Tower Limited has announced a $22 million settlement agreement with reinsurer Peak Re following a commercial dispute over a 2015 adverse development cover policy.
New Zealand-based insurer Tower claimed $43.75 million for costs incurred from the 2011 Canterbury earthquakes covered by the reinsurance policy and sums claimed in the arbitration proceeding.
The $22 million settlement will thus result in a $15.2 million impact on Tower’s profits when adjusted for tax.
Michael Stiassny, Chairmen of Tower, said that the agreement will allow Tower to fully focus on its future, and remarked of the proceedings: “During our recent capital raise, the Board indicated that real risk existed in both the process and the binary nature of the arbitration.
“The Board determined that a commercial settlement satisfactorily dealt with this unpredictability for both parties, and created welcome certainty for our shareholders and our business.”
He added: “Tower committed to addressing the legacy risks arising from the Canterbury earthquakes and the signing of this agreement is a significant step forward in removing those risks.”
Despite the impact on profits, Tower continue to hold a level of capital significantly above minimum regulatory requirements. The $136 million of solvency capital held by Tower after the settlement is $28 million in excess of the Reserve Bank of New Zealand’s (RBNZ) minimum requirement, and the insurer has access to an additional $39 million of corporate cash.