Tower on navigating 'the hardest market'

Brokers and insurers in same boat

Tower on navigating 'the hardest market'

Insurance News

By Terry Gangcuangco

Brokers and insurers alike continue to grapple with hard insurance and reinsurance markets, respectively, and here Tower Limited chief financial officer Paul Johnston (pictured) shares the Kiwi provider’s experience during its latest reinsurance renewal.

For the 2023 financial year, Tower obtained comprehensive cover for its home, motor, boat, and commercial portfolios across New Zealand and the Pacific, while opting not to buy aggregate cover amid reinsurers’ move away from aggregate structures at reasonable pricing.

Previously, the aggregate programme covered Tower for multiple large events losses. As a workaround, the insurer will “prudently” apply the savings (from not purchasing aggregate cover) towards increasing its budget for large events to $30 million.  

“We’re a much bigger company now, and we’ve got strong solvency position – 210% was our balance sheet solvency position at the half year,” Johnston told Insurance Business. “All those sorts of risks are part of our business, and we have the ability to manage that. We’re in the game of managing risks.

“For us it made sense, this time around, to look at some alternative ways of doing that. And we feel that we’re big enough to be able to manage that ourselves, and so the board and management are comfortable with that decision.”

Meanwhile, due to a combination of business growth and the global reinsurance market’s hard nature, Tower’s reinsurance premiums for FY23 are 6.7% higher compared to the premiums for the year ended September 30, 2022.

In a previous pronouncement, Johnston pointed to “one of the most challenging reinsurance markets we’ve seen in over 40 years”. When he sat down with Insurance Business, the CFO shared the same sentiment from brokers.

Johnston said: “We’re certainly hearing from brokers that it’s a very hard market. It’s the hardest market that they’ve seen, definitely. But insurance and reinsurance markets go in cycles, and we’re certainly in a hard part of that market cycle; it absolutely is.

“That was one of the reasons why we wanted to go and talk to reinsurers when we did our renewal, was we wanted to talk to them face to face and be able to tell our story.”

That “story,” according to the finance chief, features Tower’s unique characteristics as a Kiwi insurer.

“The key thing for us, and certainly what we found when we went through our reinsurance renewal season – we went to Australia; we went to Singapore – is that we can tell a very good story about Tower. We’ve got some pretty good things that make us quite unique around our risk-based pricing and our ability to look at the different risks that we write.

“We could talk about that, and I guess that makes reinsurers comfortable about how we can manage our risks and make sure that we’re not subject to some of the things that’s going on with the rest of the world that’s impacting other insurers.”

To reflect Tower’s growth, the company increased its catastrophe upper limit to $934 million, with the catastrophe cover excess at $11.8 million. In FY23, Tower’s reinsurance cover will represent 13.6% of total income – a proportional reduction from FY22’s 14.3%, excluding aggregate cover.       

The hard market, meanwhile, is forecast to persist beyond 2022 amid issues including inflation.


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