Tower suffers quake damage

Rob Flannagan. File photo / Martin Sykes

Shares in New Zealand's only listed insurance company, Tower Group, have taken a beating in response to the series of aftershocks that have rocked Christchurch, and to uncertainty surrounding its reinsurance position.

The shares closed at $1.55 yesterday - down 24c or 13.4 per cent since two shakes measuring 5.6 and 6.3 on the Richter scale hit the city on Monday last week.

In contrast, the NZX-50 index has held steady over the same period.

Yesterday's closing price for Tower shares equals the 52 week-low hit on Tuesday and is well down from the peak for the year of $2.09 in December.

Tower's managing director, Rob Flannagan, was not available for comment yesterday but he told the Herald last week the company's policy was to carry reinsurance for two future "events".

Last September's earthquake was classed as an "event", as was the February 22 earthquake.

He said Tower was trying to assess whether last week's aftershocks would also be classed as an event, and whether the company would have to take on more reinsurance.

Tower does not disclose its reinsurance limits.

"We have an obligation under stock exchange rules that if we are going to hit our cap or go through our cap, we have to advise the market immediately, but we are nowhere near that position," Flannagan said last week.

"If there is a concern about our financial stability or financial provisioning or anything like that, we have obligations to advise the market and we are not in that position."

Forsyth Barr analyst John Cairns said the share price was responding to the uncertainty surrounding the stock.

He said there were two unknowns - Tower's reinsurance cap and whether last week's aftershocks counted as an "event".

AMI, which was the subject of a government rescue package in April, had disclosed its reinsurance cap to be $600 million. Cairns said Tower's cap would be less than AMI's in view of their relative market shares.

He said that if the aftershocks did constitute an "event" Tower would be required to purchase cover for a further event for the remaining four months of the current financial year.

One fund manager, who declined to be named, said Tower's reinsurance position was one of the key pieces of information investors and policyholders needed to know.

"I find it remarkable that the company is not required to disclose the level of reinsurance and what they estimate the level of drawdown is against that reinsurance.

"It seems to me this is standard practice in Australia and for whatever reason, it's not required here, and it looks like the stock price has suffered a bit because of it."