Tower hit by doubling of large event costs

30 May 2022

New Zealand’s Tower says its gross written premium (GWP) jumped 11% in the first half, though its large event costs almost doubled after the January eruption of the Hunga Tonga–Hunga Ha’apai volcano, February’s Cyclone Dovi and March rains in the North Island.

Large event costs reached $NZ17.9 million ($16.33 million), up from $NZ9.3 million ($8.49 million) a year earlier. The combined operating ratio widened 3.9 percentage points to 94.8%.

The insurer maintained its guidance of $NZ21-25 million ($19.17-22.82 million) annual net profit and is planning for large event costs of $NZ20 million ($18.25 million), after which reinsurance kicks in.

In November, Tower commenced risk-based pricing for flooding and has since transitioned around 70,000 customers to this new pricing model as house insurance policies came up for renewal. The insurer says it plans to add other climate-related risks to its ratings tool in the coming year, including coastal inundation and erosion and windstorms.

“Tower is acutely aware of the ways climate change is increasingly affecting our communities,” CEO Blair Turnbull said. “We are responding. By expanding our risk-based pricing policies and focusing on a high-quality reinsurance program, we ensure Tower remains in the strongest possible position.”

First-half GWP rose 11% from a year ago to $NZ216 million ($197 million) as customer numbers jumped 6% to 312,000.

“Tower is experiencing consistent growth in both premium and customer numbers year-on-year,” Mr Turnbull said, noting though that large event costs over the half-year were “substantial” and included $NZ7.6 million ($6.94 million) for the Tonga event, as well as $NZ3.6 million ($3.29 million) from Cyclone Dovi and $NZ6.7 million ($1.11 million) from the significant rainstorms in March.

Tower’s catastrophe reinsurance cover is triggered by a single event of over $NZ11.25 million ($10.31 million).