims provisions
Along with other general insurers, TOWER continues to work through the tail
end of Canterbury claims, which are challenging and complex. TOWER has acted
in the best interests of customers and shareholders by managing claims
quickly and effectively, resulting in 95.6% of claims settled by number and
88% by value3 as at 30 September 2015.
Given the ongoing complexity and uncertainty surrounding the remaining
Canterbury claims, the TOWER Board and management have taken steps to ensure
they are closely managing the outstanding risk: EY was appointed to assist in
undertaking a methodical file review of apportionment and in April 2015, an
Adverse Development Cover (ADC) was put in place to protect the balance sheet
from potential claims deterioration. Following the increased provision, the
ADC is expected to be fully utilised.
TOWER has appropriately sought to measure and manage Canterbury risk under
advice from its actuaries. Most recently, the Board requested that Deloitte
- the Appointed Actuary - provide additional expertise in catastrophe and
reinsurance claims to support the September year-end valuation.
Deloitte has now conducted a file-by-file claim analysis. This approach has
resulted in a greater level of detail and understanding. When combined with
our actual claims experience on repairs and multi-unit dwellings, this has
also helped provide a clearer picture of the likely costs for these more
complex claims.
TOWER remains focused on bringing resolution as quickly as possible to our
customers' outstanding claims. Given the complexity of remaining claims some
risk still remains. However, the detailed analysis undertaken by the
actuaries to understand these claims, their significantly smaller number, and
the pace of TOWER's claims resolution progress in resolving claims provides
the Company with increasing confidence regarding the balance of the claims
expense provision.
Earnings guidance
Following review of the company's unaudited financial statements for the year
ending 30 September 2015, TOWER expects to report a full year loss after tax
of approximately $7m.
In making the announcement, the TOWER Board noted that the company has
delivered a strong underlying performance in its first year as a pure general
insurer, being an underlying net profit after tax, which excludes the impact
of the Canterbury earthquakes, of approximately $28 million.
Further details will be available when the audited full year results are
released on 24 November 2015.
ENDS
Richard Harding
Chief Executive
TOWER Limited
ARBN 088 481 234 Incorporated in New Zealand
For further information, please contact:
Kim Palsenbarg
Mobile: +64 21 520 340
End CA:00273768 For:TWR Type:FORECAST Time:2015-11-20 08:36:53
