Tower profit up 72 per cent despite rise in flood and fire claims
Wednesday, 24 November 2021
Tower has reported an after-tax profit of $19.3million, up 72 per cent on the previous year.
And the insurer, flush with cash intends to return of $30.4m excess capital to shareholders by way of a compulsory share buyback.
The profit, which covers the insurer’s full financial year to the end of September, comes just weeks after Turnbull announced Tower would start charging higher premiums for owners of flood-prone homes mirroring its shift two years ago to charge higher premiums to insure homes at higher risk of earthquake damage.
The Reserve Bank of New Zealand Te Te Pūtea Matua warned earlier this month it expected all other insurers to follow suit.
In an announcement on the NZX sharemarket, Blair Turnbull, Tower chief executive, said the insurer’s profit lift was achieved despite an increase in extreme weather events and large house fire claims.
He said Tower had also had to manage Covid-related claims costs inflation, and lower investment income.
“Tower has navigated a difficult year,” he said.
Extreme weather claims had a $13.9m impact, up from $9.7m in the prior year, he said.
They included the large fire at Lake Ōhau and severe floods in Napier in late 2020, and Westport flooding in July.
“The frequency of large house claims, predominantly driven by house fires, continued to increase in the second half rising 61 per cent over the year to 92, totalling approximately $21.1m,” he said.
Inflationary pressures also continued to challenge claims costs which increased $17.1m in total to $166.8m, he said.
The claims cost of replacing second hand cars rose 13 per cent during the financial year, Tower reported, and the cost of building a home rose 12 per cent.
Second had cars rose in price as imports were restricted as a result of the Covid pandemic, while acute labour and building material shortages have driven a sharp increase in construction costs around the country.
Just over a decade on from the Canterbury Earthquakes, Tower still had claims that had not been finalised.
After closing 56 Canterbury earthquake claims during the financial year, and logging 30 new EQC overcap claims, and others that has been reopened, the total expected claims costs of outstanding claims was $22.6m.
The insurer said it now had 304,000 customers, and gross written premium collected on its house, car, contents, and other insurance policies rose 7.9 during the year.
The insurer’s net promoter score, which measures the proportion of its customers who would recommend it to a friend, minus those who would warn their friends off joining it, rose from 27 per cent to 43 per cent.
Tower had been investing in digitising its business, and reported that 31 per cent of claims were logged online in the past financial year, as opposed to policyholders phoning in to lodge their claims.
That compared to just 23 per cent the previous year.
In August, Tower changed the full replacement fire benefit in its house insurance policies to what Turnbull called “extended sum insured”.
Tower's chief financial office Geoff Wright said the move would save the insurer several million dollars a year in claims.
“On a profit of $20m, it’s certainly worth pursuing,” Wright said.
Before August, Tower would pay the full cost of repairing, or rebuilding a policyholder’s home, even if it cost more than the sum insured they had arranged when setting up their policies.
Under the new setting, the amount Tower has to pay is capped at 120 per cent of the sum insured the policyholder put in place.
Turnbull said the move was getting policyholders’ premiums more accurately linked to the risk to Tower.
The move was being coupled with an education programme for homeowners, he said, as well as improvements to the sum insured calculator it offered to help people work out the cost of rebuilding their homes.
Sum insured policies were introduced by insurers after the Canterbury earthquakes, putting the onus on homeowners to work out how much it would cost to rebuild their homes should they be destroyed by an earthquake, or a fire.
By 2016, Treasury warned in 2016 that many homeowners were setting their sum insured too low, and under-pressure insurers made concessions, including Tower, which changed its policies to include total replacement cover after house fires.