Tower’s surprise earthquake split plan

Insurance company Tower plans to ringfence its remaining Canterbury earthquake claims in a separate business called New Tower and Runoff Co.

It hoped the move could improving its falling share-price but said it would also serve the interests of both policyholders and shareholders.

The deal was dependent on approval from the Reserve Bank, though spokesman Angus Barclay said there was no deadline for that decision to be made.

Tower announced the plan along with a full-year loss of $21.5 million. The loss was partly caused by increased earthquake claims.

But Tower said despite the loss its underlying business was strong.

The ‘‘legacy of Canterbury continues to overshadow fundamental improvement’’, Tower said, with the rise in earthquake costs related to ‘‘constant reassessment of overcap claims from EQC’’.

Tower said the industry model was ‘‘broken’’ with Canterbury claims taking too long to resolve and no slow-down in overcap claims coming back to insurers from EQC.

‘‘Therefore, the board has taken two decisions to benefit both policyholders and shareholders’ interests, enhance the prospects of the strong underlying business and enable Tower to accelerate its journey to become a high performing general insurer.’’

It intends to create a separate insurer called Runoff Co, ‘‘dedicated’’ to handling the ‘‘fair’’ settling of Canterbury claims, of which 564 remained.

Runoff Co’s aim would be to ‘‘maximise’’ capital returns to shareholders, which included continuing to battle for just over $43.7m from reinsurer Peak Re.

The split would ‘‘draw a line under Canterbury’’, Tower said.

Earthquakes claims for the more recent earthquakes centred on Kaikoura would not be included in Runoff Co.