TWR - Tower Insurance.

[Poet]

Hi Ronaldson, nice post, much appreciated- but are you able to give a reference for this...

I was trying to better understand TWR's exposure circumstance for residential cover, contents and motor in particular. It seems for the year commencing 1 October 2022 TWR has catastrophe cover of $934m but unlike earlier years this is a lump sum regardless of the number of such events (in lieu of further covers that "drop down" for subsequent events as in past years)

[ronaldson]

Poet - The source is TWR's NZX announcement on 30 September 2022 titled "Successful Placement of FY23 Reinsurance Programme" supported by the further announcement on 30 January 2023 by way of an update to the current event.

Antipodean is trying to tell me (correctly) that EQC does not cover storm or flood damage to residential buildings, only land under the building or within 8 metres (and with certain exceptions for main accessways, services, retaining walls and so on within 60 metres ) but does cover landslip. So TWR's liability may not be offset by EQC to the extent I suggested.

The last major flood event in Auckland was largely focused on the Kumeu area, only a couple of years ago. This time I have not seen any reports of significant flooding at that location - go figure!

[Poet]

Poet - The source is TWR's NZX announcement on 30 September 2022 titled "Successful Placement of FY23 Reinsurance Programme" supported by the further announcement on 30 January 2023 by way of an update to the current event.

Antipodean is trying to tell me (correctly) that EQC does not cover storm or flood damage to residential buildings, only land under the building or within 8 metres (and with certain exceptions for main accessways, services, retaining walls and so on within 60 metres ) but does cover landslip. So TWR's liability may not be offset by EQC to the extent I suggested.

The last major flood event in Auckland was largely focused on the Kumeu area, only a couple of years ago. This time I have not seen any reports of significant flooding at that location - go figure!

Thanks, your earlier post said that the catastrophe cover doesn't reinstate after each of multiple events - I think you are misunderstanding the situation.

TWR June 2022 release said:

''Due to market conditions and large losses internationally, reinsurers have moved away from aggregate structures at reasonable pricing, therefore Tower has elected not to purchase aggregate cover for FY23. The aggregate programme previously covered the insurer for multiple large events losses over the year.''

I think it works like this:

The aggregate structure refers to there being a cap on total losses relating to multiple large events in one year - last year this was $20m but this year there is no cap so if there are subsequent large events this year TWR might have to stump up with another 11.85m excess for each event. They say they have budgeted $30m for this in FY23

However after each large event, the total available cover for large events should re-instate to the $934m

[winner69]

IAG latest …..all too complicated to apprehend this time of day but Auckland impact has some big numbers

http://nzx-prod-s7fsd7f98s.s3-websit...212/387971.pdf

[kiora]

Will Cove shake up NZ Car Insurance Market?
https://www.coveinsurance.co.nz/

[peat]

IAG latest …..all too complicated to apprehend this time of day but Auckland impact has some big numbers

http://nzx-prod-s7fsd7f98s.s3-websit...212/387971.pdf

I really dont know how they're creating those numbers re the AKL event.

There are many thousands of claims unassessed and sure most of them will dry out and only need some building work cf a complete rebuild but they dont have a clue on the numbers yet imo

Interesting to see their cutoff point (where re-insurance kicks in).

[nztx]

20,000 claims lodged according to the squawk box .. wonder how many of those
claims are for Tower's policies ?

One things for sure - this means everyone's Insurance premiums & Govt's EQC rake off
on top will likely be catapulted north by the Insurance Companies very soon just like
what was seen after the Canterbury earthquakes

[ronaldson]

Thanks to Antipodean and Poet for helping me understand the TWR reinsurance circumstance for FY 23 which commenced on 1 October 2022. I have sought further clarification from a TWR source and can now offer the following for everybody's information.

I apologise for my lack of technical skills in facilitating this post but the starting point is TWR's announcement to the NZX on 23 November 2022 titled "Tower announces positive FY22 result". Then go to one of the attachments to that announcement, " Investor Presentation ", and page 19 of that document which has a reinsurance overview " Robust Reinsurance Programme Provides Protection" and a diagram worthy of close review.

Tower has full (ie prepaid) reinsurance cover for two separate catastrophe events of up to $889m in total losses each (subject to retentions of $11.875m, which would be at TWR's expense). There is also an additional coverage, known as 'drop down' coverage, of $45m. This dropdown coverage can be used to either increase the cover on the first event, up to $934m, or to provide cover on a third catastrophic event (subject to a slightly higher retention of $12.5m).

Part of the cover disclosed in the diagram is identified as "multiyear secured" in relation to the 1st and 2nd catastrophe events. This layer is only highlighted in the diagram because part of the catastrophe cover is via long term (typically 3 years) reinsurance treaties which are not subject to renegotiation every year as is the case with the balance of the catastrophe reinsurance coverage (which reduces risks associated with the annual renegotiation).

Then there is something not identified in the diagram called "proportional reinsurance coverage" which applies to high value properties for both single events and for catastrophes. Under proportional reinsurance the reinsurer receives a % of the premium TWR receives from the customer. The reinsurer then pays a % of the claims in relation to such property, whether it is part of a large event or not. TWR recovers under any proportional reinsurance treaty first, and then the remaining cost to TWR may be recovered on the catastrophe cover once the excess for the catastrophe event has been used up. I didn't ask what value of property triggers this reinsurance but it mitigates the risk of one property using up a significant part of the large events provision.

I did ask what, so far as TWR is concerned, constitutes a "large event" so that claims costs will fall/be allocated within the $30m provision for such circumstances rather than be simply expenses as business as usual as for lesser claim events. The response is that the definition currently used is "an event which impacts two or more property addresses and has a net cost to TWR of more than $2m.

So reinsurance involves multiple treaties with reinsurers but the above sets out the combined arrangements in place for FY23. The insurance entity regulator (RBNZ) must take an interest in these arrangements, but I don't know what criteria are applied to mitigate the risk of an entity failing.

Hope this helps those following this thread.

[ronaldson]

And I forgot to mention that in FY22 TWR had a lesser large event provision than currently, $20m. In FY22 large events comprised the Tonga volcanic eruption, ($6.8m), Cyclone Dovi ($3.6m), North Is rainstorms ($6.4m) and Nelson floods ($4.3m), which in aggregate marginally exceeded the provision then made. No doubt that was one reason underpinning the increase in that provision to $30m for FY23.

[Poet]

Thanks Ronaldson for that deep dive into the re-insurance arrangements. Very helpful indeed.

Also note that last year TWR had aggregate catastrophe cover which meant that their total liability for large events for the year was capped at $20m because beyond that level the reinsurance would be paying. This year they have declined to buy this aggregate cover (because it was too expensive) so they have increased the total budgeted allowance for large events to $30m.

I think that they have now used up $11.8m of this allowance. so still 18.2m in the budget for the remainder of the year.