Tower shares dropped to a two-month low after the general insurer reported a wider first-half loss and flat gross written premium income, raising questions about its ability to compete with larger rivals.
The Auckland-based insurer reported a net loss of $8.7million, or 5.42c per share, in the six months ended March 31, from a loss of $4.9million, or 2.99c, a year earlier, it said in a statement.
The loss included a $19.6million impairment charge on its IT system after a review found the current systems posed limitations to Tower's high-performance ambitions, chairman Michael Stiassny said.
Forsyth Barr broker Suzanne Kinnaird said Tower reported a disappointing underlying profit of $7.6million versus her expectations of $10.7million.
The reported net profit was hurt by Tower allowing $16.3million of abnormal items including the Christchurch earthquakes.
Tower's claims ratio rose to 52.1% from 44.5% a year earlier, and its expense ratio was up to 42.2% from 40.9%.
The shares fell as low as $1.64, wiping $20.2million from the value of the company.
"The outlook commentary confirms the general insurance market in New Zealand is expected to remain relatively flat while increasing claims costs and increased competition are likely to subdue general growth opportunities,'' Ms Kinnaird said.
The Pacific Islands remained Tower's key revenue growth target. Longer-term cost out opportunities from a change in IT systems existed but taking costs out was unlikely to be achieved in the short term.
Tower's capital position remained "relatively robust'', she said.
Tower planned to simplify its IT infrastructure that at present operated on multiple platforms, which it said were difficult for its service people to navigate and lacked flexibility.
The insurer was investigating its options to increase productivity, cut costs and improve customer experience, and would not renew its on-market share buyback as it invested in a new IT system.
The company reviewed the value of its software on changing expectations for what new technology platforms would be needed to drive growth in its New Zealand and Pacific businesses. Including amortisation, Tower's software was valued at $29.2million as at March 31, compared with a net book value at cost of $73.1million.
Tower has settled 15,260 claims as at March 31, representing 96% settled by the number of claims and 89% by value. It estimated gross ultimate incurred claims of $822.3million and continued to receive "over-cap'' claims from the Earthquake Commission.
The board declared an interim dividend of 8.5cps, payable on June 30 to shareholders on the register on June 10, and planned to maintain the annual payout at 16c.
Ms Kinnaird said the interim dividend was well ahead of underlying earnings per share of 4.5c and was indicative of Tower's strong capital position rather than its underlying earnings performance.
