Tower’s Profit Upgrade Masks Risks from Lower Premiums and Higher Expenses
Tower Limited has raised its full-year profit guidance significantly, driven by lower-than-expected large event costs, even as it moderates its premium growth outlook.
- Underlying NPAT guidance increased to $100m-$110m from $70m-$80m
- Large event costs much lower than anticipated, boosting profitability
- Customer base grows 5%, with 4% policy growth in New Zealand house insurance
- Gross written premium growth forecast trimmed to 2%-3%
- Management expense ratio guidance slightly increased to around 31%
Profit Guidance Revision
Kiwi insurer Tower Limited has surprised the market by substantially upgrading its underlying net profit after tax (NPAT) guidance for the fiscal year ending September 2025. The company now expects underlying NPAT to land between $100 million and $110 million, a marked increase from the previous forecast of $70 million to $80 million. This revision hinges on the assumption that no significant large events occur in the final month of the fiscal year.
To date, Tower has recorded only $7 million in large event costs, well below the $50 million allowance factored into earlier guidance. This favorable development effectively returns approximately $31 million (or $43 million before tax) back to the bottom line, underpinning the improved profit outlook.
Customer and Policy Growth
Despite a more cautious premium growth forecast, Tower continues to demonstrate solid momentum in customer acquisition and policy numbers. The insurer’s customer base has expanded by 5% year-to-date, reaching 318,000, while policy growth stands at 4%, primarily within the New Zealand house insurance segment. This aligns with Tower’s strategic emphasis on personal house insurance and its risk-based pricing approach.
Interestingly, average premiums have declined, reflecting a higher proportion of lower-risk new policies and intensified competition in the New Zealand market. While this trend benefits customers through more competitive pricing, it also tempers gross written premium (GWP) growth expectations, which have been revised downward to between 2% and 3%, from a previously anticipated mid-single digit range.
Expense and Claims Outlook
Tower has also adjusted its management expense ratio (MER) guidance slightly upward to around 31%, compared to the earlier target of less than 31%. This shift is attributed to the lower premium growth diluting the ratio and ongoing investments in technology and customer acquisition initiatives. On the claims front, the business-as-usual claims ratio remains consistent with prior expectations, indicating stable underwriting performance.
CEO Paul Johnston’s leadership appears focused on balancing sustainable growth with profitability, emphasizing the importance of attracting high-quality risks. The company’s continued investment in technology and growth initiatives signals a commitment to long-term value creation despite short-term market pressures.
Looking Ahead
Tower plans to provide a comprehensive update on its FY25 performance during its full-year results announcement in November. Investors will be keen to see how the final month’s large event costs materialize and whether the company can maintain its momentum amid evolving market dynamics.
Bottom Line?
Tower’s upgraded profit forecast offers optimism, but tempered premium growth and expense pressures warrant close monitoring.
Questions in the middle?
- Will September 2025 large event costs remain low to support the revised profit guidance?
- How will reduced average premiums affect Tower’s long-term profitability and risk profile?
- Can Tower sustain customer and policy growth amid a competitive pricing environment?
