Volcanic eruption in Tonga, flooding cut tower’s profit to $2.9 million

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The volcanic eruption in Tonga and bad weather have hit Tower’s half-year earnings hard.

The insurance company’s bottom line was lower after major claims nearly doubled to $17.9 million, including payouts related to Tonga’s Hunga Tonga-Hunga Ha’apai volcano eruption and subsequent tsunami, the cyclone Dovi and the heavy rain storms that swept across the North Island in March.

Torrential rain and flooding washed out roads north of Gisborne in March and proved costly for Tower.
Photo: Eastland Network

Key figures for the six months to March compared to last year:

  • Net Income $2.9M vs $11.5M
  • Revenue $214.1 million versus $203.5 million
  • Underlying profit excluding major events $18.2m vs. $17.1m
  • Gross written premiums $216 million versus $193.9 million
  • Interim dividend of 2.5 cents per share

Tower’s reinsurance program kicks in after the total cost of major events exceeds $20 million and provides $20 million in additional coverage. It also had “catastrophe coverage” that triggered when the cost of a single event exceeded $11.3 million.

Barring one-off events, Tower Chief Executive Blair Turnbull said the company’s operating performance has improved due to higher customer numbers, lower expense margins and effective management of inflationary pressures.

“By building deeper, more engaged relationships with customers, Tower has seen consistent growth in both premiums and customer numbers year over year.

“Our digitization and distribution strategy, focused on simple and rewarding customer experiences, has resulted in us welcoming an additional 18,000 customers to Tower and increasing gross written premiums by 11 percent to $216 million.”

The company unveiled a new flood risk pricing model in November 2021 and said the majority of its customers would receive a rebate on some of their home insurance premiums.

So far, the company has switched around 70,000 customers to this new pricing model when their contracts are due for renewal.

It said it also plans to add other climate-related risks to its assessment tool in the coming year, including coastal flooding and erosion and storms.

“By expanding our risk-based pricing policy and focusing on a quality reinsurance program, we ensure Tower remains in the best possible position to continue to protect the interests of our clients and shareholders,” said Turnbull.

Tower reiterated its underlying earnings guidance for the year ended June of between $21 million and $25 million.

The company’s board of directors declared an interim dividend of 2.5 cents per share.

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