"It's there to provide comfort to both shareholder and regulators and say if we have any potential shock coming out of Canterbury in the future, it's not going to derail our plans for investing in the business and it's not going to derail the value we can create out of turning Tower into a digital challenger."
Tower has had to boost its provisioning for the 2010 and 2011 Canterbury earthquakes as the level of claims exceeding the Earthquake Commission's cap came in at the same time of escalating construction costs. It had planned to carve out the claims into a separate entity last year to free up the underlying business, but instead attracted two suitors - Canada's Fairfax Financial Holdings and Suncorp Group's Vero Insurance.
The board sided with the Vero offer of $1.40 a share, but the deal was rejected by the Commerce Commission over fears the deal would stifle competition in the market.
James Smalley, a senior adviser at Hamilton Hindin Greene in Christchurch, said the legacy issue of the Canterbury claims continued to bog down the company, despite its relatively strong underlying business.
He soured on the stock about 18 months ago when new over-cap claims continued to turn up on Tower's books, despite the first quake hitting in 2010.
"There's been a number of false dawns with Tower," Smalley said. "If this is the last thing to put the legacy liabilities of the Christchurch earthquake to bed then, looking at their other business, it might present a little bit of a buying opportunity for the contrarian investor."
Still, Smalley said that's a big ask for investors to swallow given Tower returned $120m in 2012 after selling health, life and investment units to become a pure-play general insurer, just 18 months after the Canterbury quakes.
"There's no other way to look at it - it shows the decision-making process that went into that return of capital was not correct," he said.
Tower's Harding is confident any new surprises from the Canterbury claims exposures are covered. The board increased the risk margin to those liabilities by $10m more than what was recommended by the appointed actuary, and has 99 percent cover of case estimates, compared to 60 percent a year earlier.
The depth of that coverage and a more conservative approach by the board means Tower has the room on its balance sheet to meet the investment demands of transitioning to a new digital platform and provide scope to resume dividend payments in the 2018 financial year, he said.
"We wanted to make sure we didn't have to come back to shareholders again, and to really make a really concerted effort to say 'Canterbury's locked down, we've got it protected and we can now move on with getting the core business turning around and driving transformation that we want to see'," Harding said.
