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Tower struggles with DI

Disability income in Australia drags down Tower's profits.

Wednesday, November 6th 2002, 12:59AM

by Jenny Ruth

Tower’s disability insurance products in Australia contributed $26 million to the writedowns and other problems that will see it report a bottom line loss of $40 million or more in early December, although some of that may be recoverable.

The writedowns reflect higher than expected disability policy lapses and costs within its Australian life insurance business, says acting chief executive Keith Taylor.

Tower had puts its premium prices for disability products in Australia up 10% to 30%, depending on age and product, earlier this year, in line with increases by other life companies, and the resulting policy lapses were higher than it had planned for.

The operational issues in Australia "only became apparent when the actuarial calculations were finished last week. That’s when those figures became available," Taylor says.

The "experience" problems relate to three products and about two-thirds of the disability book.

"It’s driven not by poor disability experience – the disability claims have been fine – but our expenses in running that business have been too high," he says.

Sales had been lower than expected and, together with the higher than expected policy lapses, that meant fewer policies across which to spread the costs.

Of the disability product-related writedowns of $11 million reflect not losses in the year just past but expected future losses, if costs continue at their current levels, Taylor says. The regulations governing insurance company oblige it to capitalise such future losses.

"That $11 million can be reversed if we deal appropriately with the expenses," Taylor says.

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