NZ insurer Tower renews reinsurance, sees moderate price & attachment increase

Tower Limited, the New Zealand based insurance company, has successfully renewed its reinsurance program with what it terms only “moderate” increases to pricing and attachment points, despite having made recoveries in the last year.

Given severe weather activity in the country over the last reinsurance risk period, not least the Auckland and Upper North Island floods and cyclone Gabrielle, Tower had said it could make reinsurance recoveries of as much as $276 million, were those catastrophe losses to settle near the upper-end of its estimates.

Because of the use of reinsurance and the recoveries made, the insurer then secured reinsurance reinstatement cover in May, to provide protection for a potential fourth event recovery from its program.

Now, the insurer has completed the renewal of its annual reinsurance programme for the 2024 financial year, saying it is “pleased to have secured a comprehensive reinsurance programme at competitive rates for home, motor, boat, and commercial portfolio cover, across New Zealand and the Pacific.”

Tower CFO Paul Johnston explained that the reinsurance strategy of the company, “provides protection from volatility caused by large events and maintains financial flexibility to support growth, while underpinning strong solvency.”

Johnston said, “Tower has received ongoing support from some of the world’s largest reinsurers as well as backing from reinsurers looking to start new relationships with us. Reinsurers are impressed by our ability to proactively manage risks throughout our portfolio via risk-based pricing, our dynamic rating capability, and digital direct customer relationships.”

Tower has actually purchased a smaller reinsurance tower for the year ahead, as last year’s Toka Tū Ake EQC cap increase from $150,000 to $300,000 has reduced the amount of coverage needed.

Because of this, Tower has reduced its catastrophe reinsurance upper limit to $750 million, down from the previous year’s $934 million.

The 2024 reinsurance program provides Tower with cover for two catastrophe losses of up to $750 million, while this cover is inclusive of an automatic reinstatement.

Tower has also purchased a reinsurance cover to provide for a third catastrophe event up to $75 million.

In combination with some existing multi-year reinsurance placements, Tower’s reinsurance excess, or attachment point, has increased to $16.9 million for the first two events in FY24, up from $11.9 million in FY23, while an excess of $20 million applies for a third event in FY24.

“The market has experienced significant increases in reinsurance prices and excesses, so we are pleased to have achieved a comprehensive reinsurance programme with moderate increases in pricing and excesses in FY24,” explained Johnston.

The costs are certainly higher, as Tower estimates it will pay 13.9% of total income for reinsurance cover in FY24, compared to 12.3% of total income in FY23 excluding the back-up reinstatements it purchased.

Including those back-up or reinstatement covers, the price was 15.7% of total income in FY23.

Tower said the changes in cost reflect both the adjustments it has made to its risk-based pricing, in anticipation of a challenging reinsurance renewal, and movements in its business mix.

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