TWR - Tower Insurance.

[Poet]

Not exactly, they are going to top up their catastrophe insurance. How much will that cost?

Is it just me, or does $934m of yearly catastrophe cover seem a bit inadequate anyway? I know EQC cover is increasing to $300k but that's still not a lot of houses.

The $200k + GST applies to all houses so from TWRs perspective, not important.

Also remember Tower has not had an annual result in 12 years unaffected by "one-off" unexpected, unbudgeted cost increases from the Christchurch earthquakes. Despite every year adding excess contingencies over and above the actuarial estimates. There are STILL open claims relating to it.

Yes, but still paying 10% + gross dividend so, as costs increase, so do premiums - TWR are a ticket clipper ie in the long term, the higher the claims the more the profits.

EQC's Natural Disaster Fund btw is only $250m with $7.2b of reinsurance. Only enough to cover 25k claims for the full $300k.

Sure, but 25000 claims at 300000 is quite a bit of cover, anyway that's not TWR's problem is it? TWR needs to pay claims above the EQC limit (and, interestingly, under the new arrangements TWR gets paid to administer the EQC claim, so in a moderate earthquake TWR will actually be earning $$

[Jaa]

Sure, but 25000 claims at 300000 is quite a bit of cover, anyway that's not TWR's problem is it? TWR needs to pay claims above the EQC limit (and, interestingly, under the new arrangements TWR gets paid to administer the EQC claim, so in a moderate earthquake TWR will actually be earning $$

TWR are definitely not just a ticket clipper. There is a material risk they will collapse in a heap once their reinsurance and reserves are used. They came close to doing exactly that after the Christchurch earthquakes. Hindsight shows shareholders would have been better off letting them and investing in the NZ50 index rather than bailing them out like they did.

As for EQC, the premiums should be higher to rebuild the fund. The taxpayer is clearly subsidising home owners.

[nztx]

https://www.stuff.co.nz/national/weather-news/300802599/cyclone-gabrielle-could-hammer-coromandel-with-up-to-300mm-of-rain-in-24-hours

Cyclone Gabrielle could hammer Coromandel with up to 300mm of rain in 24 hours


it might be getting a bit fine to book swimming lessons at this late point - folks :)

[nztx]

https://www.nzherald.co.nz/nz/weather-tropical-cyclone-gabrielle-metservice-gives-warnings-aucklanders-told-prepare-for-worst-150kmh-winds-300mm-rain/S5BT3GJPDNAJPCIQGY3D6FD56M/


Weather, Tropical Cyclone Gabrielle: Auckland mayor extends state of emergency, MetService gives warnings of 150km/h winds, 300mm rain


MetService’s head of weather communication, Lisa Murray, said: “If the cyclone continues on its current path towards the north of Aotearoa New Zealand, we can expect this to be an extreme weather event with widespread damage.

“Those areas that are already vulnerable following last week’s weather are expected to see more rain, strong wind, heavy swells and coastal inundation which will exacerbate the situation.”

Murray urged people to not forget a cyclone brings severe damaging wind as well as heavy rain and swell.

“As the ground is already sodden trees are more likely to topple which could cause power outages.”

[bull....]

at the end of the day all it means is insurance companies will not insure at risk property going forward and will increase premiums on everyone else ( more premiums depending on your risk situation )

only have to look at suncorp's result the other day to understand how they continue to make nice profits

the new risk factor for individuals when buying property now will be will this property get insurance in the future. if you owned one of these properties you might want to consider selling before they become worthless

[Balance]

at the end of the day all it means is insurance companies will not insure at risk property going forward and will increase premiums on everyone else ( more premiums depending on your risk situation )

only have to look at suncorp's result the other day to understand how they continue to make nice profits

the new risk factor for individuals when buying property now will be will this property get insurance in the future. if you owned one of these properties you might want to consider selling before they become worthless

TWR is a small bit industry player unlike the big boys so will continue to play catch up on premium levels as the disasters unfold.

I am glad I sold out and book my small gain when that became clear in 2021.

[Scrunch]

Sure, but 25000 claims at 300000 is quite a bit of cover, anyway that's not TWR's problem is it? TWR needs to pay claims above the EQC limit (and, interestingly, under the new arrangements TWR gets paid to administer the EQC claim, so in a moderate earthquake TWR will actually be earning $$
A lot of those claims will be car and contents. Not all the car claims will be writeoff's. Some of the house claims will be modest costs, for example a smaller retaining wall falls over and needs rebuilding. Thousands - yes. Hundreds of thousands - no. They do however know its big enough to trigger reinsurance.

[ronaldson]

Yes, but they already have prepaid cover for a 2nd catastrophe event up to another $889m subject to the $11.875m excess deduction. And they are seeking to put one further 3rd catastrophe cover in place to replace the first one now acknowledged to be triggered. That will require additional reinsurance expense but is a prudent response to current circumstances. In FY22 reinsurance premiums took 15.9% of premium income. In FY23 they spent 13.6% of anticipated premium income, so the 3rd event cover cost has a bit of headroom.

Tower has previously used policy pricing to effectively reduce its historic ratio of exposure to property damage in the Wellington Region. And it is in the early stages of doing so with regard to flood damage potential across the board. The necessary capping of any catastrophe cover event at some defined sum is the ultimate judgement call and TWR was underweight for ChCh in 2011. Perhaps not much has changed in that regard?

But really it is EQC who have dropped the ball and left the taxpayer with significant exposure. Their bucket has now leaked to practically empty.

[nztx]

https://www.stuff.co.nz/business/money/131178268/cost-of-house-insurance-has-increased-17-in-one-year-says-quashed

Cost of house insurance has increased 17% in one year, says Quashed


and much more on the way likely to be added ;)

[ronaldson]

TWR share price holding up remarkably well considering. Still, the announcements just in regarding the circumstances in HB are concerning. Not only property damage outcomes to worry about but now business interruption policies too. And what about boats, travel insurance et al.

Plus I can't help thinking that some of the MV losses/write offs due to flood damage seem to be due to heedless behavior and/or failure to take sensible precautions.

There won't be enough assessors to keep up so it will take time to understand the impact but no doubt the 2nd catastrophe cover has been well and truly triggered! Let's hope the cap holds!

[Antipodean]

Or it could be people who are willing to sell Tower every time adverse weather conditions occur are already out?

Talk of running out of reinsurance cover... but we're not even close. For some numbers - in 2021 the net claims incurred for domestic (home and contents) policies in all of NZ for all the year was $916m.

Tower does not cover the entire NZ market. Even if it did... the GWP for the same product and period was over $2b.... so still a healthy loss margin even in a difficult year. Even once you take out admin and other costs you can see why insurance still works and can turn profit even in claim heavy years.

[bull....]

yep stock prices of insurance co's in aus doing alright. even with all the bad weather

[bull....]

IAG saying they looking too raise premium's 10% in the next year. I am presuming this means 10% + in NZ

https://www.abc.net.au/news/2023-02-14/asx-markets-business-live-news-date-year/101847014

The results showed home insurance premiums rising by 10 per cent and motor cover increasing at a slightly faster rate in December last year, as the insurer flagged further premium increases in this half.

https://www.smh.com.au/business/banking-and-finance/steep-jump-in-premiums-more-to-come-for-home-and-car-insurance-20230213-p5cjzx.html

[alokdhir]

IAG saying they looking too raise premium's 10% in the next year. I am presuming this means 10% + in NZ

https://www.abc.net.au/news/2023-02-14/asx-markets-business-live-news-date-year/101847014

Premiums need go higher for higher risk houses and cars only ...raising them for everybody will not be fair ...they need emphasise to holders that if u live in high risk areas then flooding premiums for houses and cars will be higher so people look for such stuff before buying any house ...clifftops / flood prone / earthquake prone etc all is already available on LIM report ...use that risks to connect with premiums ...like hardly any claims from East Akl in last two events while almost 70% from West Akl ...it shud reflect in new premiums too ....

[bull....]

Premiums need go higher for higher risk houses and cars only ...raising them for everybody will not be fair ...they need emphasise to holders that if u live in high risk areas then flooding premiums for houses and cars will be higher so people look for such stuff before buying any house ...clifftops / flood prone / earthquake prone etc all is already available on LIM report ...use that risks to connect with premiums ...like hardly any claims from East Akl in last two events while almost 70% from West Akl ...it shud reflect in new premiums too ....

it will be even higher for some people in risk area's going forward and possibly like aus some people might even be looking at insurance premium's in the 10s of thousands for there home hence making it unaffordable for most and this removing the risk from insurers

[Jaa]

Nothing from Tower so far about the cyclone. Got to assume there will be more than $12m of claims and their 2nd catastrophe cover will now be triggered.

Key questions:

1) Did they replace the catastrophe cover used by the Auckland event before the cyclone hit?

2) If not, will they now need to buy cover for an additional two events? If so, how much will the delay cost them?

3) If not, Tower is currently left with only their 3rd, final and markedly reduced $45m of cover and even then only if Auckland flood claims stay below $889m. See page 19 of their FY presentation. (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/402876/384085.pdf)

Another disaster before they buy more cover and it could be the end of Tower, a modelled 1 in 1000 year probability.

But they are just a ticket clipper right?

[nztx]

Nothing from Tower so far about the cyclone. Got to assume there will be more than $12m of claims and their 2nd catastrophe cover will now be triggered.

Key questions:

1) Did they replace the catastrophe cover used by the Auckland event before the cyclone hit?

2) If not, will they now need to buy cover for an additional two events? If so, how much will the delay cost them?

3) If not, Tower is currently left with only their 3rd, final and markedly reduced $45m of cover and even then only if Auckland flood claims stay below $889m. See page 19 of their FY presentation. (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/402876/384085.pdf)

Another disaster before they buy more cover and it could be the end of Tower, a modelled 1 in 1000 year probability.

But they are just a ticket clipper right?

gotta have enuff tickets stashed away to be able to clip them :)

Do we have another cyclone on the way soon ?

the season could just be getting started rock & rolling ... and crashing :)

or do we get a break before the winter storm varieties start rolling on in :)

[Jaa]

gotta have enuff tickets stashed away to be able to clip them :)

Do we have another cyclone on the way soon ?

the season could just be getting started rock & rolling ... and crashing :)

or do we get a break before the winter storm varieties start rolling on in :)

Earthquakes, volcanoes....

Tower year end is March 31 and can't come soon enough!

[Poet]

Earthquakes, volcanoes....

Tower year end is March 31 and can't come soon enough!

Sorry to bring bad tidings, and I'm sure this will rip your knickers, but TWR end of year is 30 September:ohmy:

[nztx]

Sorry to bring bad tidings, and I'm sure this will rip your knickers, but TWR end of year is 30 September:ohmy:


now the cat's out of the bag :)

[bull....]

Nothing from Tower so far about the cyclone. Got to assume there will be more than $12m of claims and their 2nd catastrophe cover will now be triggered.

Key questions:

1) Did they replace the catastrophe cover used by the Auckland event before the cyclone hit?

2) If not, will they now need to buy cover for an additional two events? If so, how much will the delay cost them?

3) If not, Tower is currently left with only their 3rd, final and markedly reduced $45m of cover and even then only if Auckland flood claims stay below $889m. See page 19 of their FY presentation. (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/402876/384085.pdf)

Another disaster before they buy more cover and it could be the end of Tower, a modelled 1 in 1000 year probability.

But they are just a ticket clipper right?

getting extra re-insurance will cost them and s/h probably meaning a profit downgrade at some stage i reckon from figure's they released at the last report. Still means they can make a profit it might just reduce some to pay for this extra re-insurance.
But at the same time this cost of extra re-insurance ( be the same for iag i presume and suncorp etc ) is usually just passed on to consumers as higher premiums and this would probably be on top of the increase that was to come for inflationary increase in premiums
So all this flows thru in following period's hence why insurers normally still make good money even after big events

[Antipodean]

Watch the shared lunch chat with CEO that was put out yesterday. The short answer is, no problems expected with covering both events and rest of year even if further large events are forthcoming. Some strain on front line responses but financially they are well prepared.

People seem to be confused so note there is a big difference between cost of events in total, towers intial exposure via claims cost, and towers net exposure once reinsurance treaties are accounted for.

[ronaldson]

Interesting update announcement to NZX this morning.

Pleased to hear that the weather bomb from late January has an expected cost of $95 - $125m because that suggests the Cyclone Gabrielle event will not exceed the catastrophe cap for the 2nd such event.

Concerning that it refers to "the expected cost of reinstating reinsurance arrangements" because that implies it hasn't actually happened yet or the cost would be known. I note that the recent strong earthquake event off the Kapiti Coast, had it occurred onshore, would plainly have triggered third event cover which would then have been limited to a completely inadequate capped sum based upon the information already referenced on this thread.

That apart the revision to guidance is reassuring and should have been anticipated by most holders. I would expect it would be prudent to pass the interim dividend for the current financial year, but that the Board of TWR will make every effort to keep to the full year dividend guidance of 5cps in due course.

[Jaa]

Terrible announcement as the share price is showing.

Needed to say "we have bought X amount of replacement cover at Y cost".

Reinsurers have them over a barrel.

[Antipodean]

The share price is reflecting the updated - lowered - guidance which isn't a surprise you'd exit if you are invested for the short term.

Noted this guidance includes the already budgeted cost to reinstate the reinsurance which is a fairly standard item in most treaties. I'd expect its already been triggered but will be accounted for at end of FY. The new guidance also includes increasing the large event provision to $40m so they could take another event of this size and still have funds allocated for large event(s) left for this year.

[Poet]

Terrible announcement as the share price is showing.

Needed to say "we have bought X amount of replacement cover at Y cost".

Reinsurers have them over a barrel.

I'm not sure it's as bad as all that Jaa.

Wouldn't the re-insurers have them over a barrel at every reinsurance negotiation? I don't really see this reinstatement as being any different from the normal annual negotiation. For one thing the RE market will have a reasonable amount of competition and I also expect that TWR have long term relationships in place and attempts by reinsurer to profiteer wouldn't be all that profitable to the reinsurer over the long term (other clients will be watching their behaviour too I'd imagine). They may also have reinstatement arrangements built into the original RE contract.

Also, if I'm reading the arrangements correctly as per that slide in December's shareholder presentation. The catastrophe cover is broken into three parts for each evet

The Excess $11.85m
Cover for $11.85m to $200m
Cover for $200m to $934m

These two weather events have probably both fallen in the $11.85m to $200m bucket so if I'm not mistaken the two reinsurance covers for $200m to $934m are still in place and untouched. So the requirement now for a third Cat event will be to bridge the gap up to $200m

I think that the market is over-reacting somewhat. But then it often does doesn't it?

[Jaa]

I'm not sure it's as bad as all that Jaa.

Wouldn't the re-insurers have them over a barrel at every reinsurance negotiation? I don't really see this reinstatement as being any different from the normal annual negotiation. For one thing the RE market will have a reasonable amount of competition and I also expect that TWR have long term relationships in place and attempts by reinsurer to profiteer wouldn't be all that profitable to the reinsurer over the long term (other clients will be watching their behaviour too I'd imagine). They may also have reinstatement arrangements built into the original RE contract.

Also, if I'm reading the arrangements correctly as per that slide in December's shareholder presentation. The catastrophe cover is broken into three parts for each evet

The Excess $11.85m
Cover for $11.85m to $200m
Cover for $200m to $934m

These two weather events have probably both fallen in the $11.85m to $200m bucket so if I'm not mistaken the two reinsurance covers for $200m to $934m are still in place and untouched. So the requirement now for a third Cat event will be to bridge the gap up to $200m

I think that the market is over-reacting somewhat. But then it often does doesn't it?

You may be right, there is no info about what the "multi-year secured" portion ($11.85m to $220m) means and precious little about their reinsurance arrangements in general. Both events should fit in that range.

I don't put much store in their estimates though, they are hopeless at estimating the total cost of a disaster (they are STILL adding extra provisions for the Christchurch earthquakes - a couple of million in FY22).

The floods and cyclone increase NZ's risk profile therefore making reinsurance in general more expensive. They paid $66m for reinsurance in FY 22, $51m of that for NZ. Maybe these include reinstatement at a set price, who knows? Dividing by the remaining 7.5 months suggests replacing it at similar rates could be ~$32m? The announcement and updated guidance suggest the cost is more like a few million so it must just be the $12-220m portion?

The phrase "reinstating arrangements" makes it unclear if they are buying cover for 1 or 2 more large events, $10m of additional cover suggests only one?

As Ronaldson says the company is hinting they won't pay an interim dividend. I would be surprised if the Reserve Bank allows them to.

Insurance is risk management. Tower is being tested, again.

[Poet]

Yes all very confusing and ambiguous, I agree.

But, your criticism of
I don't put much store in their estimates though, they are hopeless at estimating the total cost of a disaster (they are STILL adding extra provisions for the Christchurch earthquakes - a couple of million in FY22).

Is a bit misdirected, this needs to be slated home to EQC who are still reopening repairs that they had initially deemed 'under cap' and only now sending them to the insurance companies to sort out.

[Jaa]

Yes all very confusing and ambiguous, I agree.

But, your criticism of
I don't put much store in their estimates though, they are hopeless at estimating the total cost of a disaster (they are STILL adding extra provisions for the Christchurch earthquakes - a couple of million in FY22).

Is a bit misdirected, this needs to be slated home to EQC who are still reopening repairs that they had initially deemed 'under cap' and only now sending them to the insurance companies to sort out.



Naaa, EQC and house repairs are a known part of the NZ insurance industry.

Tower employ actuaries whose job it is to make these estimates. Then they add a standard risk contingency on top based on what they don't know (undercap claims going overcap, inflation etc) and then the Tower board even added additional contingency on top of that. All were hopelessly inadequate. Year after year after year. 12 years later they are still inadequate!

Insurance companies with good risk management make abnormal extra profits from contingencies not being needed and released as bonus dividends. Tower does the opposite.

Tower had an incentive to lowball the estimates, to get shareholders to buy into the rights issue and suffer through years of no dividends and poor returns.

[Antipodean]

They paid $66m for reinsurance in FY 22, $51m of that for NZ. Maybe these include reinstatement at a set price, who knows? Dividing by the remaining 7.5 months suggests replacing it at similar rates could be ~$32m? The announcement and updated guidance suggest the cost is more like a few million so it must just be the $12-220m portion?

The phrase "reinstating arrangements" makes it unclear if they are buying cover for 1 or 2 more large events, $10m of additional cover suggests only one?

This is simply not how reinsurance works.

[ronaldson]

Jaa - The TWR estimates of the cost of the upper limit of catastrophe events loss are essentially irrelevant providing the reinsurance cap is not breached (which ultimately did prove to be the case with the Christchurch earthquake series, so you are correct that the "long tail" of claims arriving, mostly due to EQC, on that occasion has caused ongoing provisioning).

But logically the cap will clearly not be breached for the anniversary rain bomb circumstance where claims are substantially already lodged and the upper limit estimate is said to be $125m while the reinsurance cap available is $934m.

I am more doubtful about the Cyclone event because the geographic spread is very wide and (for obvious reasons) the number of actual claims is not yet ascertained nor even capable of being estimated presently with any degree of reliability. But the reinsurance cap available is $889m so really the only issue is can/will claims be contained within that margin. No doubt we will be updated on or before the TWR ASM scheduled on Tuesday 28 February (for y/e 30 September 2022). But the last NZX announcement is somewhat reassuring.

When I look at the four most significant FY22 large events (see one of my earlier posts on this thread), none of which required TWR recourse to reinsurance cover, I am always pleasantly surprised at the low cost actually incurred by TWR compared to the obvious devastation that resulted from each. Of course TWR has only a smallish % of the overall insurance market so these events cost the other main providers much more but still the cost is relatively small compared to what I would have intuitively expected.

And EQC will bear some of the load. So while I would like to be further reassured as to the expected cost of the Cyclone the situation is that so long as the reinsurance cap is not approached then there is no risk ongoing provisioning will be required.

[Jaa]

This is simply not how reinsurance works.

Please enlighten us, as Tower has left us to guess.

[Jaa]

An industry prediction of massive price increases from Insurance Mag (insurancebusinessmag.com/nz/news/natural-catastrophe/howden-nz-ceo-says-its-going-to-be-an-interesting-year-for-insurance-436498.aspx). I reckon 30% is already substantial!


We’re expecting price increases of between 20% and 30% on clean risks where no losses have been incurred. For those risks where claims have been made, the increases will be substantial.

Also heard that a Tower subsidiary stopped writing new risks last week. Assume that is standard while you are "reinstating reinsurance arrangements" and updating the paperwork?

[ronaldson]

Jaa - If you are correct about a TWR subsidiary ceasing to write new risks then it may indeed be a regulator (ie RBNZ) requirement pending further approved reinsurance arrangements being legally set in place, given the two original main catastrophe event covers have already been triggered this year.

Or it may be related to consideration being given to repricing risk, especially flood risk, and/or looking at areas where flood damage cover may no longer be offered.

And as you point out the cost of reinsurance for NZ insurers will inevitably rise (and probably already has). In that context a lot will depend on how those insurers can demonstrate to reinsurers that their underwriting is both prudent and affirmatively directed to mitigating the claims costs for such outcomes going forward.

[nztx]

https://www.nzherald.co.nz/nz/cyclone-gabrielle-gisborne-hawkes-bay-in-for-more-rain-metservice-warns/PMV74BSUQJALJOUZW64GOIT2PE/


Cyclone Gabrielle: Gisborne, Hawke’s Bay in for more rain, MetService warns

[Jaa]

Jaa - If you are correct about a TWR subsidiary ceasing to write new risks then it may indeed be a regulator (ie RBNZ) requirement pending further approved reinsurance arrangements being legally set in place, given the two original main catastrophe event covers have already been triggered this year.

Or it may be related to consideration being given to repricing risk, especially flood risk, and/or looking at areas where flood damage cover may no longer be offered.

And as you point out the cost of reinsurance for NZ insurers will inevitably rise (and probably already has). In that context a lot will depend on how those insurers can demonstrate to reinsurers that their underwriting is both prudent and affirmatively directed to mitigating the claims costs for such outcomes going forward.

Yes, one my concerns is that the timing difference between the cost of reinsurance increasing (ie now) and the re-pricing of policy renewals over the next 12 months. 25% increase on both sides would be more than enough to create a one-off abnormal cost that eats the dividend.

[Antipodean]

This is simply not how reinsurance works.

Please enlighten us, as Tower has left us to guess.

A fair response, and looking back at my comment the tone wasn't great and I wasn't offering anything better on the information front so my apologies there.


Treaty reinsurance covers the book in general beyond the ability of the company to cover perils, in a not dissimilar way to individual insurance is designed to cover events a person cannot reasonably cover themselves. You have excesses and other similar features, but reinsurance treaties are typically more bespoke. So while I can speak in generalities the specifics of one companies treaty may differ so keep that in mind.


One of the big differences is how companies can 'top up' cover during the year. Not something featured in typical insurance contracts. However not usually something needed in insurance contracts - if you get multiple burglaries in a single year your policy will likely respond each time - so long as any individual claim doesn't exceed any policy terms and conditions (ie payout caps). With reinsurance, typically cover exhausts throughout the year and there are in built 'top ups' that the company can execute through the year. These are often at different rates to the initial purchase (to represent the lesser risk of multiple such covers being required in any one year)


So instead of having to re buy top up cover at the same rate - it is likely and possible the rate is much lower than the original cost (and I expect based on the wording of the announcement is build into the new projections for the company). Without seeing the treaty cannot be sure but will be mixed in with reinsurance costs in the annual reports when released.


This is a large event, and following another large event so early in the year for Tower that providing new guidance is expected.

However like a homeowner who has a total loss on their risk - the excess hurts and next years premium is going to be higher - but their exposure is limited to the excess and based on the current figures and market slice I don't expect either of these events to approach the 'sum insured' or in this case the treaty reinsurance cost.


Which means so far as I can tell there is still a large amount of reinsurance cover still available for the year, and 1-2 further large events already budgeted for in terms of costs (excesses and administration). Prudence would imply assuming these will be used up as when in recent times has large event caps not been used up? Noting however in recent years even when large event caps are fully used companies like Tower and similar in Australia still post profits. When/If the year comes around they aren't used things could be different.


Longer term items like continual increases in GWP, investment holdings and return, loss ratios and receivables are where I'm aiming my assessment when I look at this company. If you are only looking 12m out, or you think insurance companies fail when storms happen or get more frequent, then this possibly is a poor place to look for parking funds.

[nztx]

https://www.nzherald.co.nz/bay-of-plenty-times/news/cyclone-gabrielle-hawkes-bay-gisborne-muriwai-piha-coromandel-live-updates-more-rain-looms-for-east-coast/4I476SA24JBQ5ALPRNYCY4QYWY/

‘High’ risk of new cyclones developing in tropics


Forecasters have assessed a “high” risk of more cyclones developing in the tropics from the back half of next week – but that doesn’t mean New Zealand is in for a third unwelcome visit.

“While Cyclone Gabrielle has now dissipated completely, we must remember that we are still in the middle of the South Pacific Oceans’ tropical cyclone season,” MetService meteorologist Lewis Ferris said.

Historically, late February and early March marked the height of our November-to-April cyclone season. In a given week around this peak period, chances of a cyclone being present in the southwest Pacific was typically at least 50 per cent.

[Jaa]

A fair response, and looking back at my comment the tone wasn't great and I wasn't offering anything better on the information front so my apologies there.


Treaty reinsurance covers the book in general beyond the ability of the company to cover perils, in a not dissimilar way to individual insurance is designed to cover events a person cannot reasonably cover themselves. You have excesses and other similar features, but reinsurance treaties are typically more bespoke. So while I can speak in generalities the specifics of one companies treaty may differ so keep that in mind.


One of the big differences is how companies can 'top up' cover during the year. Not something featured in typical insurance contracts. However not usually something needed in insurance contracts - if you get multiple burglaries in a single year your policy will likely respond each time - so long as any individual claim doesn't exceed any policy terms and conditions (ie payout caps). With reinsurance, typically cover exhausts throughout the year and there are in built 'top ups' that the company can execute through the year. These are often at different rates to the initial purchase (to represent the lesser risk of multiple such covers being required in any one year)


So instead of having to re buy top up cover at the same rate - it is likely and possible the rate is much lower than the original cost (and I expect based on the wording of the announcement is build into the new projections for the company). Without seeing the treaty cannot be sure but will be mixed in with reinsurance costs in the annual reports when released.


This is a large event, and following another large event so early in the year for Tower that providing new guidance is expected.

However like a homeowner who has a total loss on their risk - the excess hurts and next years premium is going to be higher - but their exposure is limited to the excess and based on the current figures and market slice I don't expect either of these events to approach the 'sum insured' or in this case the treaty reinsurance cost.


Which means so far as I can tell there is still a large amount of reinsurance cover still available for the year, and 1-2 further large events already budgeted for in terms of costs (excesses and administration). Prudence would imply assuming these will be used up as when in recent times has large event caps not been used up? Noting however in recent years even when large event caps are fully used companies like Tower and similar in Australia still post profits. When/If the year comes around they aren't used things could be different.


Longer term items like continual increases in GWP, investment holdings and return, loss ratios and receivables are where I'm aiming my assessment when I look at this company. If you are only looking 12m out, or you think insurance companies fail when storms happen or get more frequent, then this possibly is a poor place to look for parking funds.

Thank you, built-in reinsurance top ups at lower rates helps explain their guidance.

Much of their increase in GWP is from price increases, growth in the number of policies has been lower, around 5% the last few years. Management expense ratio has been improving and should continue to as they close down more old products and underlying IT systems. Their investment income will also be increasing with interest rates. Hopefully these wins don't get eaten by storm related expenses or yet more Christchurch provisions.

[nztx]

Just When ..

https://www.haurakigulfweather.com/cyclone1


A weak tropical low has formed near Samoa on the South Pacific Convergence Zone. Sea surface temperatures are around 30°c with unfavouable wind shear but becoming more favourable on Sunday into Monday. The low is expected to move in a west to south-west direction over the next day past Fiji.

Longer term, some weather models suggest that the tropical low could deepen and become a tropical cyclone early to mid next week between Fiji and Vanuatu.

[ronaldson]

I'm off to the ASM at 10.00am tomorrow, despite it being a hybrid one. Should be more interesting than most ASM's for obvious reasons.

I wish to understand the current status of TWRs reinsurance arrangements, and the current claims history for Cyclone Gabrielle and whether there are any qualms with respect to the second catastrophe cover cap available.

[Poet]

A few takeaways from this morning's ASM

The regulators (RB and FMA) have no issues with TWR present level of re-insurance and have raised no red flags
The unused portions of reinsurance cover left over after paying for the first two catastrophe claims are still available to be applied against a third and subsequent large claim (subject to a $12.5m excess) Stated also that Cyclone Gabrielle costs will be well below the upper limits of re-insurance cover
Re-insurance negotiations are ongoing (seems the delay is in receiving quotes from international providers) but again seems no urgency since good level still in place for potential further large claims.
First quarter results were good, so portends well for ongoing BAU ratios and profitability
Definitely starting to make big noises about and commitment to risk based pricing - that must be good for shareholders long term

[bull....]

But Tower also warned investors it planned to expand its risk-based pricing to include landslips and coastal hazards

https://www.stuff.co.nz/business/131354477/tower-expects-flood-claims-of-up-to-125m-and-premium-increases-for-people-with-homes-at-risk-of-coastal-flooding-or-landslip

already moving more on risk based pricing.
imagine its only matter of time before all insurance co's base insurance on risk based case

[ronaldson]

Poet - I don't think the Regulator (RBNZ)/FMA would admit to "having no issues" as you put it, but at the moment they haven't imposed any conditions pending further/additional reinsurance cover being put in place, or perhaps even directly raised any concern with TWR. Asleep at the wheel I would say, but what else would you expect?

It seems clear Gabrielle itself will not cause the second catastrophe cover ceiling to be approached, which is reassuring considering the devastating scenes depicted daily. The end result may still be under the current upper limit estimate for the Anniversary weekend Upper North Is rainstorm event, which seems counter-intuitive until you reflect that the bulk of policyholders are in that area. Apparently, by contrast, only 2.6% of policyholders are in the HB.

Also, contrast TWR with FMG which is a rural insurer and covers crop damage etc. Wouldn't be in their shoes!

[ronaldson]

Terrific announcement just posted by TWR confirming full reinsurance cover to $889m for two further catastrophe events is now in place, with no change to guidance for FY23.

This de-risking of the unprecedented situation which had arisen by virtue of the Upper North Is rainstorm and the Cyclone Gabrielle events occurring in quick succession is highly significant for holders (not to mention existing policyholders).

I for one will sleep better tonight!

[nztx]

Terrific announcement just posted by TWR confirming full reinsurance cover to $889m for two further catastrophe events is now in place, with no change to guidance for FY23.

This de-risking of the unprecedented situation which had arisen by virtue of the Upper North Is rainstorm and the Cyclone Gabrielle events occurring in quick succession is highly significant for holders (not to mention existing policyholders).

I for one will sleep better tonight!


Just in time for the March/April South Pacific Huricane window ..

Will Fiji/Vanuato's Judy(?) come this way just for a visit to clip the TWR ticket on a further event ? ;)

The resident Rain Gods up North may not be done just yet or for a while with us yet ..
perhaps Tamaki knows who they are ? :)

[bull....]

so it will wipe off 6 mil of the 18 - 23 npat forecast if they have another large event ?

[Perky]

Hi Nztx… I’ve noticed you posting storm warnings a lot lately on the TWR thread. If you going to post on the weather …how about you do some reading and get your story right.

Hurricanes are generally a northern hemisphere term…cyclones are what there called down hear in South Pacific.

The cyclone season happens every year in South Pacific between November and april..there is no March/April window.

According to met service FEB is the most likely peak month…so Whilst we might get more storms before end of this season we might get no more particularly as we start to move from warm summer to cooler autumn.

So just like you get your strawberries, asparagus and bluff oysters in a limited season we are likely to get tropical cyclones in a limited season…every year

Have a look at this map on the met site and you will see how few cyclones actually come our way
https://about.metservice.com/our-company/national-weather-services/tropical-cyclones/


You might be fascinated to know that many sailing boats come to nz from the pacific area every year as their insurance will not cover them in cyclone season or they pay a extra premium for the higher risk

Its sunny with no wind in Auckland today…no chance of a hurricane…good day for TWR shareholders

[ronaldson]

bull - As I have it the most recent guidance to which you refer above is based upon an increased "large events" provision for FY23 of $40m. The two catastrophe cover excesses already triggered mop up $23.75m of that sum, having been $11.875m each.

A "large event" and a "catastrophe event" as per TWRs definition are not the same thing. One of my earlier relatively recent posts on this thread explains how TWR define a large event for the purpose of allocating claims costs verses expensing such costs as BAU, and it is also worthwhile looking at how the roughly $19m of large event costs in FY22 were comprised, none of which came close to triggering the "catastrophe" threshold.

But I have noted that, even after the additional reinsurance now placed, a third catastrophe event in FY23 has an effective excess of $18.46m which is a hefty amount and would more than take up the balance of the $40m provision by itself, without allowing for more minor large event happenings. However TWR will be reasonably confident that absent a third catastrophe event the remainder of the existing $40m large event provision will be adequate up to 30 September 2023 when an entirely new set of reinsurance arrangements (albeit almost certainly more expensive than past placements) will kick in for FY24.

[Jaa]

A third catastrophe event in the financial year will incur an excess of $12.5m, and a 13.25% share of
losses between $12.5m and $57.5m.

They have increased their exposure to a 3rd event in exchange for cheaper full cover of that and a 4th event. Think we can read into this that reinsurance costs have increased materially.

A small increase in the excess for both events of 625k and a share of the risk up to 57.5m which was previously covered by the reinsurers. So the cost of another large event for Tower has gone up from 11.85m to 12.5m + ~6m = $18.5m. An increase in exposure of 56%.

Interesting trade-off/gamble. Probably a smart strategy but shows this insurance business is definitely not just ticket clipping.

[nztx]

They have increased their exposure to a 3rd event in exchange for cheaper full cover of that and a 4th event. Think we can read into this that reinsurance costs have increased materially.

A small increase in the excess for both events of 625k and a share of the risk up to 57.5m which was previously covered by the reinsurers. So the cost of another large event for Tower has gone up from 11.85m to 12.5m + ~6m = $18.5m. An increase in exposure of 56%.

Interesting trade-off/gamble. Probably a smart strategy but shows this insurance business is definitely not just ticket clipping.


How does Cover get cheaper with more of these extreme Weather events ? ;)

Most would assume the opposite to be the case ..

I would love to see the next Insurance Bills reduce markedly - but I will believe it when I see it
which likely wont happen for anyone :)

How does TWR manage to pull this sort of stunt whilst sucking in vastly rising reinsurance
reimbursements for each of these large events ?

Surely the global reinsurers would be out with red pen sanctioning off frequent flyers in Disaster
prone areas like here & Aussie as more risk becomes apparent ..

[nztx]

Hi Nztx… I’ve noticed you posting storm warnings a lot lately on the TWR thread. If you going to post on the weather …how about you do some reading and get your story right.

Hurricanes are generally a northern hemisphere term…cyclones are what there called down hear in South Pacific.

The cyclone season happens every year in South Pacific between November and april..there is no March/April window.

According to met service FEB is the most likely peak month…so Whilst we might get more storms before end of this season we might get no more particularly as we start to move from warm summer to cooler autumn.

So just like you get your strawberries, asparagus and bluff oysters in a limited season we are likely to get tropical cyclones in a limited season…every year

Have a look at this map on the met site and you will see how few cyclones actually come our way
https://about.metservice.com/our-company/national-weather-services/tropical-cyclones/


You might be fascinated to know that many sailing boats come to nz from the pacific area every year as their insurance will not cover them in cyclone season or they pay a extra premium for the higher risk

Its sunny with no wind in Auckland today…no chance of a hurricane…good day for TWR shareholders

Thanks for pointing that out Perky .. just seeing how many were awake here :)

Bear in mind we're keeping what's left of the good stuff here, so dont be surprised when
the limited supply window closes earlier further afield ..

[ronaldson]

They have increased their exposure to a 3rd event in exchange for cheaper full cover of that and a 4th event. Think we can read into this that reinsurance costs have increased materially.

A small increase in the excess for both events of 625k and a share of the risk up to 57.5m which was previously covered by the reinsurers. So the cost of another large event for Tower has gone up from 11.85m to 12.5m + ~6m = $18.5m. An increase in exposure of 56%.

Interesting trade-off/gamble. Probably a smart strategy but shows this insurance business is definitely not just ticket clipping.

Jaa - Exactly. Someone close to the action here described it to me as " a dark art ".

[Jaa]

How does Cover get cheaper with more of these extreme Weather events ? ;)

Most would assume the opposite to be the case ..

I would love to see the next Insurance Bills reduce markedly - but I will believe it when I see it
which likely wont happen for anyone :)

How does TWR manage to pull this sort of stunt whilst sucking in vastly rising reinsurance
reimbursements for each of these large events ?

Surely the global reinsurers would be out with red pen sanctioning off frequent flyers in Disaster
prone areas like here & Aussie as more risk becomes apparent ..

Insurance isn't a charity. As a policyholder you should want your insurance company to be successful and profitable so it can employ good people and crucially be supported be shareholders in tough times as Tower was after the earthquakes.

Rational shareholders will only do this if the company has a track record of earning a return equal or better than the market average. This hasn't been true for NZ or Australian insurance companies for the last decade.

Here is a 5 year chart of NZ's major insurers. This should concern all policyholders.
14499

[Jaa]

How does Cover get cheaper with more of these extreme Weather events ? ;)

Most would assume the opposite to be the case ..

I would love to see the next Insurance Bills reduce markedly - but I will believe it when I see it
which likely wont happen for anyone :)

How does TWR manage to pull this sort of stunt whilst sucking in vastly rising reinsurance
reimbursements for each of these large events ?

Surely the global reinsurers would be out with red pen sanctioning off frequent flyers in Disaster
prone areas like here & Aussie as more risk becomes apparent ..

Insurance isn't a charity. As a policyholder you should want your insurance company to be successful and profitable so it can employ good people who make accurate risk assessments and crucially be supported be shareholders in tough times as Tower was after the earthquakes.

Rational shareholders will only do this if the company has a track record of earning a return equal or better than the market average. This hasn't been true for NZ or Australian insurance companies for the last decade.

Here is a 5 year chart of NZ's major insurers against the S&P/ASX 200 and S&P/NZX 50 indexes. The underperformance should concern all policyholders as well as shareholders.

14500

[nztx]

Just as well TWR have no exposure here -

https://www.nzherald.co.nz/talanoa/vanuatu-residents-exhausted-after-two-cyclones-in-three-days/4JYUADIJF5DODAZUC3L7NNBUCY/

or do they ?

[ronaldson]

nztx - Vanuatu is one of the Pacific Is countries where TWR are active, so claims can be expected from that cyclone event. I'm sure in all the Pacific countries (excluding now Papua New Guinea, where TWR recently exited as an insurer by on selling its investment) there will be rigorous building code underwriting standards for property risk given the prevalence of these events.

It is highly unlikely that storm will trigger catastrophe cover, but probably will constitute a large event. I have previously pointed out that in FY22 the following were expensed under the large event provision ie Tonga volcanic eruption $6.8m, Cyclone Dovi $3.6m, North Is rainstorms $6.4m and Nelson floods $4.3m. These were each considerable devastating occurrences in their own right but nevertheless TWRs actual accountability was in aggregate still contained within or very close to the overall $20m large event provision budgeted that year.

So that current cyclone should be just another relatively minor blip on the radar so far as TWR is concerned, although we should get an update when the half-year results to 31 March are reported in May.

[nztx]

Actually there have been two cyclones in three days go through Vanuatu

https://www.nzherald.co.nz/talanoa/vanuatu-residents-exhausted-after-two-cyclones-in-three-days/4JYUADIJF5DODAZUC3L7NNBUCY/

Will they be treated as separate events or just one event ?

News coverage shows things fairly well munted & flattened

[peat]

Will they be treated as separate events or just one event ?

Im not sure about the specific definitions in this case but many policies consider multiple events of the same type within 72 hours to be the same and not incur another excess.

[nztx]

How many Reinsurance lives in the current FY will TWR have left after this ?

[ronaldson]

Almost certainly two, being the $889m covers reinstated as per the most recent NZX announcement. I tried to point out in #1807 with reference to actual examples that catastrophe cover is only rarely triggered because to do so claims need to at least be above the excess retention sum, otherwise they will be expensed as a "large event" within the $40m TWR has currently provided for FY23 for that purpose.

So yes, it is concerning to have these occurrences in quick succession. On the other hand, shareholders need to accept that the social purpose of insurance companies is to pay claims in accordance with its contractual relationship with customers. In fact, claims are a business-as-usual circumstance.

The sheer number of claims arising thou will cause administration/processing costs to be above what could reasonably have been anticipated/provided for, and likely not just in FY23 but further out as settlements are delayed into FY24 and possibly beyond. So there are indirect as well as direct impacts upon profitability.

The debate about rebuilding v managed retreat is really underway now in this country. What is obvious is that many currently adversely affected cannot hope for a timely resolution so heartbreak, despair, grief, anger and the whole gamut of emotions will fester on. I thought the TWR Chair was clear at the recent ASM that insurers were not going to contribute more financially to assist as it was not their role, and basically I agree with that.

[ronaldson]

More positive today, trading at 63.5, so fear/panic deriving from the recent climate events has abated somewhat.

I thought the announcement regarding the placement of the further catastrophe covers with reinsurers for the balance of FY23 was great news to de-risk the company going forward from what was admittedly a temporarily fraught and unprecedented circumstance. Definitely worth a few more cents on the share price than the market demonstrated at the time!

[Antipodean]

Sentiment is not general in favour of insurance as an industry at the moment, and sometimes the market is more sentiment based than rationale/fundamental based. See the reaction to any news based weather event and the panic that follows.

In addition, TWR long term business turn around is only a few years in the making, there was a good long stretch of ~5 years where the business wasn't looking so healthy prior to that. Market can have a long memory when it wants to.

Two combinations above means the upcoming FY is likely to be subdued. Longer term - in the 2-5 year bracket - expanding GWT, betterment of claims ratios and investment into lower admin and servicing cost could play out nicely. Not to mention the increase in returns on the considerable capital Tower holds due to regulation - vast majority in investments that will be returning more in the future.

[bull....]

was only matter of time for twr to re-cover . not the end of the world event like some were saying

[850man]

Dump of 234K shares end of day dragging the SP down 4%, wonder what's going on there?

[ronaldson]

Cost of back-to-back TC's Kevin and Judy in Vanuatu another hit to TWRs $40m provision?

And while the catastrophe cover limit may not have been breached by Gabrielle the provision for business-as-usual administration overhead and associated costs will clearly be under severe pressure for the rest of FY23.

[bull....]

also the govt is backtracking on climate actions now
meaning no concrete action is now being undertaken to reduce climate events which effects sentiment towards the sector

[ronaldson]

And it seems that on 24 February IAG bolstered its NZ entity capital by issuing a further 100m shares, presumably to maintain solvency margins after the two events earlier in the month. It too will have recourse to reinsurance, probably in both instances, but was this just a prudent step or a Regulator requirement or another example of circumstances where since two reinsurance treaties had been/clearly would be called upon that action was necessary pending replacement of those treaties similar to the further placements needing to be taken by TWR?

However it is, these quick succession events have obviously roiled the industry in NZ and will linger long in the minds of overseas reinsurers, not to mention the long tail to settle the more complicated claims aka Christchurch.

[850man]

also the govt is backtracking on climate actions now
meaning no concrete action is now being undertaken to reduce climate events which effects sentiment towards the sector

Not like anything we could do in NZ will make any difference as we contribute something like 0.17% to global emissions. Better off to put our money on adapting to more extreme weather events than trying to stop them from happening.

[ronaldson]

Trading today with Buyers at 65c and Sellers at 67c, indicating that fear around the impact of recent adverse weather events is subsiding.

The half year results released in May will be interesting. TWR must be taking quite a heavy hit, not from claims payouts which will mainly be covered by reinsurance treaties, but from an increase in administration overhead costs to address the deluge of claims arising. This will not all be expensed in the current financial year but will drag on profits for some time.

[ronaldson]

Interesting that the share price dipped somewhat following my post #1820 above. I am heartened by todays announcement that the ratings agency AM Best has now affirmed both TWRs Financial Strength Rating and Long Term Issuer Credit Rating as A- (Excellent) notwithstanding the two recent large-scale claim events.

In the circumstances I am sure AM Best will not have given a "once over lightly" assessment but will have been motivated to have a hard look at how it is given the number of insurance company failures after the 2011 ChCh earthquake sequence. So the positive ratings affirmation is encouraging for holders.

[nztx]

Just when:

https://www.nzherald.co.nz/nz/weather-civil-defence-warns-aucklanders-to-prepare-for-the-worst-as-heavy-rain-gales-set-to-strike-north/GK346EPWGRBBTBC2AUDMOXD3ZA/


Weather: Civil Defence warns Aucklanders to ‘prepare for the worst’ as heavy rain, gales set to strike north

Another prolonged spell of liquid tropical sunshine appears on the horizon


https://www.nzherald.co.nz/nz/weather-auckland-mayor-wayne-brown-gets-civil-defence-briefing-heavy-rain-big-seas-gales-to-strike-north/UD44C6XZORHIZD4XTR4W4XRPNQ/

Weather: Auckland Mayor Wayne Brown gets Civil Defence briefing, heavy rain, big seas, gales to strike north

[Antipodean]

Weather still exists... Tower will still pay claims...

Announcement coming end of month. Time to check in on the fundamentals.

Guidance remains at 18-23m NPAT, which at 64 cps is 10.5-13.5 p/e and 5-6 eps.
This includes expectations of 40m being completely spent on large events with excess over 11.875m.
Currently only 23.8m spent here on the two large events earlier this year leaving 16.2m expected large event spend availabe to stay at NPAT in line with the above.

I expect end of month they will announce the interim div of 2.5 cps (4% gross @ sp .64) paid in June - that will allow them to do another 2.5 cps later in the year if more large events occur - or higher if nothing impacting the portfolio occurs.

Interestingly... from last annual report they hold $258m investments in mostly bonds/term deposits - which will have been doing much better this year than last.
With a mcap at $243m you are actually getting more than your dollar worth of investments just on this alone.

Gwp up double digits in last announcement also worth keeping an eye on.

[SailorRob]

Weather still exists... Tower will still pay claims...

Announcement coming end of month. Time to check in on the fundamentals.

Guidance remains at 18-23m NPAT, which at 64 cps is 10.5-13.5 p/e and 5-6 eps.
This includes expectations of 40m being completely spent on large events with excess over 11.875m.
Currently only 23.8m spent here on the two large events earlier this year leaving 16.2m expected large event spend availabe to stay at NPAT in line with the above.

I expect end of month they will announce the interim div of 2.5 cps (4% gross @ sp .64) paid in June - that will allow them to do another 2.5 cps later in the year if more large events occur - or higher if nothing impacting the portfolio occurs.

Interestingly... from last annual report they hold $258m investments in mostly bonds/term deposits - which will have been doing much better this year than last.
With a mcap at $243m you are actually getting more than your dollar worth of investments just on this alone.

Gwp up double digits in last announcement also worth keeping an eye on.


This is the problem, you're not. The massive bond portfolios held for insurance capital are the killers. As we need to think in real terms, the returns on cash and bonds are worse now than they were in the low rate world.

Look for the insurers with surplus capital that is deployed into equities.

Figure out normalised underwriting and I have no idea but assume like much of the industry it won't be pretty over time and then as you say look at the investments.

Underwriting requires reserves to cover losses. Equities are a risk asset. North American reinsurers allocate more than two-thirds of invested assets to investment grade fixed-incomeand nearly 10% to cash. Risk assets comprise less than a quarter .

Markel, Fairfax, and formerly Alleghany (now part of Berkshire) areoften compared to Berkshire in structure, but none come close to Berkshire by surplus capital.

Look at the structure and underwriting of Markel, true world class and then compare the operation to Berkshire, who can hold 75% equities inside insurance operation, Markel lucky to do 33%


Weather events are not a issue as rates reset short duration.

[SailorRob]

Over the long term you'll be lucky to get a mid single digit return, it's not enough.

[Antipodean]

Not saying the returns are outstanding, but they are expected to be higher than in previous years.
Inflation as a function of outgoing costs is controlled better by loss ratios and actuarial forecasts for premium updates.

[SailorRob]

Not saying the returns are outstanding, but they are expected to be higher than in previous years.
Inflation as a function of outgoing costs is controlled better by loss ratios and actuarial forecasts for premium updates.

Fair enough yep, what is there longer running average combined ratio?

My inflation comments were more around the bond portfolio returns, on the underwriting it can be compensated.

[Antipodean]

Its not a GAAP measure so not spelled out in the financials as a seperate line item.
Occasionally mentioned in releases such as on 28/2/2023 "These factors have contributed to a claims ratio excluding large events of 54% for the quarter compared to 47% in the same period last year."

It naturally fluctuates year to year but longer term worth keeping an eye on Claims Expenses (net or otherwise), GWP and Underwriting profit to use as proxies to measure.
For example FY 2022 had increase of 12.5% GWP but only 5% in claim expenses relative to PCP so that is the scenario we are wanting to see.

[trader_jackson]

https://www.nzx.com/announcements/410997

Wow - massive downgrade!

From "Tower’s FY23 full year guidance remains unchanged." (at $27-32m underlying NPAT including large events) on 30th Jan to $8m-$13m today with no dividend

[Lego_Man]

https://www.nzx.com/announcements/410997

Wow - massive downgrade!

Fugly result but the increase in GWP is the real long term story...

[winner69]

https://www.nzx.com/announcements/410997

Wow - massive downgrade!

Could be a lot worse …just as well they have been and continue to be very ‘prudent’

No divie might make a few grumpy …but big divies coming up with those massive premium increases

[Balance]

A loss to be reported in the first half.

Downgrades after downgrade.

Un-investable imo. TWR is too small a player and not diversified enough to handle the weather challenges bedevilling the industry.

[winner69]

A loss to be reported in the first half.

Downgrades after downgrade.

Un-investable imo. TWR is too small a player and not diversified enough to handle the weather challenges bedevilling the industry.

You’d think that one day the reinsurance people might turn their backs on Nz as well …..must be costing them heaps these days …Tower alone costing them $250m plus

[Balance]

You’d think that one day the reinsurance people might turn their backs on Nz as well …..must be costing them heaps these days

Hopefully not.

Premiums will keep going up as they are right around the world.

Talked to a friend in Northern Queensland last week and she said their insurance premium has doubled over the last 3 years! Cyclones have always been a problem for them but they are now more frequent and more intense. Floodings becoming the norm for low lying areas where they are.

They just don’t make as big a deal as we do over here but climate change sure is a happening thing around the globe.

[bull....]

big downgrade alright and premiums for insurance going sky high :scared: another dampener in the cost of living crisis we are in

[winner69]

big downgrade alright and premiums for insurance going sky high :scared: another dampener in the cost of living crisis we are in


……and more pressure on business profits

[SailorRob]

Hopefully not.

Premiums will keep going up as they are right around the world.

Talked to a friend in Northern Queensland last week and she said their insurance premium has doubled over the last 3 years! Cyclones have always been a problem for them but they are now more frequent and more intense. Floodings becoming the norm for low lying areas where they are.

They just don’t make as big a deal as we do over here but climate change sure is a happening thing around the globe.


Can you show us the data on the increase in frequency and intensity of Northern Queensland cyclones since 1950? Cheers.

Interestingly Berkshire has seen no changes in their vast global insurance operations due to climatic changes at all.

Will winners fat dividends really come from increased premiums?

If you want a piece of the insurance action, buy MKL or BRK, nothing else.

[Antipodean]

Ouch that is rough, got the dividend call completely wrong.
It is the right call to not pay one while reporting a HY loss though.

Interestingly the downgrade in NPAT guidance reflects exactly the increase in provision for large events, $10m, but also includes costs of reinsurance top up.
Large event spend up to $34m already, new provision leaves $16m until end of year.

Loss of $3m in HY means they are still guidance of $11m - $16m for second HY but will have to wait and see if this pans out.

Growth in GWP of 10-15% translates to $44.5m - $66.8m extra from 2022 reported which is higher than I anticipated, some silver lining.
Edit: GWP growth should be 15%-20% which is $66.8m - $89m growth... or up to $534.7m in annual GWP.

[Poet]

Ouch that is rough, got the dividend call completely wrong.
It is the right call to not pay one while reporting a HY loss though.

Interestingly the downgrade in NPAT guidance reflects exactly the increase in provision for large events, $10m, but also includes costs of reinsurance top up.
Large event spend up to $34m already, new provision leaves $16m until end of year.

Loss of $3m in HY means they are still guidance of $11m - $16m for second HY but will have to wait and see if this pans out.

Growth in GWP of 10-15% translates to $44.5m - $66.8m extra from 2022 reported which is higher than I anticipated, some silver lining.

Growth in GWP is now expected to be between 15% and 20% so an additional $66.8m to $89.0m and that's for this year where presumably the premium increases have not been in place for a full year. Translates to even more GWP when applied to a full year. I think the GWP increase is the bigger story here as all insurance companies are increasing premiums rapidly.

[ronaldson]

Waiting for the dust to settle on the NZX pricing as most of this announcement was predictable and should have been already baked in. Reinsurance covers the above excess cost of both the Upper North Is weather event and Cyclone Gabrielle and would kick in if the costs of the dual Vanuatu cyclones escalate further. But the administrative overhead to manage the volume of claims over an extended period, as many will be "long tailed", will drag on profit for some time to come.

GWP growth is significant currently but remember EQC are now entitled to more of the premium on relevant policies as their liability increases from $150k to $300k on new/renewed policies, although TWRs risk/liability falls in qualifying circumstances to offset.

I don't know why the announcement references that the anticipated $3m loss for the half year to 31 March 2023 is "after taxation" as TWR is carrying significant accrued losses which will offset against profits (if any) for years to come.

Not to declare an interim dividend and await the full year result in due course is sensible and holders need to await the "more information" now promised in the announcement due 25 May. Already we have had further flooding in the Nelson Region so this will be yet another year which TWR will be keen to put in the rear view mirror!

[Jaa]

Tower is seeking to reinstate catastrophe reinsurance to cover the increased cost of the Auckland event.

..

This (lower) guidance includes the expected cost of further reinstatements to reinsurance arrangements

So Tower is yet to reinstate catastrophe cover contradicting a discussion we had here. Also Tower has miscalculated the cost to reinstate.

Do they ever calculate or estimate anything accurately? Seems a clear corporate strategy to drip-feed bad news to shareholders.

[Poet]

So Tower is yet to reinstate catastrophe cover contradicting a discussion we had here. Also Tower has miscalculated the cost to reinstate.

Do they ever calculate or estimate anything accurately? Seems a clear corporate strategy to drip-feed bad news to shareholders.

his (lower) guidance includes the expected cost of further reinstatements to reinsurance arrangements

[bull....]

another state of emergency in auckland

[Lego_Man]

another state of emergency in auckland

Truly abysmal - I was unfortunate to be out and about in my car around midday. Another round of material property damage incoming i think with the next front forecast to arrive in a few hours.

[nztx]

another state of emergency in auckland


bound to be a lot decidedly Browned off by this weather being attracted in Jaffaville :)

At least the King of the local Council appears awake & on deck ..

Any bets on next year's insurance bills for those sheltering it out in the province ? ;)

A complete or just a half a wipeout in larger instalments ?

[Nor]

Disgraceful that they can't build motorways that are floodproof. Sticking bits of them up in the air is what they do.

[ronaldson]

The dust (#1840) seems to have settled at 58cps, down about 4cps from trading prior to the announcement and this weeks weather. Auckland Council suggest about 100 homes suffered flooding so TWR will be covering perhaps 10% of those and no doubt a further smallish hit to the increased provision announced on Monday. These weather bombs are literally raining down!

Glad Wayne Brown is clear Auckland Council is not a guarantor/insurance company of last resort, but I expect that will become a focus notwithstanding as what otherwise are the most adversely affected to do?

[Antipodean]

The adversely affected have limited expensive options (eg expanded drainage on site, barriers or raising of house level). Wider suburb level mitigation is far more effective but that would be council / developer level (and possibly too late for current owners).

Expect insurers to respond to more frequent and intense flood perils with alterations to premium, excesses, and terms/conditions of the coverage. Repeated expected perils often head into a category of no longer being unexpected or unforeseen. Modern data sets allow this to occur down to a much more discrete level (even per property in some cases).

[nztx]

https://www.nzherald.co.nz/nz/weather-warning-another-tropical-storm-possible-next-week-sunny-and-cold-days-until-then/4NOZJXO23VBGNLNPF5SJUH3XBM/

Weather warning: Another tropical storm possible next week, sunny and cold days until then

Time for a quick clean up, then more swimming lessons needed :)

[Antipodean]

Is this the weather thread now?

[nztx]

Is this the weather thread now?


Yep .. warning of turbulence patches potentially headed TWR's way :)

No different to supply chain issues, interest & market demand factors for other stocks ..

[Antipodean]

I'll check back when I need to know if I should wear a windcheater or in that case :)

I'm not sure there is such a direct link in those paradigms but recent history has certainly shown large weather events are pertinent so maybe keep us in the loop. Then again, if there were no such events who would buy insurance for such perils?

[winner69]

Oh bugger …..tsunami approaching the North Island

Boats in marinas in danger …didnt tower have a few claims of this sort once before

[ronaldson]

ETA 5.00pm. These things are mostly non-events but adverse outcomes are possible even if not probable. It was Tutukaka Marina most affected on the last occasion.

But Vanuatu would be first hit, with a warning 1 - 3 metre waves/surges possible. So what happened?

[ronaldson]

Market announcement release now imminent.

I think the most interesting thing will be what is said about the future of insurance rather than the numbers. The TWR Board will not have been sleeping well pending the two recent further reinsurance placements (it takes time to negotiate, and then dot I's and cross T's) and the risk profile for this country will have been reassessed. TWR has been the leader in risk based pricing and will likely continue to seek to do so, so watch that space.

[Sideshow Bob]

https://www.nzx.com/announcements/412005

Summary of key HY23 results:

• Gross written premium (GWP) $245m, up 15% on HY22
• Customer growth up 5% to 320,000• Business as usual (BAU) claims ratio 51.6% vs 48.6% in HY22
• Management expense ratio (MER) improved to 35.1% vs 35.8% in HY22
• Underlying net profit after tax (NPAT) excluding large event costs $23.6m vs $18.2m in HY22
• Large event costs $33.9m vs $17.9m in HY22
• Combined operating ratio including large events (COR) 105.3% vs 94.8% in HY22
• Underlying loss including large events $3.3m vs $5.4m profit in HY22
• Reported loss $5.1m vs $3m profit in HY22, including strengthening of the residualCanterbury earthquake and multi-policy discount remediation provisions, partially offset bythe sale of Tower’s Papua New Guinea subsidiary and its building in Suva.

[Balance]

BAU profit static due to higher BAU claims and higher management expenses.

GWP & customer growth not high enough to cover increased costs of doing business.

Only increase in underlying profit due to investment income.

And with so many ‘one in hundred years’ events, it’s it realistic to exclude such events now as abnormals?

No dividends.

[Antipodean]

Expense ratio down, GWP up, investment income up, FY profit projected despite recent events.
Planning for frequency of events increasing, risk based pricing and actuary response to changing situation with the theft increase.

No dividend is a good decision here, and advised prior to HY results.

Investment income returning to a more normal rate after years of being subdued with fixed interest returns being low. If we are to assume claims events are more frequent and more severe (which is responded to with policy, terms, risk and premium), we should also assume investment income to be more stable and rising over time given the wider environment. It is not unusual or one off for insurance companies to make money from investments.

A tough HY but not many surprises in here.

[Antipodean]

While it is not a 1 to 1 comparison, TWR.NZX closest comparisons are the listed Australian insurers.

https://www.marketindex.com.au/news/asx-reporting-season-preview-why-insurance-stocks-are-poised-to-outperform

[Rawz]

wow some downgrade to guidance https://www.nzx.com/announcements/414893

Tower changes guidance, provides Q3 trading update
Tower Limited (NZX/ASX:TWR) has today updated its market guidance on underlying net profit after tax (NPAT) for the year ending 30 September 2023. Full year guidance is revised to a range of between a loss of $2m and a profit of $3m from a profit of between $8m and $13m, due to the ongoing challenging claims environment in New Zealand.

Inflation, motor crime and supply chain issues have continued to worsen over the third quarter (Q3), 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 30 June 2023, from 52% at 31 March 2023. Persistent wet weather and other factors are also resulting in motor and house 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. 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.

Following the Auckland floods on 9 May and revisions to estimates for Cyclones Judy and Kevin in Vanuatu, large events costs are now $39.5m (excluding costs of reinstating reinsurance cover), leaving $10.5m of Tower’s $50m large events allowance for the remainder of the year to 30 September 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 Q3, year to date Gross Written Premiums were up 16.5% on the prior year (excluding Tower PNG), to $385m. Accordingly, Tower maintains its guidance for GWP growth in a range of between 15% and 20%.
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 30 June 2023 is 134%, up from 125% at 31 March 2023.

[Antipodean]

GWP and claims ratios are good long term indicators trending in the right direction, but rough to have another $10m punched out of this year isn't pretty. Backs up no dividend from earlier.

[Rawz]

I don’t think I would ever invest in tower. I’ve never known it to not be dramatic with its profit number lol

[Antipodean]

Fair enough.

I would say the Tower of 2023 isn't the Tower of 2017 which was not one I would invest in. Short term looks ugly but longer term I think there is value here in the underlying structure.
The last two years have been particularly crap claims environment, but the last 3 years have laid some good groundwork for a long term machine of profit.

[Bjauck]

GWP and claims ratios are good long term indicators trending in the right direction, but rough to have another $10m punched out of this year isn't pretty. Backs up no dividend from earlier.Insurance companies are at the forefront of both climate change and social disharmony (widening disparities in wealth and indigenous/general population politics.) If premiums covered risks and investors’ expectations for profit margins adequately, they would probably shrink their customer base too much….

SO I wonder when global warming with climate uncertainty will make most of NZ uninsurable…

Disc: ex-shareholder

[Filthy]

Insurance companies are at the forefront of both climate change and social disharmony (widening disparities in wealth and indigenous/general population politics.)
Disc: ex-shareholder

plus always a risk of a huge seismic event that might wipe most of your investment out overnight

[Antipodean]

There is a significant difference is what is uninsurable, and risks that are not economic to insure. Risks that fall into these categories change over time for good reasons as both the propensity and severity of the underlying risk increases. Either because the peril environment (physical or otherwise) has changed or the understanding of the peril and the risk has changed. I'd wager there is almost no property that is uninsurable, that would also be liveable.

This is important as insurance is essentially a reverse clipping the ticket process. The absolute value of the underlying claims (going up down or sideways) is not so important as the ratio of claims and income. This is why fire and general policies change every 12 months - certainly for premium, and occasionally for terms and conditions.

Global warming is certainly changing the industry, and I suspect parts of New Zealand will gradually be uneconomic to insure, especially where not just the risk itself but the surrounding area mitigation is lacklustre. In part because the peril profile is increasing, and in part because our understanding of the perils is increasing. While primarily this flows through currently with more complicated and discrete risk premium rating calculations (i.e. premium increases), it is not unfeasible that rewards for mitigation of costs could result in the same effect in the different direction.

Seismic risks are more risks to the EQC pool and reinsurers pockets than any individual insurance company with good reinsurance coverage. The large part of NZ's insurance industry (those profitable Aussie insurers mostly...) went through Christchurch, Napier, Edgecumbe and all the intervening events while surviving and even thriving.

As an aside any climate change doubters only have to look how the insurers and reinsurers are responding - as they have the most money on the line here.

[Nor]

Insurance companies are at the forefront of both climate change and social disharmony (widening disparities in wealth and indigenous/general population politics.) If premiums covered risks and investors’ expectations for profit margins adequately, they would probably shrink their customer base too much….

SO I wonder when global warming with climate uncertainty will make most of NZ uninsurable…

Disc: ex-shareholder

I'd be interested in some examples of how insurance companies are especially involved in
indigenous/general population politics.
Not a holder, insurance in NZ is a mugs game in my opinion, the future is going to be the same or even worse, climatewise.

[winner69]

certain irony in insurance companies these days suffering from climate change and environmental issues

For decades they were amongst the biggest investors in the oil and mining industries ….zillions of the premium float invested in the worlds biggest polluters

Don’t feel sorry for insurance companies …but we should feel sorry for their customers (us) who are the real losers in carrying cost.

[Balance]

A loss to be reported in the first half.

Downgrades after downgrade.

Un-investable imo. TWR is too small a player and not diversified enough to handle the weather challenges bedevilling the industry.

Warning 2 months ago.

TWR seems to be taking the triple downgrades adage to a different level? :eek2:

[ronaldson]

Just remember that after 30 September financial year end then FY23 is in the rear-view mirror and the slate is clean again.

This has been a very eventful period, and yes it will have a tail in administrative costs and other overhead given the adverse claims experience, and there will be no final dividend declared, but premiums have been recalculated and GWP is showing almost unprecedented % increase. Life will go on and perhaps better than before. Digitalisation is at the leading edge in the sector and is cutting overhead to offset increasing costs elsewhere in the business. And a decent cash return is now being received on premiums invested over the short term.

The very muted market reaction to this announcement tells its own tale!

[fastbike]

As an aside any climate change doubters only have to look how the insurers and reinsurers are responding - as they have the most money on the line here.

Insurance companies are the climate change canaries-in-the-coal-mine. Many are pulling back or excluding forseeable risks.
https://www.reuters.com/business/finance/axa-weighs-offloading-2-bln-reinsurance-arm-cut-disaster-risk-sources-2023-07-11/

Meanwhile there is very little intelligent discussion in the current lead up to the election even though the effects of climate change are will increasingly bite NZ hard with so much investment on low lying flood plains around the coast.
The pollies and media seem eager to beat up on the already beaten up people.

[winner69]

ISG been selling down last few months

[Gerald]

Apparently Pacific National Insurance been buying some lately and are over 3%. Might be a tiny chance shareholders are put out of their misery with a offer?

[ronaldson]

I would have thought that, at the current share price, that Tower is a potential takeover target, especially with the ChCh earthquake claims now basically receding in the rear-view mirror. The IT platform alone seems to be industry leading. A cheap way to acquire a not insignificant number of policyholders and a bundle of cash too.

A lot of water has flowed under the bridge since this post from 1 September 2022.

Notwithstanding the subsequent catastrophe events and the likely passing of both dividends for FY23 in due course TWR has proved resilient under what could be said to be the most adverse of circumstances. So in my view an offer a la ERoad recently is entirely plausible to take advantage of a beaten-up share price not truly reflective of future potential.

Just that no one seems to be accumulating on-market just now, which would seem like a prerequisite for action. I wouldn't have thought National Pacific was a prospective contender but there are a number of larger insurers who could be. A cheap entry to/expansion opportunity to the NZ market, with some Pacific Is leverage too.

[Poet]

Yes, quite interesting that Pacific International Insurance has increased its holding recently. PII appears to be a much smaller insurance company operating in NZ and Australia 36AF9A718FA5BD8E33BEF6175B32CE99 (companiesoffice.govt.nz) (https://app.companiesoffice.govt.nz/companies/app/service/services/documents/36AF9A718FA5BD8E33BEF6175B32CE99)

Seems PII is owned by Badger Holdings, a South African entity
Badger Holdings (Pty) Ltd.: Contact Details and Business Profile (rocketreach.co) (https://rocketreach.co/badger-holdings-pty-ltd-profile_b4b96ec4fb1d93e9)

Wouldn't on the face of it, appear to have the wherewithal to be making a takeover bid for TWR. But who knows?

[Gerald]

Yes, quite interesting that Pacific International Insurance has increased its holding recently. PII appears to be a much smaller insurance company operating in NZ and Australia 36AF9A718FA5BD8E33BEF6175B32CE99 (companiesoffice.govt.nz) (https://app.companiesoffice.govt.nz/companies/app/service/services/documents/36AF9A718FA5BD8E33BEF6175B32CE99)

Seems PII is owned by Badger Holdings, a South African entity
Badger Holdings (Pty) Ltd.: Contact Details and Business Profile (rocketreach.co) (https://rocketreach.co/badger-holdings-pty-ltd-profile_b4b96ec4fb1d93e9)

Wouldn't on the face of it, appear to have the wherewithal to be making a takeover bid for TWR. But who knows?

Which is owned by Hollard Group which is way larger.

[ronaldson]

Yes, quite interesting that Pacific International Insurance has increased its holding recently. PII appears to be a much smaller insurance company operating in NZ and Australia 36AF9A718FA5BD8E33BEF6175B32CE99 (companiesoffice.govt.nz) (https://app.companiesoffice.govt.nz/companies/app/service/services/documents/36AF9A718FA5BD8E33BEF6175B32CE99)

Seems PII is owned by Badger Holdings, a South African entity
Badger Holdings (Pty) Ltd.: Contact Details and Business Profile (rocketreach.co) (https://rocketreach.co/badger-holdings-pty-ltd-profile_b4b96ec4fb1d93e9)

Wouldn't on the face of it, appear to have the wherewithal to be making a takeover bid for TWR. But who knows?

Thanks for posting the Companies Office look up Poet.

I see one subsidiary is behind PD Pet Insurance which is pushing product in NZ at the moment.

And GWP before reinsurance costs was $143m in y/e 30 June 2022 with Travel and MV insurance predominating. Very little Household cover indicated. They took over Blue Badger Insurance Australia Pty Limited during that year. So much less than half the scale of TWR. It does have an equity investment portfolio, which didn't seem to include any TWR at that balance date so if Gerald is right and they have been buying on that scale that is certainly an interesting circumstance I had not previously been aware.

[Gerald]

Maybe they decided to bring things forward seeing us punters are onto them :D http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf

Unusual disclosure, not sure if it's correct. Says they purchased the entire stake on Monday, but we know they already had at least half of it at the end of June? Maybe doing shifty things moving things around to avoid giving the 5% disclosure for as long as possible.

[850man]

Thanks for posting the Companies Office look up Poet.

I see one subsidiary is behind PD Pet Insurance which is pushing product in NZ at the moment.

And GWP before reinsurance costs was $143m in y/e 30 June 2022 with Travel and MV insurance predominating. Very little Household cover indicated. They took over Blue Badger Insurance Australia Pty Limited during that year. So much less than half the scale of TWR. It does have an equity investment portfolio, which didn't seem to include any TWR at that balance date so if Gerald is right and they have been buying on that scale that is certainly an interesting circumstance I had not previously been aware.

Indeed Pacific Insurance have been buying, now over 5% holding http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf (http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf)

[Poet]

Maybe they decided to bring things forward seeing us punters are onto them :D http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf

Unusual disclosure, not sure if it's correct. Says they purchased the entire stake on Monday, but we know they already had at least half of it at the end of June? Maybe doing shifty things moving things around to avoid giving the 5% disclosure for as long as possible.

Yes, quite right. They also already had 1.53% when Tower Lodged annual return with companies office on 31 March 2023.

Not sure I can think of a reason why they have moved to 5% plus except that they are contemplating a bid - interested in others' thoughts on this

[winner69]

I think they’ve filled in the form wrong ……esp the acquired bits …..number and dates

I’d guess they bought some on Monday which took them over the 5%

[winner69]

Do Bain still hold a sizeable amount?

[Poet]

Do Bain still hold a sizeable amount?

Yes Bain still has 20%

[winner69]

Yes Bain still has 20%

Wonder if Bain and Pacific have had a chat over a coffee

[winner69]

In BusinessDesk


Tower’s new shareholder, Pacific International Insurance, is confident in the general insurer’s future as a solid investment but has no intentions beyond that.

Pacific International emerged as a substantial shareholder of Tower on Wednesday, buying almost 22.1 million shares for A$12.9m (NZ$14m), or roughly 58.4 Australian cents each. The dual-listed stock recently traded at 62 NZ cents on the New Zealand stock exchange (NZX) and 57 Australian cents on the Australian securities exchange (ASX).

Kristy Sheppard, communications manager at Pacific International, said the firm has an active investment strategy to buy a wide range of high-quality stocks.

“Tower is one example of a stock that we have great faith in as a solid and stable investment,” Sheppard said in an emailed statement. “There are no plans beyond this.”

[bull....]

buying for next yrs high yield div stream

[Rawz]

The 5 year chart is shocking. Anything changed in that time?

[Baa_Baa]

The 5 year chart is shocking. Anything changed in that time?

Yes, all the adverse factors against investing in an insurer, have happened. The chart tells a story, that investing in an insurer in time when insurance payouts are through the roof due to all sorts of adverse events, is probably not the best thing to be into right now.

[Antipodean]

5 years have seen change in chief executive and leadership, complete new ICT solution, increases in gwp, market share, relatively stable claims ratios despite high payouts, and a resumption in dividend payments.

It hasn't all been good news however with factors like covid having usual costs, and reinsurance costs increasing especially more recently. There was also subdued returns from conservative investment of insurance funds held, and an increase in requirements to hold funds.

Up to you if you think that has turned the company around and is worth investing from this point however.

[Poet]

In BusinessDesk


Tower’s new shareholder, Pacific International Insurance, is confident in the general insurer’s future as a solid investment but has no intentions beyond that.

Pacific International emerged as a substantial shareholder of Tower on Wednesday, buying almost 22.1 million shares for A$12.9m (NZ$14m), or roughly 58.4 Australian cents each. The dual-listed stock recently traded at 62 NZ cents on the New Zealand stock exchange (NZX) and 57 Australian cents on the Australian securities exchange (ASX).

Kristy Sheppard, communications manager at Pacific International, said the firm has an active investment strategy to buy a wide range of high-quality stocks.

“Tower is one example of a stock that we have great faith in as a solid and stable investment,” Sheppard said in an emailed statement. “There are no plans beyond this.”

That just doesn't make sense. If they want to invest in an insurance company they could invest in themselves. I'm waiting developments...

[winner69]

That just doesn't make sense. If they want to invest in an insurance company they could invest in themselves. I'm waiting developments...

Hey Poet you are really famous now

Quoted word for word in that respected publication NBR

https://www.nbr.co.nz/private-bin-2/rymans-elton-tribute-onlyfans-abs-takeover-target-tower/

[ronaldson]

Most holders will be aware TWR is conducting a remediation exercise with respect to the multi-policy discounts offered from 2019 to date which have either not been applied or have been incorrectly applied for some time.

You would wonder how implementation of this benefit could have been allowed to be done incorrectly or not at all. Someone's head should roll because remediation covering such an extended period must be hugely labour intensive and distracting just when TWR is dealing with an overload of claims and difficult resolutions. So credit for fronting up when the problem has been identified, but a major black mark for such an obvious fail.

This post is prompted by receiving by email yesterday a credit note for over $300 just for my own set of Policys, with the sum involved intended to reach my bank account by 10 August. I understand remediation has been ongoing since December 2022 so to have just reached me now is an indication how large and complex this must be/have been. Perhaps the extent of it is one reason underpinning the most recent downgrade issued by TWR, with the full impost being better identified.

Another obvious reason why it will be good when FY23 is finally in the rearview mirror after 30 September!

[Leemsip]

Most holders will be aware TWR is conducting a remediation exercise with respect to the multi-policy discounts offered from 2019 to date which have either not been applied or have been incorrectly applied for some time.

You would wonder how implementation of this benefit could have been allowed to be done incorrectly or not at all. Someone's head should roll because remediation covering such an extended period must be hugely labour intensive and distracting just when TWR is dealing with an overload of claims and difficult resolutions. So credit for fronting up when the problem has been identified, but a major black mark for such an obvious fail.

This post is prompted by receiving by email yesterday a credit note for over $300 just for my own set of Policys, with the sum involved intended to reach my bank account by 10 August. I understand remediation has been ongoing since December 2022 so to have just reached me now is an indication how large and complex this must be/have been. Perhaps the extent of it is one reason underpinning the most recent downgrade issued by TWR, with the full impost being better identified.

Another obvious reason why it will be good when FY23 is finally in the rearview mirror after 30 September!

Ha, I used to own a fair lot of Tower. Every year I would always say - be good when this year is over and we can move ahead.
Its always something with this company. I cant bring myself to invest again

[winner69]

Director Graham Stuart probably for chop or will he leave peacefully

ERoad, Metro Glass …some say things happen in threes

[Antipodean]

Implementation of these benefits are more complex than they seem (also possibly more complex than they need to be). Some factors that could be involved:

Manual data entry of discount fields
Policies held in multiple client accounts - cross eligibility criteria
Policy type and sub type eligibility criteria (eg corporate policies)
Policies cancelled/incepted during the policy year and how they interact with ongoing remaining / new policy eligibility.
Reporting (or failing to report, or failing to enforce) on the business process

Systems managing these products typically relied on manual until very recently. Solving the first issue requires answering all the subsequent questions, but once you do you can automate it and the problem mostly disappears.

You will find this isn't just a Tower issue - its generally historic to the industry. You may see it either solved through new system enhancement (suspect Tower has gone this way), or abolished/replaced with other benefits. There are similar issues with Claims free bonuses - lots of admin maintaining / fixing those up.

[bull....]

suncorp reported other day this bit may be relevant to tower

Suncorp flags more premium hikes as reinsurance costs bite
https://www.smh.com.au/business/banking-and-finance/suncorp-flags-more-premium-hikes-as-reinsurance-costs-bite-20230809-p5dv0n.html

[Antipodean]

It is an interesting article and some parallels as they operate in the same industry - though have some significant scale advantages.

Second half dividend lower than expected, claim costs, reinsurance and premiums increasing (all linked) sounds familiar. Now if Tower can some day say something like the below.... could be much happier.


Overall Suncorp reported a sharp turnaround in its profits. Net profit was $1.15 billion, up from $681 million last year.

[ronaldson]

Yes, TWR have advised Gross Written Premiums are up 16.5% for year to date to 30 June. This is an almost unprecedented level of increase for an insurance company, but it's difficult to tell how much is attributable to improved market share and how much to the application of premium increases on renewal of existing policies.

I wonder how much more claims have eaten into the headroom that was left of the original $50m allowance for large events? It would seem maintaining the $10.5m that remained when we were last told/updated will be critical to the full year end financial outcome.

I am glad TWR has exited PNG and now the Solomon Islands, which are both unstable democracies in my view with dubious legal systems if you are commercially invested. I still think TWR is quite a juicy takeover opportunity currently, although presumably that would nix the accumulated losses available for tax purposes in future.

[bull....]

IAG encourages customers whose properties were hardest hit by extreme weather earlier this year 'to reside elsewhere'

https://www.interest.co.nz/insurance/124397/iag-encourages-customers-whose-properties-were-hardest-hit-extreme-weather-earlier

no more insurance for at risk properties

[kiwikeith]

I have just received a message from Tower for my car insurance. I have never made a claim in my life and the annual premium is 50% higher than last year.

[ronaldson]

I have just received a message from Tower for my car insurance. I have never made a claim in my life and the annual premium is 50% higher than last year.

Likely due to rises in theft numbers, and the significant increase in flood damaged vehicles (I can't help thinking that with respect to the latter in many instances there is an element of owner negligence). But you aren't on your own - I have my motor vehicle comprehensively insured with Tower, and my premium based upon an unchanged insured value at $14k has gone from $1087 (gst incl) last year to $1468 - so about 40% really.

But Moneyhub and other websites almost always recommend including TWR in a comparison check, and most have it in the top two for value taking all factors into account. But premiums can vary significantly depending upon where you live, age, claims history and so on. And inflation has had an impact on cost of parts and repairs. I include glass cover, and three times in the last four years I have had bad stone chips to the windscreen remediated so don't complain.

MV insurance is claims based, plus a margin, and is a competitive marketplace. So you need to be both administratively and operationally efficient, and customer focused. My experience with TWR is that they do their part rather well.

[ronaldson]

Reinsurance for FY24 has been placed, albeit with higher excess ($16.9m up from $11.9m) if triggered. But the catastrophe upper limit has been decreased to $750m from $934m due to the EQC cap increase from $150k to $300k now being fully effective on policies written and "on the books", so risk reduced accordingly. But good to have the overall placement confirmed.

FY23 completes on 30 September, so a fresh start from 1 October and cross fingers for a better claims experience going forward. I wonder what allowance for large events will be built into the FY24 projection? And a lot of claims handling costs attributable to events in FY23 will be carried forward into the new financial year.

We already know the FY23 results when announced in November will not be flash, and I would expect no final dividend will be declared, but we can hope for an improved experience in FY24 barring one or more major events. Climate change has proved a wrecking ball recently, and reasonably strong earthquakes seem to occur with regularity somewhere or other in the country so a rather fraught lottery methinks.

[winner69]

PROFIT UPGRADE

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/419983/405142.pdf

[ronaldson]

Just shows what an absence of "large events" weighing on the result can have. A "good" year in that context can improve profitability disproportionally.

And even allowing for the impact of premium adjustments for inflation, and adverse claims ratio experience, a rise in Gross Written Premiums for the year of 17% seems to me to be growth on steroids despite a highly competitive marketplace, and points to a strong future. This company has a "fit for purpose" digital platform that is starting to take it places!

But no surprise that provisioning for the remediation of failures in applying discounts to those who were/are multiple policy holders has to be increased. The scale of the issue and the administration costs involved were always going to exceed an initial assessment.

As quite a sizeable holder under various accounts I have an optimistic view here. FY24 could/should tell the tale.

[Lego_Man]

Just shows what an absence of "large events" weighing on the result can have. A "good" year in that context can improve profitability disproportionally.

And even allowing for the impact of premium adjustments for inflation, and adverse claims ratio experience, a rise in Gross Written Premiums for the year of 17% seems to me to be growth on steroids despite a highly competitive marketplace, and points to a strong future. This company has a "fit for purpose" digital platform that is starting to take it places!

But no surprise that provisioning for the remediation of failures in applying discounts to those who were/are multiple policy holders has to be increased. The scale of the issue and the administration costs involved were always going to exceed an initial assessment.

As quite a sizeable holder under various accounts I have an optimistic view here. FY24 could/should tell the tale.


Market undercooking this news IMO - very muted reaction.

[winner69]

Market undercooking this news IMO - very muted reaction.

Tower are great weather forecasters ….better than meteorologists ….an optimistic Tower is a pretty reliable forecast for an impending big weather event / quake or whatever …wonder what’ll it will be and when

[ronaldson]

Market undercooking this news IMO - very muted reaction.

Correct. The market has since taken out the sell-side depth.

A re-rate is due here and it's more likely to be prompt than OCA!

[winner69]

Correct. The market has since taken out the sell-side depth.

A re-rate is due here and it's more likely to be prompt than OCA!

Hoping it’ll get back into the 70’s soon

[ronaldson]

Hoping it’ll get back into the 70’s soon

Yes, the pressure here is definitely on the upside.

Fairly confident that todays close at $0.65 will hold from here despite the cyclone currently hitting Vanuatu (best NZ based charity to support is the Butterfly Trust - 12-3233-0464934-50 which does terrific work in that country).

If the "large events" allowance for FY24 is retained at $50m then if unused it accrues directly to the bottom line at over $4m each and every month. Better than a lotto ticket and could even beat Powerball!

[Muse]

I cover my properties with state insurance.
Just had a round of rebuild valuations done for insurance purposes, couldn't believe it. The inflationary provision added to the spot rebuild cost added a nice big whack to my annual premiums. Though if there was one positive, my premiums certainly didn't rise proportionately to the increase in my insured position?

[ronaldson]

Muse - I just received today the Tower renewal invoice and Certificate of Insurance details for my wife's modest two-bedroom house in West Auckland. The Government EQC levy is unchanged from the prior year at $480 and the Fire and Emergency Levy component is also unchanged at $106. The Tower premium component has gone from $741 to $879, which I infer is even more significant than it appears as the EQC cover available would have gone from $150k + gst in FY23 to $300k + gst in FY24 thereby providing some reduction in potential liability to TWR. Then of course there is GST added on top off the higher aggregated premium.

Replacement value insured has gone from $653k to $710k. And some multi-policy discount will have been built into the premium structure.

Not sure how that compares with your experience.

[Antipodean]

Base insurance premiums are more heavily weighted to the lower end of the sum insured, as the higher end is only at risk during a total loss. So you pay less per dollar sum insured as the overall sum insured increases, generally speaking. If the base rates or the modifiers change this can ameliorate or mask this principle.

[winner69]

Just as well this additional cost Re premium discounts doesn’t count …underlying profit guidance unchanged

Is abnormal stuff greater than normal stuff one may ask

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/421579/407086.pdf

[ronaldson]

I think the key is the use of the word "underlying" and that the reported profit will reflect the actual and provisioned cost of remediation, which seems to have escalated by a further $5m from what was anticipated at the half year period (including the anticipated fine which will be levied despite TWR self reporting the irregularity).

The cost in lost time/administration overhead to give effect to the refunds will not have been helpful at a time when cyclone event claims numbers/processing will have also been significantly higher than normal. These oversight failures are never cheap and clearly should not have occurred. This is a business where complexities should be avoided.

I wonder how many legacy claims are still outstanding from the 2011 ChCh earthquake sequences? Long tailed events are also very demanding of resources.

[ronaldson]

I am awaiting tomorrows FY 23 result with interest. It won't be flash, but commentary/analysis will guide for FY24. I personally think that if there is any headroom at all Stiassney will have advocated for a small dividend to be declared, as TWR is holding excess solvency margin to underpin, notwithstanding it would be unimputed.

I have previously pointed out that if the large events provision is maintained at $50m in FY24 (as it was in FY23) then absent such happenings it effectively accrues to the bottom line at over $4m each month so a "good" year can theoretically be highly profitable. Of course holders need to cross fingers that with every significant storm, cyclone, flood, fire and especially earthquake event that TWR policyholders are spared, so heightened sensitivity to bad news and you need to be able to sleep at night.

We shall see if any surprises are in store!

[Sideshow Bob]

https://www.nzx.com/announcements/422193

Tower Limited (NZX/ASX: TWR) has today announced its full year results reporting improved revenue growth and expense control, with profits impacted by catastrophic weather events. For the year to 30 September 2023, the insurer recorded an underlying profit including large events of $7.6m versus $27.3m in the 2022 financial year, and a reported loss of $1.2m versus an $18.9m reported profit in FY22.

Summary of FY23:

• Gross written premium (GWP) $527m, up 17% on FY22
• Customer growth of 4% to 321,000
• Business as usual (BAU) claims ratio 55.5% vs 48.9% in
FY22
• Management expense ratio (MER) improved to 32.2% vs 36%
in FY22
• Large event costs $55.6m vs $19m in FY22
• Combined operating ratio including large events (COR)
101% vs 90.1% in FY22
• Underlying profit including large events costs $7.6m vs
$27.3m in FY22
• Reported loss $1.2m vs $18.9m in FY22, includes
strengthening of the residual Canterbury earthquake and
remediation provisions, partially offset by the sale of
Tower’s Papua New Guinea subsidiary and its building in
Suva.
• Tower will not pay a full year dividend for FY23.

Tower CEO, Blair Turnbull says, “In the financial year Tower has navigated catastrophic weather events, widespread inflation and increasing crime. At the same time, we are continuing to grow and manage expenses while executing on our strategy.”

Large events claims mostly completed

Tower’s focus on efficient claims settlement has seen approximately 84% of claims for the Auckland and Upper North Island weather event and Cyclone Gabrielle, and 88% of claims for Cyclones Judy and Kevin in Vanuatu completed as of 20 November.

Targeted growth and efficiency

Strong rating actions combined with organic growth have seen GWP in New Zealand rise 19% year-on-year.

Sales via Tower’s digital channels continue to strengthen, contributing 65% towards overall GWP growth in FY23. The My Tower customer-facing digital sales and service platform is now operational across all Tower markets.

Disciplined cost control and improved efficiencies through increasing scale saw overall MER further improve to 32.2% versus 36% in FY22 as Tower’s simplification and digitisation strategy is realised.

Investments in digital technology are increasingly enabling Tower to move workflows to its operational hub in Suva where its team of 250 staff are delivering lower telephony and service costs.

Increasing inflation and a higher frequency of motor claims have contributed to an increase in the BAU claims ratio to 55.5% compared to 48.9% in FY22. Tower is continuing to apply targeted rating and underwriting actions to address these challenges.

Looking forward

The successful renewal of Tower’s reinsurance programme with $750m of catastrophe cover and the purchase of a prepaid third event cover up to $75m will provide important protection from the volatility of large events in FY24.

“In the year ahead, Tower will continue its focus on delivering targeted customer and premium growth while further improving efficiencies and continuing to streamline the business.

“We will also build on our leading risk-based pricing by expanding our model to include landslide and coastal hazards. 

“While we have certainly faced significant challenges this financial year, our underlying result demonstrates resilience and strategic delivery which positions Tower well for long-term sustainable growth and performance,” says Turnbull.

FY24 guidance

Tower’s FY24 full year guidance is for underlying NPAT to be between $22m and $27m. This assumes full utilisation of a large events allowance which has conservatively been set at $45m.

GWP growth in FY24 is expected to be between 10% and 15% reflecting continued strong rating actions and organic growth. Digitisation and efficiency initiatives are expected to improve MER to between 30% and 32%.

Tower is forecasting a combined operating ratio of 95% to 97% in FY24.

Consideration will be given to restarting dividends in FY24 if it is prudent to do so.
ENDS

[Jim]

No dividend. We will be getting a big dividend next year I hope or just wishful thinking

[ronaldson]

No dividend. We will be getting a big dividend next year I hope or just wishful thinking

Reasonable to hope I believe.

I noted that in FY23 the cost of reinstating catastrophe insurance after the unprecedented two large scale events was stated to be $17.4m. It must be inherently unlikely that outlay will be required again in FY24.

Then investment income went from $1.2m in FY22 to $14.3m in FY23 due to the flow thru of interest rate increases on the sums held for solvency purposes/to pay claims. That can be expected to be at least maintained in FY24.

And the large events provision for FY24 is announced to be $45m. If it is a "good" year in FY24 then at least some of that will not be required.

The sum needed to pay a 1c dividend is $3,794,840 so ( and compared to the outcome in FY23) a 5c dividend requires just under $20m and that looks feasible, and would be roughly an 8% yield on current price. In my view more would be needed to justify the underlying risk to holders but it seems to me Board and management are doing their best given climate change, crime, inflation and other factors. Also the sharp increase in staff numbers at the Suva hub in Fiji will be intended to reduce underlying operating costs going forward.

[Jaa]

"strengthening of the residual Canterbury earthquake and remediation provisions"

Incredible that Tower are still gaslighting their shareholders over this 12 year old event.

[SailorRob]

I have my motor vehicle comprehensively insured with Tower, and my premium based upon an unchanged insured value at $14k has gone from $1087 (gst incl) last year to $1468 - so about 40% really.


Hang on, there has got to be a mistake here. You pay 10% of the value of your car each year to have it insured? Even if a total wreck you might get 4k for parts so you are paying $1468 for 10k of insured value plus the third party component which is for me under $200, so will be something close to that.

This is a mind blowing mad contract - I'd love to insure you for that premium. Why do you do this? If you can stomach the potential loss yourself and you cancel the policy and invest the $1468 compounding then this will be the best financial decision you could make.

The only reason anyone would do this is if the loss of the car would totally wipe them out and then the car is too expensive for you.

As Trustee I have a house with a 3 million dollar reconstruction cost insured for only a little more premium than your car.

Something is not right here.

Even if you totally wrecked multiple 14k cars over your life you'd still be way ahead. You're talking 200k over 25 years just to insure cheap cars (if you invested the premium yourself like the insurance company does).

People are nuts when it comes to insurance, do you mean the car is 140k? Or 14k?

As Warren says, there are ONLY three times yo get insurance.

1. When there is a potential loss that you cannot afford to bear yourself

2. When you are offered a misplaced contract.

3. When you are forced to (companies etc..)

$1468 for 10k of value - Tower must be the crappest company in the industry if they are not printing money with rates like that if they are actually selling them.

[winner69]

Nothing like a ‘strategic review’ to get the share price moving

Seems Bain are a bit peeved at Tower going nowhere.

Maybe it’s also a sign Tower have thrown the towel in the ring and finally decided it’s all too hard.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/422844/408814.pdf

[Lego_Man]

Nothing like a ‘strategic review’ to get the share price moving

Seems Bain are a bit peeved at Tower going nowhere.

Maybe it’s also a sign Tower have thrown the towel in the ring and finally decided it’s all too hard.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/422844/408814.pdf


Take private at 80c?

[winner69]

Take private at 80c?

That would be a huge relief to long suffering shareholders

Might even get it for 72cents …72 sounds better than on 70

[bull....]

Scott technology doing strategic review too.

15 June 2023SCOTT TECHNOLOGY ANNOUNCES STRATEGIC REVIEWAuckland, New Zealand: Scott Technology Limited (NZX: SCT) advises that after discussions withmajority shareholder JBS (which owns 53.05% of the Scott shares), it intends to undertake a strategicreview of its ownership structure, with a view to exploring options to maximise value for allshareholders. Scott has engaged Macquarie Capital as financial adviser to assist with the strategicreview.

[winner69]

Take private at 80c?

Wonder if other parties interested?

[bull....]

ceo hasnt been replaced , thats a positive

[ronaldson]

Scott technology doing strategic review too.

15 June 2023SCOTT TECHNOLOGY ANNOUNCES STRATEGIC REVIEWAuckland, New Zealand: Scott Technology Limited (NZX: SCT) advises that after discussions withmajority shareholder JBS (which owns 53.05% of the Scott shares), it intends to undertake a strategicreview of its ownership structure, with a view to exploring options to maximise value for allshareholders. Scott has engaged Macquarie Capital as financial adviser to assist with the strategicreview.

Not to mention ERD not so long ago!

[Balance]

Scott technology doing strategic review too.

15 June 2023SCOTT TECHNOLOGY ANNOUNCES STRATEGIC REVIEWAuckland, New Zealand: Scott Technology Limited (NZX: SCT) advises that after discussions withmajority shareholder JBS (which owns 53.05% of the Scott shares), it intends to undertake a strategicreview of its ownership structure, with a view to exploring options to maximise value for allshareholders. Scott has engaged Macquarie Capital as financial adviser to assist with the strategicreview.

And 5 months later, announced that the money has been spent and nobody was really interested.

https://www.nzx.com/announcements/421550

[Balance]

That would be a huge relief to long suffering shareholders

Might even get it for 72cents …72 sounds better than on 70

Sp today where it was in 2017!

6 years of going nowhere so it is definitely time to try something else.

Disappointed myself that Bain never made a full or partial takeover offer to 50% and then, merge it with their other investments in the financial & insurance services sector.

Could it be that they did not like what they see in TWR after they took their 20% stake in 2028?

[bull....]

Aussie insurer takes 5.82% stake in Tower
https://www.nbr.co.nz/investment/aussie-insurer-takes-5-82-stake-in-tower/

????? have they made an approach

[percy]

Aussie insurer takes 5.82% stake in Tower
https://www.nbr.co.nz/investment/aussie-insurer-takes-5-82-stake-in-tower/

????? have they made an approach

That was announced in July;
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf

[bull....]

That was announced in July;
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/415298/399152.pdf

i was more getting at , have they made an approach.

[winner69]

And new guy Mick been spreading the word in Australia

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/421843/407463.pdf

[Leemsip]

Tower is such a dog this hasnt even bumped the share price.
Seems like it should though, loads of cash on the balance sheet, growing well. Good company on paper, just never performs.
hmmmm.

[ronaldson]

Reasonable to hope I believe.

I noted that in FY23 the cost of reinstating catastrophe insurance after the unprecedented two large scale events was stated to be $17.4m. It must be inherently unlikely that outlay will be required again in FY24.

Then investment income went from $1.2m in FY22 to $14.3m in FY23 due to the flow thru of interest rate increases on the sums held for solvency purposes/to pay claims. That can be expected to be at least maintained in FY24.

And the large events provision for FY24 is announced to be $45m. If it is a "good" year in FY24 then at least some of that will not be required.

The sum needed to pay a 1c dividend is $3,794,840 so ( and compared to the outcome in FY23) a 5c dividend requires just under $20m and that looks feasible, and would be roughly an 8% yield on current price. In my view more would be needed to justify the underlying risk to holders but it seems to me Board and management are doing their best given climate change, crime, inflation and other factors. Also the sharp increase in staff numbers at the Suva hub in Fiji will be intended to reduce underlying operating costs going forward.

These comments still apply but the large events provision has been announced at $45m rather than $50m. And there must be tax losses to be utilised.

I thought the half year result to 31 March 2024 should signal a reset in expectations going forward. And PNG and Solomon Is exit, with Vanuatu to follow, reduces future risk exposure, along with the EQC increase to $300k.

But a lack of buy-side support is fairly obvious. Very cheap as a takeover target in my view, with a strong IT system to underpin. Badger and Bain will have expectations not met just now. So change probably coming, albeit not immediately.

[Gerald]

I did a short write-up on it, seems like very little downside in the near term: https://adriancapital.wordpress.com/2023/12/05/tower-asymmetric-idea/

Also had somewhat of a hard time looking for comparable transactions, lots of health insurance ones especially from the banks but not really similar. If anyone has seen anything it would be interesting to see.

[Leemsip]

Nice post Gerald. Key bit for me is, who would be the potential buyer?
Agree there isnt too much downside here so worth a punt perhaps....

[Rawz]

Yes that was a good read Gerald

[waikare]

Thanks Gerald very interesting.

[Rawz]

Ronaldson mentioned ERD above. That worked well over 100% gain in a few months lol.

[bull....]

good post gerald

[bull....]

Aussie insurer takes 5.82% stake in Tower


https://www.nbr.co.nz/investment/aussie-insurer-takes-5-82-stake-in-tower/

????? have they made an approach

i see the australian has a story on this too

Tower taps Goldman Sachs for review, eyes on Badger International

https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusi ness%2Fdataroom%2Ftower-taps-goldman-sachs-for-review-eyes-on-badger-international%2Fnews-story%2F391bf75df35a5240044d5bbecec6841e&memtype=anonymous&mode=premium&v21=GROUPB-Segment-2-NOSCORE&V21spcbehaviour=append

[Lego_Man]

i see the australian has a story on this too

Tower taps Goldman Sachs for review, eyes on Badger International

https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusi ness%2Fdataroom%2Ftower-taps-goldman-sachs-for-review-eyes-on-badger-international%2Fnews-story%2F391bf75df35a5240044d5bbecec6841e&memtype=anonymous&mode=premium&v21=GROUPB-Segment-2-NOSCORE&V21spcbehaviour=append

Absolutely gimme buying TWR here. Closest thing to free money you will see...30% total return on a 12 month view.

[bull....]

Absolutely gimme buying TWR here. Closest thing to free money you will see...30% total return on a 12 month view.

yep if no major disasters next yr twr be a huge cash machine. be upgrades under this senario.

[Rawz]

I bought 20,000 shares this morning on the open at 59 cents.

Reason for purchase:
1) FY24 guidance of $22M- $27M underlying NPAT. Lets say $24m = eps of $0.06 or trading on a forward P/E of 9. They say they have set large events allowance conservatively at $45m. As bull says above, if there are no major events it could be a 'super profit' year.

2) Goldman Sachs. I did very well when Goldman was shoulder tapped by ERD. Goldman no doubt will be wanting a deal (takeover) which will generate fat fees for them...

3) Looking at the 10 year chart it doesnt look like there is much downside risk here vs what appears as healthy upside potential. The worst the SP got was Nov 2016 around 53 cents. The Tower business today seems to be much better than then with revenues 51% higher but total operating expenses only 35% higher. Policy liabilities has grown 47% since 2016. All this growth yet SP a fraction above then.

4) Lots of valid points made by other STr members including the new IT system which is a major for insurers.

Good luck to us holders, may we make a heap of money :t_up:

[Poet]

[QUOTE=bull....;1032414]i see the australian has a story on this too

Tower taps Goldman Sachs for review, eyes on Badger International

https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusi ness%2Fdataroom%2Ftower-taps-goldman-sachs-for-review-eyes-on-badger-international%2Fnews-story%2F391bf75df35a5240044d5bbecec6841e&memtype=anonymous&mode=premium&v21=GROUPB-Segment-2-NOSCORE&V21spcbehaviour=append[/QUOTe
Paywalled unfortunately
Does the article say anything new that wasn't said in the market release.?

[bull....]

[QUOTE=bull....;1032414]i see the australian has a story on this too

Tower taps Goldman Sachs for review, eyes on Badger International

https://www.theaustralian.com.au/subscribe/news/1/?sourceCode=TAWEB_WRE170_a&dest=https%3A%2F%2Fwww.theaustralian.com.au%2Fbusi ness%2Fdataroom%2Ftower-taps-goldman-sachs-for-review-eyes-on-badger-international%2Fnews-story%2F391bf75df35a5240044d5bbecec6841e&memtype=anonymous&mode=premium&v21=GROUPB-Segment-2-NOSCORE&V21spcbehaviour=append[/QUOTe
Paywalled unfortunately
Does the article say anything new that wasn't said in the market release.?

just that PD Insurance owned by Badger does a lot of travel and pet insurance followed by motor and house contents so i think there implying a tie up would make sense and give pd bigger scale in motor and home and twr new markets in travel and pet. also mentioned chubb as a possibilty.

also if you look at pd accounts most of there investments are income generating which twr is not so to me it wasnt done as investment income for there float it reads to me

[Poet]

[QUOTE=Poet;1032450]

just that PD Insurance owned by Badger does a lot of travel and pet insurance followed by motor and house contents so i think there implying a tie up would make sense and give pd bigger scale in motor and home and twr new markets in travel and pet. also mentioned chubb as a possibilty.

also if you look at pd accounts most of there investments are income generating which twr is not so to me it wasnt done as investment income for there float it reads to me

Thanks

[bull....]

ggod close today. panic sellers gone who thought the worst.

[Leemsip]

Im with RAWZ. 45k shares @ ~59c.

Go the vampire squiddy.... sell this turd.

[Rawz]

there are 172k shares offered at 62 cents. if that gets taken out quickly this morning it would be a very good sign

[Rawz]

Off market trade of 2.793m shares went through at 58 cents on the open i see

[bull....]

Off market trade of 2.793m shares went through at 58 cents on the open i see

thats a big parcel

[nztx]

Someone must be needing Christmas spending money in a hurry ;)

[ronaldson]

Reflecting upon ERD, RAK, ARV et al I would say the next NZX listed entity that is a prime candidate for a bid to be "unexpectedly" lobbed in is TWR.

I am a significant holder under several hats so my view should be assessed accordingly but recent new entry on the share register, TWR's decision to engage in a strategic review, the general "cleaning up" of legacy issues, the divestment of activities in PNG and the Solomon Is ( and intention to exit Vanuatu if possible ) to reduce Pacific exposure, the off-shoring of a lot of administration to a cheaper hub in Fiji, an industry leading IT platform and ongoing considerable (in % terms) GWP growth in the market sector TWR operates in suggest to me TWR offers either a current or a new player in the wider NZ Insurance market a clear opportunity to either enter or upscale.

Just my thought at the current share price.

[Rawz]

And dont forget Ronaldson those guys at Goldman have been tasked with finding shareholder value or something like that so yes with what you say above and Goldman i too am thinking TWR is a prime candidate for a takeover offer

[Muse]

Reflecting upon ERD, RAK, ARV et al I would say the next NZX listed entity that is a prime candidate for a bid to be "unexpectedly" lobbed in is TWR.

I am a significant holder under several hats so my view should be assessed accordingly but recent new entry on the share register, TWR's decision to engage in a strategic review, the general "cleaning up" of legacy issues, the divestment of activities in PNG and the Solomon Is ( and intention to exit Vanuatu if possible ) to reduce Pacific exposure, the off-shoring of a lot of administration to a cheaper hub in Fiji, an industry leading IT platform and ongoing considerable (in % terms) GWP growth in the market sector TWR operates in suggest to me TWR offers either a current or a new player in the wider NZ Insurance market a clear opportunity to either enter or upscale.

Just my thought at the current share price.

agree it looks like they are clearly putting in the building blocks to achieve that outcome

ronaldson what is the dividend policy and history there if you don't mind my asking? If consensus is to be believe the prospective yields are huge but the history is patchy - only paid dividends in 2 of the last 5 years

[Rawz]

Off market trade of 2.793m shares went through at 58 cents on the open i see

another big crossing of 3.55m shares at 58 cents. whats going on???

[ronaldson]

agree it looks like they are clearly putting in the building blocks to achieve that outcome

ronaldson what is the dividend policy and history there if you don't mind my asking? If consensus is to be believe the prospective yields are huge but the history is patchy - only paid dividends in 2 of the last 5 years

Going back to 2011 (the earthquake era) dividends have been as follows:-

FY2011 interim 4.0c
final 2.0c
FY2012 interim 5.00c
final 6.0c
FY2013 interim 5.0c
final 6.0c
FY2014 interim 6.50c
final 8.0c
FY2015 interim 8.5c
final 7.5c
FY2016 interim 8.5c

then nothing until FY2021
interim 2.5c
final 2.5c
FY2022 interim 2.5c
final 4.0c

No dividend, either interim of final was paid for FY23 (year to 30 Sept)

However the results announcement on 23 November this year included the statement " Consideration will be given to restarting dividend in FY24 if it is prudent to do so".

The 2016 - 2020 hiatus seems mostly to coincide escalating claim costs incurred/settled from the ChCh earthquake and the trickle, then flood, of "overcap" claims referred by EQC from that source also.

And remember there were both capital raises and a share buyback in the period above too. We are therefore unlikely to return to the larger annual dividends paid previously because the capital base/shares on issue is higher currently. But Stiassney is focused on shareholder payout in my view so we can hope for better (ie dividend resumption) soon.

[Muse]

good stuff thank you

[Rawz]

2015 there were 175m shares.
today there are 379m shares on issue. However down from a peak of 422 in 2021.

TWR should buyback more shares since the SP is trading below book value ($0.79). Buyback better for shareholders than dividends right now.

[ronaldson]

Todays MoneyHub email again rates TWR one of the top two insurers recommended to get a quotation for comprehensive motor vehicle insurance. These independent source email are widely read and are surely one of the drivers of TWRs sharply increasing Gross Written Premium, especially in the MV space.

This endorsement is a massive free advertising assist in my view. A good way to start the New Year.

[kiora]

I wonder if Cove insurance eating into Tower Car Insurance market share?
Nearly 1/2 the premium for qualifiers
https://www.coveinsurance.co.nz/reviews/

Great sevice & I couldn't fault Cove on a recent claim I made

[Rawz]

Is TWR now ready for takeover offers?:cool:

https://announcements.nzx.com/detail/424802

Tower announces the conditional sale of its Vanuatu subsidiary to Capital
Insurance Group of Papua New Guinea. The sale proceeds are expected to be
around $1.6m, net of costs of sale, subject to adjustment for changes in the
subsidiary's net assets at the completion date. The sale is expected to
complete in the first half of 2024.

[SailorRob]

2015 there were 175m shares.
today there are 379m shares on issue. However down from a peak of 422 in 2021.

TWR should buyback more shares since the SP is trading below book value ($0.79). Buyback better for shareholders than dividends right now.

This is never EVER in itself a reason to buy back shares.

[Rawz]

This is never EVER in itself a reason to buy back shares.

Buy shares below book value for an insurer not a reason to buy back shares vs pay dividends? can you elaborate more pls

[SailorRob]

Buy shares below book value for an insurer not a reason to buy back shares vs pay dividends? can you elaborate more pls

Will do when I get time, read up everything Buffett has said over the years on buybacks, should be able to find it all condensed somewhere.

For most insurers trading below book, particularly well below, buybacks would be lighting cash on fire.

Buybacks should only ever be considered when shares are trading below INTRINSIC value, conservatively measured and when no higher return activities are available for the capital.

Book value has nothing to do with it at all, otherwise you'd just buy shares in all the insurance companies trading below book and you'd get rich af.

[Rawz]

Will do when I get time, read up everything Buffett has said over the years on buybacks, should be able to find it all condensed somewhere.

For most insurers trading below book, particularly well below, buybacks would be lighting cash on fire.

Buybacks should only ever be considered when shares are trading below INTRINSIC value, conservatively measured and when no higher return activities are available for the capital.

Book value has nothing to do with it at all, otherwise you'd just buy shares in all the insurance companies trading below book and you'd get rich af.

this quote is all i could find you silver tongue demagogue lol:

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),”

[SailorRob]

this quote is all i could find you silver tongue demagogue lol:

“When you are told that all repurchases are harmful to shareholders or to the country, or particularly beneficial to CEOs, you are listening to either an economic illiterate or a silver-tongued demagogue (characters that are not mutually exclusive),”




There are thousands of words, massive resources from him on the topic.

Well worth spending 30 or 40 hours studying, you'll earn yourself thousands of dollars an hour for the effort.

But obviously if it makes sense for them to buy back below book, then it makes sense for us to buy below book.

It's unfortunately not that simple.

[bull....]

state of emergency called on west coast

[winner69]

state of emergency called on west coast

Tower prob don’t offer insurance down that way anymore …..been costly in past

[Sideshow Bob]

https://www.nzx.com/announcements/426168

Tower provides update following strong trading result

Kiwi insurer, Tower Limited (NZX/ASX: TWR) has today provided an update on its earnings guidance on underlying net profit after tax (underlying NPAT) for the year ending 30 September 2024.

Full year underlying NPAT is expected to be at the upper end of or exceed the previously advised range of between $22m and $27m. This assumes full utilisation of a large events allowance which has conservatively been set at $45m.

The increased expectation for underlying NPAT guidance follows strong trading results for the first four months of the financial year, including positive GWP growth and a better-than-expected claims performance as the frequency of motor claims has begun to normalise. Accordingly, Tower expects it will be at the top end or exceed its gross written premium (GWP) and combined operating ratio (COR) guidance ranges over the FY24 year.

No large events were recorded in the four-month period.

Tower will provide further details on its performance at its annual shareholder meeting on 21 February.

Financial information provided in this update is based on Tower’s unaudited management accounts as at 31 January, 2024.
Ends

[Lego_Man]

https://www.nzx.com/announcements/426168

Tower provides update following strong trading result

Kiwi insurer, Tower Limited (NZX/ASX: TWR) has today provided an update on its earnings guidance on underlying net profit after tax (underlying NPAT) for the year ending 30 September 2024.

Full year underlying NPAT is expected to be at the upper end of or exceed the previously advised range of between $22m and $27m. This assumes full utilisation of a large events allowance which has conservatively been set at $45m.

The increased expectation for underlying NPAT guidance follows strong trading results for the first four months of the financial year, including positive GWP growth and a better-than-expected claims performance as the frequency of motor claims has begun to normalise. Accordingly, Tower expects it will be at the top end or exceed its gross written premium (GWP) and combined operating ratio (COR) guidance ranges over the FY24 year.

No large events were recorded in the four-month period.

Tower will provide further details on its performance at its annual shareholder meeting on 21 February.

Financial information provided in this update is based on Tower’s unaudited management accounts as at 31 January, 2024.
Ends


Great update and this should wake the market up. Screaming cheap at 60c.

[ronaldson]

I have pointed out before the outsize impact a reduction in large event claims in any given year can have on profitability for TWR.

Guidance is now at or above $27m for FY24, but absent any drawdown for "large events" ( TWR has a definition for that term ) it would be $72m, a massive increase. That may be unduly hopeful but a review of past years suggests around half of that allowance being unutilised would be reasonably "normal".

Given TWR has recently exited exposures in Papua New Guinea and the Solomons, and is close to offloading exposures in Vanuatu ( which significantly contributed to large event losses in FY23 ) that is probably fair.

Admitedly there is an element of gamble as to how it will be at year end, but likely the market is overlooking the major increase in the current provisioning for "large events" made for FY24 and the impact of underutilisation should that eventuate.

[ronaldson]

And the Annual Meeting is scheduled for 10.00am on Wednesday 21 February.

I suggest the Chair/Ceo's addresses will be quite upbeat and today's announcement/disclosure will be to mitigate the potential for criticism around continuous disclosure if that is indeed the case.

And remember that a "strategic review" is ongoing. In my view Stiassney has a reputation for delivering for shareholders, 2CC being only the most recent example!

So watch this space!

[Lego_Man]

I have pointed out before the outsize impact a reduction in large event claims in any given year can have on profitability for TWR.

Guidance is now at or above $27m for FY24, but absent any drawdown for "large events" ( TWR has a definition for that term ) it would be $72m, a massive increase. That may be unduly hopeful but a review of past years suggests around half of that allowance being unutilised would be reasonably "normal".

Given TWR has recently exited exposures in Papua New Guinea and the Solomons, and is close to offloading exposures in Vanuatu ( which significantly contributed to large event losses in FY23 ) that is probably fair.

Admitedly there is an element of gamble as to how it will be at year end, but likely the market is overlooking the major increase in the current provisioning for "large events" made for FY24 and the impact of underutilisation should that eventuate.

It's certainly possible that it could be at a mid single digit multiple right now.

[Rawz]

Great update and yes also we have that little company Goldman Sachs working away in the background for a humongous takeover offer 😁

[bull....]

good update. wonder if div's be back on the table if no big events.

[ronaldson]

good update. wonder if div's be back on the table if no big events.

I believe a dividend is "on the table" with or without utilisation of all or part of the "large event" provision. Stiassney is dead keen to reward holders if reasonably possible.

And there are tax losses carried forward due to previous hard years experienced by TWR, so if profit jumps massively in FY24 due to continued good fortune keeping large event outgoings minimal to 30 September it is all cream without tax liability/payment reducing the cash to bottom line effect.

[Leemsip]

Hey Ronaldson. Does this mean it isnt franked for the shareholders though? I can never figure that out.

[ronaldson]

Hey Ronaldson. Does this mean it isnt franked for the shareholders though? I can never figure that out.

I believe the situation is that while the taxman may not (temporarily) cometh for Tower he will definitely still cometh for you.

So Tower will not have imputation credits to attach to any dividend, but will still be obliged to deduct Resident Withholding Tax at 33c from the gross dividend paid (which you as a holder credit in due course against your personal income tax liability - if your top marginal rate is higher you will have to "top up" but if it is lower you get a credit for/refund of the difference ).

[Leemsip]

grrr. Main reason to hold NZ stocks is for the imputation...
Buy back some stock tower for ****s sake

[Lego_Man]

grrr. Main reason to hold NZ stocks is for the imputation...
Buy back some stock tower for ****s sake

Yep buyback is a complete no brainer...

[bull....]

IAG just report

NZ division
strong turn around due to insurance margin

GWP Growth 18.8 %
insurance margin 20.8%

improvement in underlying claims ratio due to fall in second hand car prices

[ronaldson]

AGM on Wednesday morning should not be missed!

Upward momentum is quite strong now, and for good reason providing natural disasters remain somewhere else on the planet.

[winner69]

AGM on Wednesday morning should not be missed!

Upward momentum is quite strong now, and for good reason providing natural disasters remain somewhere else on the planet.

El Nino these days …better for insurors than La Niña

[Rawz]

Big provision built into guidance so even if there is a weather event the year should still be a good one.

[winner69]

Looking good

Today, Tower shared new, medium-term performance targets with the market. In FY25 Tower is targeting to deliver underlying NPAT of between $40m and $60m and between $60m and $80m in FY26.



http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/TWR/426524/412996.pdf

[winner69]

Wonder when next profit upgrade coming

[bull....]

thats a massive forecast increase in npat for 25/26

[Rawz]

Wow amazing

[Rawz]

TWR the most undervalued stock on the NZX?

[bull....]

TWR the most undervalued stock on the NZX?

stock price way underperformed peers in AUS , no wonder the wildlife is looking at it as prey

[Rawz]

sell side gonskies. SP be 80cents in due course.

[bull....]

if they acheive those npat figures the share price at the moment would mean there on a pe of 2-4 with div/share of 10cps + lol rediculous cheap if they acheive that. of course it takes a bit of faith to think they will.

[Rawz]

How good is Michael Stiassny :cool:

[winner69]

sell side gonskies. SP be 80cents in due course.

And heading to 130 where most said it should have been a few years ago

Let’s say 130 by Christmas eh

And any takeover price looking better

[Rawz]

And heading to 130 where most said it should have been a few years ago

Let’s say 130 by Christmas eh

And any takeover price looking better

Forget about the takeover this is a growth story now. Double engine growth dream. SP needs to catch up to fundamental value and then multiple expansion

[850man]

All super encouraging today but we all need to remember that this all turns to crap with just one bad weather event. But for holders - let's bask in a little light in an otherwise quite dark NZ sharemarket.

[Rawz]

IAG trade on a PE of 19.

Lets say TWR deserve 14 PE (morningstar say industry avg is 16.. so 14 is conservative).
If they do $80m npat in FY26 (upper end of guidance/target) that's $80mx14= $1,120 market cap.

Current market cap is $265m. I.e. over next 2 years if all is rosy and with a bit of luck its a 322% gain :eek2: