Tower has disclosed its annual financial results for the year ending Sept. 30, revealing a mix of revenue growth and controlled expenses, but with profits negatively affected by extreme weather events.
The insurer reported an underlying profit, including large event costs, of $7.8 million, down from $27.3 million in the previous financial year. Additionally, the company faced a reported loss of $1.2 million, a contrast to the $18.9 million profit reported in FY22.
Gross written premium (GWP) reached $527 million, marking a 17% increase from FY22. Meanwhile, the company experienced a customer growth of 4%, bringing the total to 321,000. The business as usual (BAU) claims ratio rose to 55.5%, up from 48.9% in FY22.
Management expense ratio (MER) improved, dropping to 32.3% from 36% in FY22. Costs from large events, on the other hand, escalated to $55.6 million, a significant increase from $19 million in FY22.
The combined operating ratio (COR), including large events, was 101%, compared to 90.1% in FY22.
The underlying profit, taking into account large event costs, was $7.6 million, down from $27.3 million in FY22.
The reported loss was $1.2 million, compared to a profit of $18.9 million in FY22. This loss includes factors such as the strengthening of the residual Canterbury earthquake and remediation provisions, offset partially by the sale of Tower's subsidiary in Papua New Guinea and its building in Suva.
As a result of these financial outcomes, Tower will not distribute a full-year dividend for FY23.
“In the financial year Tower has navigated catastrophic weather events, widespread inflation and increasing crime. At the same time, we are continuing to grow and manage expenses while executing on our strategy,” Tower CEO Blair Turnbull said.
Most of the claims from large events, such as the Auckland and Upper North Island weather event and Cyclone Gabrielle, as well as Cyclones Judy and Kevin in Vanuatu, have been settled, with completion rates of approximately 84% and 88%, respectively, as of Nov. 20.
Tower has witnessed substantial growth in its New Zealand operations, with GWP increasing by 19% year-on-year. Digital sales channels have played a significant role, contributing to 65% of the overall GWP growth in FY23. The My Tower customer-facing digital platform is now fully operational across all markets.
The company has also made strides in cost control and efficiency, with the MER further improving to 32.2% from 36% in FY22. This improvement is attributed to Tower’s simplification and digitisation strategies. Digital technology investments have enabled Tower to relocate workflows to its operational hub in Suva, leading to reduced telephony and service costs.
However, increasing inflation and a higher frequency of motor claims have led to an increase in the BAU claims ratio. Tower is addressing these challenges through targeted rating and underwriting actions.
Looking to FY24, Tower has renewed its reinsurance programme, securing $750 million in catastrophe cover and an additional prepaid third event cover of up to $75 million. This coverage is aimed at mitigating the volatility of large events in the coming year.
“In the year ahead, Tower will continue its focus on delivering targeted customer and premium growth while further improving efficiencies and continuing to streamline the business. We will also build on our leading risk-based pricing by expanding our model to include landslide and coastal hazards. While we have certainly faced significant challenges this financial year, our underlying result demonstrates resilience and strategic delivery which positions Tower well for long-term sustainable growth and performance,” Turnbull said.
For FY24, Tower projects an underlying net profit after tax (NPAT) in the range of $22 million to $27 million, assuming full utilisation of a large events allowance set at $45 million. GWP growth is expected to be between 10% and 15%, reflecting continued robust rating actions and organic growth.
Meanwhile, MER is anticipated to improve further, ranging between 30% and 32%. The company also forecasts a combined operating ratio of 95% to 97% for FY24 and will consider resuming dividends if it is deemed prudent.
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