Tower Limited Analysis

Overview

Tower operates as a prominent private general insurer in New Zealand and across seven Pacific Island countries.

As New Zealand's largest direct-to-consumer insurer, Tower is unique in servicing the vast majority of its more than 300,000 customers via its direct channels. The insurer also has a rapidly growing partnership business, which secures mutually beneficial business partnerships that drive policy sales and growth.

Tower has a rich history that spans more than 150 years, starting as the Government Life Insurance Office in 1896. In 1987, it was renamed Tower Corporation, and in 1990 ownership was conferred to its policyholders. The company was one of the first mutual insurers to become a public company when it listed on the New Zealand and Australian stock exchanges in 1999.

In 2006, the New Zealand and Australian businesses were separated and Tower has since sold its Australian business.

Today, Tower's focus is on providing simple and rewarding insurance services that customers value. This is achieved through strategies such as customer innovation and investment in large-scale digital transformation, which has enabled the business to evolve rapidly.

By joining forces with like-minded partners, Tower has created a leading range of simple products to suit the modern lifestyles of Kiwi and Pacific communities, including motor & EVs, home & contents, boat, travel, pet, rural and small business insurance.

Tower is actively managing volatility from climate change through its financial planning and reinsurance. The insurer is also managing its own environmental impacts. Tower was the first New Zealand general insurer to implement address-level risk-based pricing for large events such as earthquakes and flooding.

In 2020, Tower underwent an amalgamation to simplify its corporate structure in New Zealand. Today, Tower Limited remains listed on the NZX, and is listed in Australian as a foreign exempt entity under, in both countries under the ticker TWR.

Performance

The following information was extracted from Tower Limited's half year results , released 28 May 2024:

Kiwi insurer, Tower Limited (NZX/ASX: TWR) today reported its results for the half year to 31 March 2024, recording an underlying net profit after tax (underlying NPAT) of $36.6m and a reported profit of $36m.

The strong results were attributed to improvements in business-as-usual (BAU) claims performance, premium growth and operational and digital efficiencies, and compared favourably with the $5.1m reported loss in the HY23 result which was impacted by catastrophe events.

Summary of HY24:

• Gross written premium (GWP) $291m, up 20% on HY23
• Business as usual (BAU) claims ratio 49.7% vs 51.1% in HY23
• Management expense ratio (MER) improved to 31.3% vs 35.0% in HY23
• Large event costs -$1.9m vs $37.3m in HY23, due to a favourable revision to the most recent estimate for Vanuatu cyclone claims incurred in the prior year
• Customer numbers declined 1% to 309,000 vs 312,000 in HY23 partly due to tightened risk appetite for high-theft motor vehicle models
• Combined operating ratio (COR) including large events 80.2% vs 104.5% in HY23
• Underlying profit $36.6m vs $3.7m loss in HY23
• Reported profit $36m vs $5.1m loss in HY23
• Interim dividend 3 cents per share.

The BAU claims ratio has reduced to 49.7% compared to 51.1% in HY23 and 55.1% at FY23. This was due to enhanced processes, a reduction in motor theft claims following targeted underwriting actions and calmer weather which reduced the frequency of house claims in the half.

As at 27 May 2024, Tower had closed 97% of Auckland Anniversary and Cyclone Gabrielle FY23 catastrophe event claims.