From a profit of between $8 million and $13 million, Kiwi insurer Tower Limited has updated its guidance on underlying net profit after tax to a range of between a $2 million loss and a $3 million profit for the year ending Sept. 30.
Attributing the guidance revision to the challenging claims environment in New Zealand at present, Tower said: “Inflation, motor crime, and supply chain issues have continued to worsen over the third quarter, with the average cost of motor claims increasing by 20% year on year to circa $3,400.
“Despite increasing motor insurance premiums by an average of 26% in the past year, Tower’s claims ratio excluding large events has deteriorated to 55% at June 30, 2023, from 52% at March 31, 2023.”
The Kiwi insurer pointed out that persistent wet weather and other factors are also resulting in home and motor claims frequency above historical norms.
“In conjunction with implementing additional rating increases, Tower is further tightening its risk selection, automating claims management processes, and working closely with suppliers to manage rising costs,” the company said.
“It takes 12 months for the full impact of rating and underwriting actions to be seen as they take effect as insurance policies are renewed.”
Aside from announcing its adjusted market guidance, Tower also provided an update on its claims progress and quarterly performance.
“Following the Auckland floods on May 9 and revisions to estimates for Cyclones Judy and Kevin in Vanuatu, large events costs are now $39.5 million (excluding costs of reinstating reinsurance cover), leaving $10.5 million of Tower’s $50 million large events allowance for the remainder of the year to September 30, 2023.
“Tower has now settled more than 50% of the claims received from January’s Auckland and Upper North Island weather event and Cyclone Gabrielle. The insurer has implemented a dedicated event response function and scaled up its Fiji-based resourcing to ensure remaining large event claims are resolved efficiently.”
At the end of the April-June quarter, Tower’s gross written premium (GWP) year to date stood at $385 million. Excluding Tower Papua New Guinea, which was sold in 2022, the sum represents a 16.5% growth from a year ago.
“Accordingly, Tower maintains its guidance for GWP growth in a range of between 15% and 20%,” the insurer said. “Tower’s expense ratio has improved to 34% at end of Q3, versus 36% for the same period last year, due to efficiencies from digitisation and diligent cost control.
“Tower’s estimated solvency ratio as at June 30, 2023 is 134%, up from 125% at March 31, 2023.”
For the half-year to March 31, Tower posted a comprehensive loss worth $6.7 million due to large event costs.
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