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Tower 1H profit rises 83% as quake, liability costs fall

Tower boosts 1H profit 83% as quake, policy liability costs subside, lifts interim dividend

By Paul McBeth

May 25 (BusinessDesk) - Tower, the insurance firm controlled by Guinness Peat Group, boosted first-half profit 83 percent after the costs associated with the Canterbury earthquakes and policy contract liabilities fell, letting the company lift its dividend.

Profit rose to $23.6 million, or 8.87 cents per share, in the six months ended March 31, from $12.9 million, or 4.88 cents per share, a year earlier, the Auckland-based company said in a statement. Tower's policy liabilities dropped to $671,000 in the period from $8.4 million a year earlier, while revenue climbed 14 percent to $295.7 million.

The board declared a first-half unimputed dividend of 5 cents per share, or $13.3 million, from 4 cents per share a year earlier.

"The group is back on track after the negative impact of the Christchurch earthquakes and challenging economic conditions which combined to create a difficult operating environment," managing director Rob Flannagan said. "Our priority was to focus on getting the basics right through achieving higher revenue growth while maintaining a disciplined approach to costs."

Earlier this year the insurer flagged a capital return to shareholders after it was outbid by Insurance Australia Group in its pursuit of AMI Insurance, which was bailed out by the government.

Tower said it's undertaking a strategic review of its business segments to add value to shareholders, which may result in "partnerships, merger opportunities, acquisitions, divestments and/or a return to capital." GPG's one third-stake in Tower is also in play as the investment company winds itself down.

Tower shares slipped 0.6 percent to $1.62 in trading yesterday, and have gained 7.8 percent this year. The stock is rated an average 'outperform' in a Reuters consensus of analysts, with a median target price of $1.70.

The firm's performance improved across all segments, with health insurance profit rising 4.9 percent to $6.5 million. General insurance earnings rose 18 percent to $5.4 million, and investments climbed 18 percent to $3.6 million. Its life insurance unit's profit almost doubled to $12.4 million.

Tower booked a loss of $3.1 million in the latest six months from the Christchurch earthquakes, down from $7.5 million a year earlier. Last year it lifted premiums to pay for rising reinsurance costs.

The firm said reinsurers have "indicated a need to review policy terms and underwriting criteria to reduce risk in the region."

Tower's total funds under management, which includes KiwiSaver funds, grew $139 million to $4.12 billion from March last year.


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