Tower sees robust half-year earnings boost from operational gains

Tower Limited has reported its financial results for the half-year ending March 31 (HY24).

The company posted an underlying net profit after tax (NPAT) of NZ$36.6 million and a reported profit of NZ$36 million.

The favourable outcomes were attributed to improvements in routine claims performance, premium growth, and operational and digital efficiencies.

These results contrast sharply with the NZ$5.1 million loss recorded in the same period last year, which was affected by catastrophic events.

Key financial results

Key financial metrics for HY24:

• Gross written premium (GWP) rose by 20% year-on-year to NZD 291 million.
• Business-as-usual claims ratio dropped to 49.7% from 51.1% in HY23.
• Management expense ratio (MER) decreased to 31.3% from 35.0% in HY23.
• Large event costs were -NZ$1.9 million compared to NZ$37.3 million in HY23, following a favourable revision of Vanuatu cyclone claims.
• Customer numbers fell by 1% to 309,000, partly due to a stricter risk appetite for high-theft motor vehicle models.
• Combined operating ratio (COR), including large events, was 80.2%, down from 104.5% in HY23.
• Underlying profit was NZ$36.6 million, reversing the NZ$3.7 million loss in HY23.
• Reported profit was NZ$36 million, compared to a NZ$5.1 million loss in HY23.
• An interim dividend of 3 cents per share was declared.

The business-as-usual claims ratio improvement was due to enhanced processes, a decline in motor theft claims due to targeted underwriting actions, and calmer weather conditions, which reduced house claim frequencies.

As of May 27, Tower had closed 97% of claims from the Auckland Anniversary and Cyclone Gabrielle FY23 catastrophe events.

Business performance and growth

Tower, which secured Canstar’s Home and Contents Insurer of the Year Award for 2024, experienced significant premium growth in HY24 – largely driven by rating increases from prior periods aimed at countering inflation, crime, and rising reinsurance costs from the 2023 catastrophes.

The company’s disciplined cost control measures contributed to the improvement in the MER, which decreased to 31% from 35% in HY23.

Investments in digitisation and business streamlining also enhanced efficiency, with Tower’s Suva hub now handling half of all New Zealand customer sales and service calls.

Impact of large events on financial performance

No significant large events were recorded in HY24. Tower set a conservative large events allowance of NZ$45 million for FY24, which remains unused.

Any unused portion of this allowance at year-end will increase the underlying NPAT, potentially boosting the full-year result. If no large events occur in FY24, the underlying NPAT could increase by an additional NZ$32 million.

The absence of large events in the first half has reduced Tower’s COR to 80.2%, a significant improvement from the 104.5% recorded in HY23.

Business outlook and future expectations

“Tower has delivered a strong result this half, driven by improved claims, digitisation and operational performance, and positive customer experiences,” CEO Blair Turnbull said. “The business is well positioned to deliver sustained premium growth through innovating our products and services and improved efficiencies, and ultimately attractive long-term shareholder returns.”

Tower’s guidance for the full year FY24 includes an underlying NPAT of over NZ$35 million, assuming full utilisation of the large events allowance.

The company expects GWP growth to be between 10% and 15% and the MER to be between 30% and 32%. For the full year FY24, Tower anticipates a COR of less than 93%, an improvement from the previously estimated range of 95% to 97%.