TWR - Tower Insurance.

[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-websit...579/407086.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.