Tower Limited has raised its full-year underlying NPAT guidance to $60m-$70m, citing strong first-quarter results and favourable claims trends despite softer premium growth.
- Underlying NPAT guidance increased to $60m-$70m from $50m-$60m
- Gross written premiums guidance lowered to 7%-12% growth
- Combined operating ratio improved to 84%-86%
- Claims performance benefited from benign weather and easing inflation
- One large event recorded: Dunedin flooding with $3m estimated cost
Tower Revises Upward FY25 Earnings Outlook
Kiwi insurer Tower Limited (NZX/ASX: TWR) has updated its financial guidance for the year ending 30 September 2025, lifting its underlying net profit after tax (NPAT) expectations to a range of $60 million to $70 million. This marks a significant upward revision from the prior forecast of $50 million to $60 million, reflecting a robust start to the financial year.
The company’s revised guidance assumes full utilisation of its $50 million large events allowance. To date, Tower has recorded a single large event this fiscal year, the October flooding in Dunedin, estimated to have cost around $3 million, well within the allowance.
Strong Claims Performance Drives Profit Upgrade
The upgrade in NPAT guidance is primarily attributed to better-than-expected business-as-usual claims outcomes. Tower cites a combination of factors contributing to this positive trend, including continued benign weather conditions, easing inflationary pressures, a lower incidence of total loss house claims, and enhanced risk selection strategies. These elements have collectively reduced claims costs, bolstering profitability.
Additionally, the combined operating ratio (COR), a key measure of underwriting profitability, has improved to an expected range of 84% to 86%, down from the previous 87% to 89%. This improvement signals more efficient claims management and expense control.
Premium Growth Moderates Amid Changing Customer Mix
While Tower experienced strong customer growth in the first quarter, its guidance for gross written premiums (GWP) has been lowered to a range of 7% to 12%, down from 10% to 15%. The moderation is largely due to a reduction in average premiums, driven by a higher proportion of lower-risk new house insurance and motor policies entering the portfolio. This shift suggests a strategic emphasis on attracting lower-risk customers, which may support claims performance but could temper premium revenue growth.
Market watchers will be keen to see how this balance between premium growth and risk profile evolves, especially as Tower prepares to provide further details at its upcoming annual shareholder meeting on 11 February.
Looking Ahead
Tower’s revised guidance underscores the insurer’s ability to navigate a complex claims environment with disciplined underwriting and risk management. However, the tempered premium growth signals potential challenges in sustaining top-line momentum. Investors will be watching closely for how Tower manages this dynamic in the coming quarters.
Bottom Line?
Tower’s earnings upgrade highlights strong claims control but raises questions about sustaining premium growth.
Questions in the middle?
- Will Tower’s shift toward lower-risk policies impact long-term premium revenue?
- How might future large events affect Tower’s utilisation of its large events allowance?
- Can Tower maintain its improved combined operating ratio amid evolving market conditions?