Tower Limited Analysis

Overview

Tower operates as a prominent private general insurer in New Zealand and across five Pacific Island countries.

As New Zealand's largest direct-to-consumer insurer, Tower is unique in servicing the vast majority of its more than 300,000 customers via its direct channels. The insurer also has a rapidly growing partnership business, which secures mutually beneficial business partnerships that drive policy sales and growth.

Tower has a rich history that spans more than 150 years, starting as the Government Life Insurance Office in 1896. In 1987, it was renamed Tower Corporation, and in 1990 ownership was conferred to its policyholders. The company was one of the first mutual insurers to become a public company when it listed on the New Zealand and Australian stock exchanges in 1999.

In 2006, the New Zealand and Australian businesses were separated, and Tower has since sold its Australian business.

Today, Tower's focus is on providing simple and rewarding insurance services that customers value. This is achieved through strategies such as customer innovation and investment in large-scale digital transformation, which has enabled the business to evolve rapidly.

By joining forces with like-minded partners, Tower has created a leading range of simple products to suit the modern lifestyles of Kiwi and Pacific communities, including motor EVs, home contents, boat, travel, pet, rural and small business insurance.

Tower is actively managing volatility from climate change through its financial planning and reinsurance. The insurer is also managing its own environmental impacts. Tower was the first New Zealand general insurer to implement address-level risk-based pricing for large events such as earthquakes and flooding.

In 2020, Tower underwent an amalgamation to simplify its corporate structure in New Zealand. Today, Tower Limited remains listed on the NZX, and is listed in Australian as a foreign exempt entity under, in both countries under the ticker TWR.

Performance

The following information was extracted from Tower Limited's full year results, released on 28 November 2024:

Tower Delivers Strong FY24 Result

Kiwi insurer, Tower Limited (NZX/ASX: TWR) today reported its result for the year to 30 September 2024, recording an underlying net profit after tax (underlying NPAT) of $83.5m and a reported profit of $74.3m.

The strong results were due to Tower experiencing no large events in the financial year, year-on-year improvements in business-as-usual (BAU) claims performance, premium growth, and operational and digital efficiencies. This was a significant improvement compared to the $1m reported loss in FY23, which was primarily due to catastrophe events.

Summary of FY24:

• Underlying profit $83.5m vs $7.1m in FY23
• Reported profit $74.3m vs $1m loss in FY23
• Gross written premium (GWP) $595m, up 15% on FY23
• Business as usual (BAU) claims ratio 48.1% vs 55.1% in FY23
• Management expense ratio (MER) improved to 31.4% vs 32% in FY23
• Large event costs -$2.3m vs $55.6m in FY23, due to Tower experiencing no large events in the financial year and a favourable revision to prior year large events costs
• Customer numbers were down 2% to 305,000 vs 311,000 in FY23 partly due to tightened risk appetite for high-theft motor vehicle models

Reflecting the positive FY24 results and based on Tower's ordinary dividend policy, the Board has declared a final dividend of 6.5 cents per share. This brings total dividends for FY24 to 9.5 cents per share.

The Board has also conditionally approved a return of NZ$45m of excess capital to shareholders, by way of mandatory share buyback . The return of capital is expected to deliver meaningful earnings per share accretion to Tower’s shareholders.

Strong business performance

Tower CEO, Blair Turnbull says, “Continued improvements in claims performance, sustained GWP growth and enhanced business efficiencies along with unusually benign weather in New Zealand and the Pacific, have delivered a positive result for shareholders.

“This strong result is underpinned by our strategy of delivering simple and rewarding customer experiences combined with our use of digital technology and data.”

The BAU claims ratio has reduced to 48.1% compared to 55.1% in FY23. This improvement was driven by a combination of rating increases, enhanced processes, a reduction in motor theft claims due to targeted underwriting actions and lower crime, and calmer weather, which flattened the frequency of house claims in the year.