Tower warns it may lose money this year due to 'challenging' claims environment
Insurance company Tower warned it may report a full-year loss due to a challenging claims environment in New Zealand. The company said underlying profit after tax could range between a loss of $2 million and a profit of $3m in the year to the end of September. Thats a downgrade from its May estimate for underlying profit of $8m to $13m, and compares with underlying profit of $27.3m last year. It is the third downgrade in Towers profit expectations since the company initially forecast underlying profit of $27m to $32m back in November last year. Since then, the insurer has faced higher claims from cyclones, flooding and motor vehicles. Inflation, motor crime and supply chain issues have continued to worsen over the third quarter, with the average cost of motor claims increasing by 20% year-on-year, the company said in a statement to the NZX on Wednesday. Persistent wet weather and other factors are also resulting in motor and house claims frequency above historical norms. Tower said its claims ratio excluding large events had deteriorated to 55% at the end of its third quarter at June 30, from 52% at the end of the second quarter at March 31. The companys shares fell 3.2% to 60 cents when the NZX opened for trading at 10am. Tower said it had increased motor insurance premiums by an average of 26% in the past year. As well as implementing additional rating increases, Tower said it was further tightening its risk selection, automating claims management processes and was working closely with suppliers to manage rising costs. The company said it would take 12 months for the full impact of rating and underwriting actions to be seen as they take effect as insurance policies are renewed. Following the Auckland floods on May 9 and revisions to estimates for Cyclones Judy and Kevin in Vanuatu, large events costs were now $39.5m (excluding costs of reinstating reinsurance cover), leaving $10.5m of Towers $50m large events allowance for the remainder of the year to September 30, it said. Tower said it had settled more than half of the claims received from Januarys Auckland and Upper North Island weather event and Cyclone Gabrielle. The company said it has set up a dedicated event response function and scaled up its Fiji-based resources to ensure remaining large event claims were resolved efficiently. At the end of the third quarter, the companys gross written premiums from customers were up 16.5% on the previous year to $385m, excluding Tower PNG. Tower said it maintained its guidance for gross written premium growth of 15% to 20%.