New Zealand insurer Tower Limited has a handful of reasons to be merry, having turned things around in the company’s financials for October 1, 2023, to March 31, 2024. During the period, the company’s reported profit amounted to $36 million, a bounceback from HY23’s $5.1 million loss.
HY24 saw an even higher underlying profit, at $36.6 million. The corresponding figure a year ago was a loss worth $3.7 million. Tower’s combined operating ratio (COR), meanwhile, improved from 104.5% previously to 80.2% this time around.
Lifting the lid on the half-year results, Tower chief executive Blair Turnbull (pictured right) and chief financial officer Paul Johnston (pictured left) sat down with Insurance Business.
Johnston, explaining the importance of the enhanced COR, said: “Combined operating ratio – it’s a function of three things for us, with the denominator being the top line. It’s a function of our management expense ratio, which has really improved from 35% last year to 31.3%. And that’s been a reflection of cost management, as well as scale efficiencies driven by digitisation and just generally making the business stronger and fitter and leaner.
“Then, of course, our BAU (business-as-usual) loss ratio: just under 50%, 49.7. A BAU loss ratio around 50% is about where we want to be. It’s pretty good. If you compare us to the rest of the world, we’re very happy with that. And that is a function of what we’ve been working on with our claims. Over the last 18 months to two years, we’ve invested a lot of time and effort and cost into our claims business to make it more digital, more straight-through.”
Not having a large event in the first half also helped, the CFO added. In fact, Tower’s large events allowance for the 2024 financial year remains intact to date and will improve the insurer’s FY24 numbers if left untouched.
“Every dollar of that $45 million that we don’t use in the full year will drop to the bottom line, less tax,” Johnston confirmed. “If we don’t use any of it, then that’s $32 million [after tax] of additional profit.”
For Turnbull, the HY24 financials point to what Tower is currently doing right.
“We all recognise 2023 was a really challenging year,” the CEO told Insurance Business. “It was challenging for customers, communities, and insurers – unprecedented weather events combined with the perfect storm of heightened inflation and also heightened crime.
“So, it is pleasing to be here and having a nice long summer, having relatively calm weather, but also I think what’s really important is that the underlying positive performance that we shared is more than just calm weather. We don’t want to be famous as a calm weather stock or insurer.
“It does reflect the investments that we’ve made in people and technology, in digitising the business and streamlining Tower as a leading direct digital player in both New Zealand and the Pacific. And I think what’s really pleasing about the results is that, that investment in people and technology is now starting to really shine through.”
Additionally, in Turnbull’s view, Tower is differentiated in the market by a number of things, among which are the firm’s approach to risk-based pricing and how clear the insurer is when it comes to its strategy.
“The results are just confirmation of the good underlying performance of this business,” he said. “This business is in good shape, and I think the numbers reflect that… That’s the sort of track record that we want to build and have associated with Tower going forward.”
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