Kiwi insurer Tower reports third consecutive loss

by Maryvonne Gray 24 May 2016

Kiwi insurer Tower reports third consecutive loss

Tower Insurance has reported a net loss after tax of $8.7 million for the half year ending 31 March 2016, the third consecutive half-yearly loss it has reported.

However, CEO Richard Harding said he was confident of the company’s position with underlying profit after tax coming in at $7.6 million despite a market backdrop of flat premiums, an active storm season in the Pacific, increasing claims costs across the industry and low interest rates.

Gross written premium was stable at $146.2 million.

Harding pointed out the issues causing the losses in the prior two halves were in relation to strengthening in Canterbury claims, and this half was different.

“In this half it’s in respect to decisions we’ve made to accelerate the depreciation of our IT software assets on the balance sheet, so they’re quite different drivers in terms of the reported results, but the underlying results are still very strong,” he told Insurance Business.

Harding said the decision to depreciate the company’s IT assets came about following a review which he implemented at the start of his taking over the reins in September last year.

“A lot of the systems that were in place were designed and built in the 1990s so they’re not really ready to provide us with a digital future or to provide us with the ability to do granular rating and pricing that we’d need to do going forward.

“So the IT review really pointed out to us that we needed to look for a new way forward, and we’re in the process now of trying to identify the options for how we will build a fit-for-purpose IT platform.”

Harding would not be drawn on the actual timeline or costs involved in such a review saying estimating would only be misleading.

“The difference between a cloud-based solution or some other solution or a mix of other different options out there could be quite significant.

“We will be able to talk about it this financial year but we’ve still got lots of work to do.”

Another hit came from increases in claims costs which Harding said was something that everyone in the industry was facing, with a 6.5% increase in household repair costs.

This had been compounded by the impact of the New Zealand dollar.

“So over the last two years motor insurance claims costs have gone up by around 10% which is really a reflection of the changes in exchange rate as much as anything else.

“There’s also constriction in the supply chain in motor as well, but that’s perhaps less severe in housing, but they’re industry wide trends that everybody’s trying to deal with.”

Harding said new Canterbury claims continued to come in; 249 were settled through the last half, but 155 new claims came through, partly due to increased efforts by EQC to finalise.

The positives were the board had announced an 8.5% dividend and had signalled an intention to maintain that over the second half barring any major disasters.

“That really is reflective of the fact that the underlying performance of the business is still strong and sound, we have a very strong capital position, we’ve 234% of our minimum solvency capital and the board’s intention here is to ensure a stable dividend as we move from where we’ve been in the past through to our strategy around investing in the business to generate growth and improve performance,” he said.

He said there were key strategies in place which meant he expected to see the bottom line back in the black from now through to the second half.

“We’d expect to see the underlying profit of $7.6 million improve in the second half as a result of continued focus on retention and driving top line growth through our focus on customer retention; we see management expenses continue to come down as we focus on cost reduction programs, and we want to see claims costs come down as we focus on a tightening up of our claims management processes and really starting to use our claims function to control claims costs development happening there.

“So with all those three combined with what we think should be a continued performance in the Pacific should mean that we see a better second half coming through this year.

He added that the new executive team he brought on board earlier in the year meant there was a person to lead each of the company’s strategic imperatives – delivering a high performing customer culture; improving operational excellence, and driving accurate pricing for risk.

He said he was optimistic about the future and revealed a further investor day would be held in July to explain more long term strategy to Tower investors.
 
Read more about Tower’s Canterbury update in tomorrow’s newsletter.