TWR - Tower Insurance.

[nztx]

Well I wonder if the wild weekend's weather events in two or 2 & 1/2 regions, counting Wellington & Wairarapa etc has watered down dividend hopes ?

[kiwico]

You would expect a small insurer to have both forms of reinsurance:
* "cat cover" goes up and is based on losses from a single identifiable event causing damage to multiple insureds. The Reserve Bank, as regulator, requires insurers to have cat cover for a 1 in 500 year earthquake (it might now be 1 in 1000 years)
* aggregate R/I would protect an insurer from a higher frequency of non-cat claims, where the number of rats and mice claims during the year exceeds what an insurer wants to hold themselves.

[850man]

You would expect a small insurer to have both forms of reinsurance:
* "cat cover" goes up and is based on losses from a single identifiable event causing damage to multiple insureds. The Reserve Bank, as regulator, requires insurers to have cat cover for a 1 in 500 year earthquake (it might now be 1 in 1000 years)
* aggregate R/I would protect an insurer from a higher frequency of non-cat claims, where the number of rats and mice claims during the year exceeds what an insurer wants to hold themselves.

The below from Tower's website, would appear that costs associated with this flooding event would fall under the reinsurance.

• Natural disaster reinsurance costs
  
  In simple terms, reinsurance is insurance for insurance companies. Reinsurance cover helps pay for the cost of claims if there’s a large disaster like an earthquake or major flood. Following the Christchurch earthquakes and other natural disasters both in New Zealand and around the world, there was a significant increase in the cost of reinsurance. This increased cost is reflected in the premiums insurance companies charge their customers.
  
  
  

[winner69]

High risk areas so Tower not likely to have too many customers ……premiums too high.

[Poet]

High risk areas so Tower not likely to have too many customers ……premiums too high.

True, also I believe they have already stated that they have already triggered their aggregate claims limit - $14m (ie all large claims for rest of year, except NZ earthquake, are covered by re-insurance) That is the basis on which they were forecasting the profit ($22m-$24 million so this profit guidance shouldn't be affected.

[Poet]

High risk areas so Tower not likely to have too many customers ……premiums too high.

True, also I believe they have already stated that they have already triggered their aggregate claims limit - $14m (ie all large claims for rest of year, except NZ earthquake, are covered by re-insurance) That is the basis on which they were forecasting the profit ($22m-$24 million so this profit guidance shouldn't be affected.

[Antipodean]

Do you mean the dividend paid last week...?
Or has the dividend payment policy changed recently and I missed it?

Per the update on 11/06/2021, reinsurance is picking up the big event tab, underlying NPAT still forecast at $22-24m, and Jan div still expected to be 2.5-3cps, or 3.4-4.0% gross for the HY based on .735 sp.

Still as we well know guidance can change, so the above is predicated on no further update from the company that surprises the shareholders and the market. Plus not all costs are claim costs, there is going to be a ton of busy people at the company working to resolve customer claims right now.

Flooding is an interesting peril because there is a point where it goes from a sudden unexpected event to a known issue. It wouldn't be outside the realm of possibility for risks that are flood prone or have weather tightness issues to be reviewed post loss. They may not change, but if is becomes expected and frequent, the risk may need to be more fully shared if not remediated while it can be (eg. through a peril specific excess increase).

Still once the waters subside, and the claims are further underway, we will likely get an update from Tower on how this affects their bottom line if at all. Insurance companies exist to pay claims so despite all the above yes it could water down (sorry) the dividend stream (sorry) in the short term. However I'd rather see short term weakness based on paying claims than other factors. For me this is a longer term play seeing if the acquisitions and system turnover pays off 2-5+ years.

[Beagle]

Unfortunately, as per my previous post on this on 18 May, with the ever increasing effects of climate change extremely unusual weather events like the rain affecting Canterbury this weekend are going to be more and more frequent to the point where they become so regular they become normal. Not a good sector in my opinion.

I can't take any credit for this insight as I was very fortunate to have a very loyal client who worked on contract for Metservice for over 50 years. Lovely old chap and the last time I saw him when he retired he told me, don't believe all this one in 100 year weather event nonsense. You'll get at least one, more often two of these so called one in one hundred year weather events every year. He went on and told me some other really scary stuff....basically the amount of methane now being released from ice sheet melting means we are on an irreversible road to catastrophic climate change irrespective of what we do with CO2 emissions. Beagle 30/05/21 https://cage.uit.no/2021/04/28/metha...ng-ice-sheets/

Looks like Maurice was wrong. So called 1 in 100 year weather events seem to be happening almost every month. Too hard to make money in this sector.

Really sad situation https://www.nzherald.co.nz/nz/dead-c...ZIZMSUK5YCAUY/

[JohnnyTheHorse]

Looks like Maurice was wrong. So called 1 in 100 year weather events seem to be happening almost every month. Too hard to make money in this sector.

Not a problem if Tower can make sure premiums are priced correctly. Not many players in NZ so consumer will have to pay whatever the cost is. Wouldn't be surprised so see house premiums up 20%+ this year...

[Beagle]

"IF" they can price the annual premiums correctly appears to be the nub of the issue. The pace of change with climate related catastrophe's is what has many climate change activists worried.