Tower Limited reported a robust half year profit for 2025, driven by improved claims performance and premium growth in its home insurance portfolio, despite ongoing challenges from Canterbury earthquake claims and competitive motor insurance pricing.
- Underlying net profit after tax rises to NZD 61.7 million
- Gross written premium grows 4%, led by New Zealand home insurance
- Business-as-usual claims ratio improves significantly to 38.1%
- Management expense ratio reduced to 30.4% amid strategic investments
- Interim dividend declared at 8 cents per share, fully imputed
Strong Financial Performance Despite Legacy Challenges
Tower Limited (NZX/ASX: TWR) has delivered a strong financial performance for the half year ended 31 March 2025, reporting an underlying net profit after tax (NPAT) of NZD 61.7 million, a substantial increase from NZD 36.6 million in the prior corresponding period. The reported profit, which includes provisions for customer remediation and increased Canterbury earthquake claims, stood at NZD 49.7 million.
This growth was underpinned by a 4% increase in gross written premium (GWP) to NZD 297 million, primarily driven by customer growth in the New Zealand home and contents insurance portfolio. However, this was tempered by lower average premiums due to a higher proportion of lower-risk policies and competitive market pricing, particularly in the motor insurance segment where GWP declined by 4%.
Improved Claims Management and Operational Efficiency
One of the standout operational achievements was the significant improvement in the business-as-usual (BAU) claims ratio, which fell to 38.1% from 49.7% a year earlier. This was attributed to a combination of favourable weather conditions, easing inflationary pressures, enhanced risk selection, and more efficient claims processing. Tower’s investment in its Claims Transformation programme has increased internal claims assessments and boosted utilisation of its preferred repair network, reducing costs and repair times.
The management expense ratio (MER) also improved to 30.4%, reflecting operational efficiencies and premium growth, despite increased strategic investments in digital transformation and process improvements. Tower’s digital initiatives have enhanced customer experience, with 94% of car policy changes now available online and a 10% increase in active users of its My Tower platform.
Legacy Canterbury Earthquake Claims and Customer Remediation Costs
Despite these positive trends, Tower continues to face challenges from the long tail of Canterbury earthquake claims. The company recorded a non-underlying after-tax charge of NZD 6.2 million related to increased provisions for reopened or new over-cap claims from the Natural Hazards Commission. The ongoing nature of these claims, some nearly 15 years old, remains a significant financial and operational burden.
Additionally, Tower recognised NZD 4.9 million in after-tax costs associated with customer remediation efforts, including provisions for repayments and regulatory compliance costs linked to the Financial Markets Authority’s ongoing investigation.
Capital Position and Dividend Declaration
Tower’s capital position remains robust, with a solvency ratio of 164%, down from 212% at the previous year-end due to regulatory changes and a NZD 45 million capital return to shareholders. The company reaffirmed its A- financial strength rating from AM Best in April 2025.
Reflecting its strong performance, Tower declared a fully imputed interim dividend of 8 cents per share, payable on 26 June 2025, signaling confidence in its ongoing profitability and capital management.
Strategic Outlook and Regulatory Advocacy
Looking ahead, Tower plans to continue its focus on profitable growth through enhanced risk-based pricing, including expanding hazard risk assessments to landslide and sea surge risks. The company is also investing in customer data management and digital capabilities to improve efficiency and customer experience.
Notably, Tower is actively advocating for government intervention to impose final time limits on Canterbury earthquake claims to bring closure to this protracted issue and cautions against proposed increases to the Natural Hazards Commission levy, which could undermine risk-based pricing and increase premiums for lower-risk homeowners.
Bottom Line?
Tower’s HY25 results highlight a resilient insurer balancing legacy claim challenges with strategic growth and efficiency investments, setting the stage for cautious optimism in FY25.
Questions in the middle?
- How will government legislation on Canterbury earthquake claim time limits impact Tower’s future provisions?
- What effect might proposed increases to the Natural Hazards Commission levy have on Tower’s pricing strategy and customer premiums?
- Can Tower sustain its improved claims performance and expense ratio amid ongoing strategic investments?