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Separate company for quake losses

29 Nov 2016

Tower posted a wider annual loss as the general insurer set aside $25.3 million for provisions due to the Canterbury earthquakes, and detailed plans to separate out the claims into a new unit. The company posted a loss of $22.3m in the year ended Sept. 30.

Tower's shares are the worst performer on the S&P/NZX50 benchmark index this year as the insurer deals with greater-than-expected new claims related to the Canterbury earthquake in 2010 and 2011, saying today that it has received about 300 new claims in the past year worth $22m.

It says the Canterbury quakes are taking longer to settle and costing more than other comparable events and it plans to corral the claims into a separate company called RunOff.

"Separation will enable the market to more transparently value Tower," chairman Michael Stiassny said. "The component parts - RunOff Co and New Tower - are undoubtedly worth more than the whole. Separation provides a vehicle to unlock that value."

Under its separation plan, the "new" Tower company wold be listed on the NZX and include its current management and board structure, holding its underlying core business in New Zealand and the Pacific.

The RunOff company would be a separate legal entity with its own board and management, holding all liabilities and receivables associated with Canterbury with the aim of managing those to maximise capital return to shareholders.

“Runoff Co” would be responsible for settling the remaining 564 earthquake claims and maximising recoveries from Tower’s disputes with reinsurer Peak Re, involving $43.7 million, and EQC, involving $57.6 million.

Tower said it is confident of its recovery position and “will not resile from litigation”.

The Reserve Bank has consented to the creation of two separate licensed entities in initial talks and the process is ongoing to receive formal approval, Tower said.

It expects to put the proposal for separation to shareholders for approval at its annual meeting in March.


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