Tower Group Chairman Bill Falconer says the company was too conservative in its bid to buy troubled insurer AMI.

IAG won the bid for the Christchurch insurer – minus its earthquake liabilities – after AMI was forced to seek government support due to claims from the Canterbury earthquakes.

Mr Falconer told Tower’s AGM in Auckland last week its bid was lower than the $NZ380 million ($294 million) offered by IAG, and MD Rob Flannagan told shareholders Tower had been “outbid by bigger balance sheets”.

Mr Falconer said premiums have been raised to recover the extra costs from the earthquakes, particularly reinsurance costs, “and further increases may be in prospect”.

“But insurance cannot be priced off the market, and we need to maintain a careful balance between the needs of our customers and our shareholders.

“Timing is a critical ingredient in this balance, but we have confidence that we can reinstate the pattern of profit growth achieved in previous years,” he said.

Tower raised capital two years ago to pursue acquisitions. Mr Falconer said that with nothing immediately in view the company will consider a capital return, although the new prudential regulations in New Zealand and their provisioning for catastrophes will require it to build higher capital reserves.

Mr Flannagan said Tower will eventually pay out about $NZ450 million ($348 million) on earthquake claims. The company has received claims on more than 8000 homes. Sixteen Tower customers died in the February 22 earthquake.