Reinsurance News

Tower reports HY23 loss amidst surge in catastrophic event costs

25th May 2023 - Author: Akankshita Mukhopadhyay

New Zealand insurer Tower Limited has reported a loss of $5.1 million for the half year to March 31, 2023, as costs related to large catastrophic events rose to $33.9 million in this period.

Tower Insurance logoThe loss compares to a year-ago profit of $3 million, the insurer noted. Costs related to large catastrophic events for HY22 was $17.9 million.

In the period, Tower recorded gross written premium (GWP) of $245 million, representing a growth of 15% from the same period last year.

Management expense ratio improved to 35.1% from 35.8% in the same period of 2022.

Increasing motor theft and a higher frequency of motor claims post-Covid have contributed to an increase in the Business as usual (BAU) claims ratio to 51.6% compared to 48.6% in HY22.

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Combined operating ratio including large events was 105.3% compared to 94.8% in HY22. Underlying net profit after tax (NPAT) excluding large event costs was $23.6 million vs $18.2 million in HY22.

Underlying loss including large events was reported to be $3.3 million compared with $5.4 million profit in HY22.

Tower CEO, Blair Turnbull says, “Investments in technology, operational efficiencies and robust reinsurance continue to underpin Tower’s resilience and ability to address external challenges. We are proactively managing climate related weather impacts through risk-based pricing and product innovations, keeping pace with inflation via targeted rating and underwriting actions and addressing increasing vehicle theft with rating and excess changes.”

“Tower continues to grow both premium and customer numbers while reducing our expense ratio. We expect to deliver a full year profit along with sustainable long-term growth in revenue and earnings,” Turnbull said.

Approximately 30% of claims for the Auckland and Upper North Island weather event and Cyclone Gabrielle, and 5% of claims for Cyclones Judy and Kevin in Vanuatu have been completed. Tower is working efficiently to settle the remainder of the claims, which are predominantly covered by reinsurance.

The cost to Tower for each of the New Zealand catastrophe events is limited to an $11.9 million excess, while the estimated cost of the Vanuatu cyclones is $10 million net of reinsurance recoveries.

Acknowledging the change in risk environment, Turnbull says, “Now more than ever it is critical that New Zealand maintains a strong insurance industry for the future. Tower remains focused on careful risk selection and risk-based pricing, which is a fairer way to price insurance as customers only pay for the risks that apply to their property.”

The insurer said a storm in Auckland on 9 May, is anticipated to incur expenses ranging from $4 million to $6 million. In the second half of the year, Tower still has a substantial allowance of $10 million to $12 million reserved for such major events.

Tower’s full year underlying NPAT guidance remains between $8 million and $13million, assuming full utilisation of the $50 million large events allowance. GWP guidance is between 15% and 20% reflecting organic growth and a strong rating response to address inflation, rising reinsurance premiums and higher motor claims costs, the insurer noted.

Tower has decided not to pay an interim dividend and a decision on a full year dividend will be made when the insurer’s full year results are finalised.

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