New Zealand-based insurer Tower Limited has posted an NZ $6.7 million (US $4.6 million) loss for the 12 months ending September 30, as its earnings were hit by severe weather claims across the Pacific, escalating costs from the 2010 Canterbury earthquakes, and a settlement with reinsurer Peak Re.
The company has been implementing a transformative program but was set back this year following cyclones in the Pacific and storms in New Zealand, which drove around $11 million in large claims costs, as well as a $16.2 million after-tax settlement with Peak Re.
The settlement agreement was reached in February 2018 following a commercial dispute over a 2015 adverse development cover policy.
Additionally, adjustments to Tower’s Canterbury provisions resulted in a $3.6 million after-tax impact to earnings, although open claims related to the event have now halved to 163, down from 323 on 1 October 2017.
The company received a total of 16,152 claims from the Canterbury earthquakes and has already paid out approximately $869 million to its customers.
Tower’s net claims expenses also rose by an average of 14% to $141.2 million. This was due to a number of claims challenges that the firm said it is addressing by increasing prices and tightening its underwriting criteria.
Nevertheless, the insurer managed to grow its gross written premiums by 11.9% and reduce its expense ratio over the year as part of a program to return the company to profitability.
This included an increase in reinsurance cover for the 2019 financial year, with Tower doubling its aggregate cover to $20 million and raising the excess to $10 million.
The firm also spent $19 million on software development over the year and has $13.9 million of capital commitments to implement and deliver a new insurance policy management system.
With this strategy in place, Tower is confident that it will see underlying earnings of at least $22 million over 2019, with underwriting and pricing changes expected to result in sustained revenue growth and improved margins.
“The strong growth we’ve achieved, especially through our digital channels, is testament to the work we’ve done to make insurance simpler and easier, and I’m pleased customers are noticing and choosing to insure with us,” said Tower’s Chief Executive, Richard Harding.
Commenting on the year’s loss, he added: “While it offsets our growth, the resolution of the Peak Re dispute is a positive step forward, and the short-term challenges we’ve seen in claims have been addressed through pricing and underwriting responses.”
“We are now building on this positive momentum and expect to see strong growth continue over the coming year as we keep transforming our business,” Harding continued. “Combined with the successful delivery of our new IT platform in the coming year, we are well placed to continue challenging the market and offering customers a genuinely different option when it comes to insurance.”
Tower had planned to resume its dividend payments this year but has delayed them until earnings improve. It originally suspended dividends in 2016 to preserve capital as it contended with the costs of the Canterbury earthquakes.
