Tower collects 18% more from homeowners in the year, making a $74m profit

Thursday, 28 November 2024

General insurer Tower has got back into the black with a $74.3 million profit.

The insurer made a $1m loss last year, but said the result was bolstered by large increases in the premiums it charged policyholders, including those who insured their homes and cars with it.

There also had not been any catastrophic claims events during Tower’s financial year, which ended in September, though flooding in Dunedin in October would cost it around $3m in claims.

The previous year’s result was hit by early 2023 flooding in Auckland and other parts of the North Island.

The insurer collected 15% more in premiums from its policyholders during the year compared with its previous year, but it also told investors that investments in operational and digital efficiency were paying off.

It collected 18% more premiums from house insurance policyholders than it had in its last financial year, though that included premiums collected from new customers.

Tower’s customer numbers dropped by 2% to 305,000 during the year, which the insurer said was due to its reduced willingness to insure car models that were most often subject to theft.

As a result of the strong performance, Tower’s board has declared a final dividend of 6.5 cents per share, and has also conditionally approved a return of $45m of “excess” capital to shareholders through a mandatory share buyback.

Tower chief executive Blair Turnbull said: “Continued improvements in claims performance, sustained GWP [gross written premium] growth and enhanced business efficiencies along with unusually benign weather in New Zealand and the Pacific, have delivered a positive result for shareholders.”

Its “business as usual” claims ratio reduced to 48.1% compared with 55.1% in the previous year.

That was partly due to a drop in crimes against the property of its policyholders, the insurer said.

Tower continued to deepen its risk-based pricing during the year, allowing it to apply higher premiums to people whose homes were at heightened risk of landslide and sea surge.

Tower has led an insurance trend towards greater risk-based pricing on individual homes, which has led to fears that some owners of homes in particularly risky areas will struggle to afford their insurance.

The premium rises during the year were a challenge for many of Tower’s customers.

In its shareholder presentation, Tower said 29,000 of its customers used its “ways to save” feature, seeking to find ways to reduce the impact of premium rises, such as increasing their excesses to increase their self-insurance.

There were very few claims left unsettled from the 2023 Auckland Anniversary flooding and Cyclone Gabrielle.

The premium increases, which have been mirrored at other large insurers were aimed at mitigating the impacts of inflation, crime and higher reinsurance costs following the 2023 catastrophe events, Turnbull said.

Future premium rises would be lower, he said.

Despite that, Tower told shareholders to collect between 10% and 15% more in premiums from its total customer base in the current financial year ending in September next year, though some of that would come from winning new customers.

“We recognise the impact of premium increases for customers. As inflation settled later in the financial year we moved to moderate premium increases, particularly for low-risk assets.

“With inflation now easing, we expect premium increases to stabilise further,” he said.

Tower had also shifted call centre activity towards its Suva hub, which was now answering more than half of all New Zealand customer sales and service calls.

The insurer was also nearly through its refund programme, paying back policyholders it had overcharged by not applying multi-policy discounts correctly. So far, it had paid back $11.5m.

Next year, depending on future claims events, Tower's full year guidance is for underlying net profit after tax to be between $50m and $60m.