Tower settles with reinsurer Peak Re over policy dispute
By Paul McBeth
Feb. 28 (BusinessDesk) - Tower has reached a settlement with reinsurer Peak Re over a dispute relating to its 2015 adverse conditions cover, and will get about half what it's claimed.
Auckland-based Tower will receive $22 million of the $43.8 million claimed under the reinsurance contract and all sums claimed in arbitration proceedings, it said in a statement. Writing off the residual amount will reduce annual profit by about $15.2 million, it said. The shares rose 2.2 percent to 68.5 cents.
"During our recent capital raise, the board indicated that real risk existed in both the process and the binary nature of the arbitration," chair Michael Stiassny said. "The board determined that a commercial settlement satisfactorily dealt with this unpredictability for both parties, and created welcome certainty for our shareholders and our business."
Tower has been repeatedly surprised by the mounting cost of the 2010 and 2011 Canterbury earthquakes, taking on the adverse development cover to protect its balance sheet if costs escalated further.
The general insurer was in the middle of a bidding war last year, with Canada's Fairfax Financial Holdings and Australia's Suncorp Group vying for the NZX-listed firm. It ultimately sided with Suncorp's superior offer, but the takeover was rejected by the Commerce Commission over concerns it would reduce competition.
Tower raised $70.8 million last December at a deep discount to get enough headroom to deal with anymore cost escalation from Canterbury, using the funds to repay bank debt and boost its regulatory solvency capital.
The company today said the Peak Re settlement will give it solvency capital of $136 million, some $28 million above the Reserve Bank's minimum requirements.