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Tower pushes out dividend resumption to 2019

Tower won't pay a dividend this year as planned as the cost of covering wild weather claims across the Pacific and a settlement with its reinsurer kept the firm in the red.

The insurer had planned to resume paying dividends this financial year, but now says that will happen next year when its transformation programme is expected to boost earnings. The board suspended dividends to preserve capital in 2016 as the firm contended with escalating costs from the Canterbury earthquakes. The shares were down 1.3 percent to 74 cents, and are up 9.6 percent so far this year.

Tower today reported a net loss of $6.7 million in the 12 months ended Sept. 30, narrowing from a loss of $8 million a year earlier. That included a $16.2 million charge on its settlement with reinsurer Peak Re over a dispute relating to its 2015 adverse conditions cover. Tower had received about half of what it claimed.

Stripping out one-off impacts, Tower's underlying earnings still fell, down 24 percent at $13.6 million as cyclones in the Pacific and storms in New Zealand added an $11 million bill in large claims costs.

"The past two years have seen a number of unprecedented and severe weather events that have impacted communities and the business beyond expectations," it said. "Tower is putting in considerable effort and taking all appropriate steps to preserve capital and reduce any volatility from these short-term weather abnormalities."

The insurer increased its reinsurance cover for the 2019 financial year, doubling its aggregate cover to $20 million and lifting the excess by $3 million to $10 million.

Tower's net claims expenses rose more generally, up 14 percent to $141.2 million, due to a number of claims challenges, which the firm is addressing through increased prices and tightening its underwriting criteria.

Gross written premium rose 7.6 percent to $336.1 million as it added customers and increased prices.

Tower is optimistic its changes will bear fruit in the coming year, projecting underlying earnings of at least $22 million in the 2019 financial year. That assumes the firm's revenue growth will be sustained and that margins improve as a result of underwriting and pricing changes. It also anticipates a more normal contribution from the Pacific unit and containing costs.

The board plans to pay out 50 percent to 70 percent of reported net profit in 2019.

Part of Tower's transformation has been the construction of a new IT platform to replace what had been a fragmented and complicated backbone. It spent $19 million on software development in the year and has $13.9 million of capital commitments to implement and deliver a new insurance policy management system.

It wants 50-to-70 percent of all transactions done online to simplify its business and strip out costs. About 45 percent of Tower's new business is coming through online channels.

Tower continued to work through its remaining Canterbury quake claims, with 163 still open as at Sept. 30, down from 323 at the start of the year. During that period Tower received 115 new claims from the Earthquake Commission and 43 other claims were reopened. Gross outstanding claims were estimated to be $72.9 million and Tower increased provisioning by $3.6 million in the period, which also weighed on the bottom line.

The firm received 16,152 claims from the Canterbury quakes and has paid out $869 million to customers. It estimates gross incurred claims will total $905.8 million from the four main events, which have had a $152.5 million cumulative impact on Tower's net profit.

Tower's solvency margin was $78 million, $28 million above the Reserve Bank's required level and equivalent to 234 percent of minimum solvency capital.


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