How Tower Slashed Reinsurance Costs While Boosting Catastrophe Cover for FY26

Renewal Secures Competitive Reinsurance Terms

Kiwi insurer Tower Limited (NZX/ASX – TWR) has successfully renewed its reinsurance programme for the financial year ending September 30, 2026. The renewal delivers comprehensive coverage across its home, motor, boat, and commercial insurance portfolios in New Zealand and Pacific markets, securing competitive rates that reflect Tower's dynamic risk-based pricing strategy.

Chief Executive Officer Paul Johnston highlighted the importance of this renewal in maintaining the company’s financial resilience and flexibility. "Our ability to adjust rates dynamically and deepen partnerships with global reinsurers has enabled us to secure favourable terms for FY26," Johnston said. Several reinsurers have committed to new multi-year agreements, providing Tower with greater certainty around future costs and catastrophe excesses.

Lower Premiums and Structural Changes

One of the standout outcomes is the reduction in reinsurance premium expense, which Tower estimates will represent 10.7% of Gross Written Premium in FY26, down from 13.3% in FY25. This decrease is partly offset by lower reinsurance recoveries on property risks previously ceded under a proportional treaty.

Notably, Tower has shifted its protection for large individual property risks from a proportional reinsurance arrangement to an excess of loss cover. This structural change lowers premium costs while maintaining robust protection against large claims, reflecting a strategic recalibration of risk management.

Enhanced Catastrophe Coverage

The catastrophe reinsurance programme has been strengthened, with the upper limit increased to $915 million from $800 million in FY25. Coverage for a third catastrophe event remains at $85 million, underscoring Tower’s commitment to comprehensive risk mitigation.

Catastrophe excesses are stable, with a $20 million excess for the first two events; up slightly from $18.75 million due to the expiry of previous multi-year arrangements; and $20 million for a third event, unchanged from the prior year. These terms support Tower’s ability to protect the business from volatility while maintaining competitive pricing for customers.

Outlook and Market Implications

Tower’s renewal reflects broader trends in the reinsurance market, where insurers are seeking to balance cost efficiency with robust protection amid increasing natural catastrophe risks. The multi-year agreements secured by Tower could provide a buffer against market fluctuations, offering investors a degree of predictability in reinsurance expenses.

While the announcement does not detail the exact financial impact on net profit, the combination of lower premiums and enhanced coverage positions Tower well for sustainable growth. Analysts and investors will be watching closely for how these changes translate into financial results in the coming year.