An increase in new EQC claims and growing levels of litigation and customer disputes are behind the need for Tower to further strengthen Canterbury claims provisions, the company has announced.
The Kiwi insurer said its appointed actuary Deloitte had completed a draft of their latest review which had revealed a need to further boost provisions.
“This increase is expected to result in a $16.2 million impact on Tower’s profit after tax,” Tower CEO Richard Harding
said in a statement to the market this morning.
“The Tower board will consider the final report when it is delivered and will confirm the impact to the market.”
The company went on to explain that the Canterbury earthquakes were continuing to present a ‘globally unprecedented challenge for the insurance industry’.
“Over the past six months, the insurance industry has received over 800 new claims as EQC accelerate their program,” the statement said.
“The average cost of claims received has been greater than initially expected and, contrary to expectations, the EQC’s projected slowdown in new claims has not materialised.
“Further, recent reports have shown there are potentially in excess of 6,000 EQC claims requiring remediation. It is expected that some of these will exceed the $100,000 EQC threshold, resulting in the cost being borne by insurers.
“The EQC process continues to create significant uncertainty for the insurance industry.”
Tower said there had also been a greater number of disputes and extended time required to reach agreement with customers and it was holding a particular group of people responsible.
It said: “This has been further exacerbated by opportunistic advocates who created unfounded fear in regards to application of the statute of limitations.
“This has resulted in a higher number of disputes and litigation than expected.”
Tower said it had approximately 560 claims remaining of the almost 16,000 claims lodged which were being managed on a daily basis by its team of claims handlers.
The insurer also revealed it had a commercial dispute with Peak Re
, the reinsurer that provided the Adverse Development Cover (ADC) Tower entered into in April 2015.
The company said that on the basis of strong legal advice, it ‘remained confident’ in its position and would ‘take every step’ to fully recover the amounts due.
Tower maintained a strong balance, Harding said, with a solvency ratio of 213% after the provision increase.
This was above the long term operating range and Tower retained excess solvency of $11.7 million above minimum regulatory solvency requirements. In addition it had a further $11.2 million in excess cash available.
It said Tower Limited also had a $50 million standby credit facility which could be drawn on ‘at any time’ which could be used for general corporate purposes, including the support of Tower Insurance Ltd should it be required.
The Tower board also signalled its intention to review the dividend and dividend policy with the full year results.
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