New Zealand insurer Tower has warned increased provisions for earthquake claims may wipe $NZ9.4 million ($7.3 million) from its profit for the year to September 30.

It also plans this week to provide information on the strategic review it began earlier this year.

Analysts were expecting a profit of $NZ48 million to $NZ52 million ($37 million to $40.5 million) this year, compared with $NZ33.4 million ($26 million) last year.

Group MD Rob Flannagan says Tower’s $NZ325 million ($253 million) of reinsurance has not been fully utilised but continued notification of claims, an appropriate risk margin and a higher inflationary allowance will take the claims provision over the limit of cover.

He says the NZ Earthquake Commission surprised insurers recently by announcing the release of a backlog of claims in technical category 3 (TC3).

TC3 properties have the worst-affected land and the rebuilds will need stronger foundations, raising insurers’ repair costs.

Tower has also upgraded its inflation assumption from 6% annually for the next three years to 7.5%, to reflect claims inflation.

Mr Flannagan says earthquake claims are progressing well, although the recovery is taking time, with land having to be resurveyed.

He says the probability of more earthquakes in Christchurch is falling.

“We have settled 30% of our claims but rebuilds are more complicated,” he told insuranceNEWS.com.au. “It is at least a three-year journey.”

Mr Flannagan says Tower remains well capitalised and is in excess of regulatory capital requirements.