Tower adds catastrophe capacity as FY27 reinsurance costs fall
Tower has renewed its FY27 reinsurance programme with $970 million of catastrophe protection, higher limits for a third catastrophe event and a lower expected reinsurance cost ratio. The insurer says several new multi-year agreements should also improve certainty around future costs and catastrophe excesses.
- Catastrophe limit raised to $970 million from $915 million
- Third catastrophe limit increased to $100 million from $85 million
- Estimated reinsurance expense falls to 9.5% of GWP from 10.6%
- Catastrophe event excesses hold at $20 million
- New multi-year agreements add future cost certainty
Tower secures higher catastrophe protection
Tower Limited (NZX/ASX:TWR) has renewed its reinsurance programme for the year ending 30 September 2027 with more catastrophe capacity and a lower expected cost burden. The main catastrophe limit rises to $970 million from $915 million in FY26, while the third catastrophe limit increases to $100 million from $85 million.
The structure retains a pre-paid reinstatement within the $970 million limit, providing cover for two large catastrophe events. Catastrophe event excesses remain unchanged at $20 million, so the improvement is concentrated in the amount of protection available rather than a reduction in Tower’s per-event retention.
Reinsurance expense expected to fall
Tower estimates reinsurance premium expense will equal 9.5% of Gross Written Premium in FY27, down from 10.6% in FY26. The announcement does not disclose the absolute premium expense or the underlying Gross Written Premium, meaning the ratio provides a measure of cost intensity rather than the dollar change in spending.
Chief executive Paul Johnston attributed the reduction to favourable global reinsurance market conditions, Tower’s business performance and the expansion of its risk-based pricing capability across additional perils during FY25 and FY26. He said the insurer’s approach to risk selection, pricing and portfolio management had helped secure what Tower described as a strong outcome.
Third catastrophe limit shifts to contingent cover
Tower has changed how it obtains the third catastrophe limit. In previous years, it purchased that cover annually as a prepaid limit. For FY27, the cover has been secured on pre-agreed terms but becomes payable if two catastrophe events occur. That change may reduce the upfront cost of maintaining the additional layer, although the filing does not quantify the resulting dollar impact or specify the full commercial terms.
Several global reinsurers have also committed to new multi-year agreements with Tower. The insurer says those arrangements provide greater certainty around future reinsurance costs and catastrophe excesses, but it has not identified the reinsurers or disclosed the duration and pricing of the agreements. The next test will come through FY27 claims experience and reported reinsurance costs, particularly if catastrophe activity puts the revised structure to work.
Bottom Line?
Tower enters FY27 with more catastrophe capacity and a lower expected reinsurance ratio, but the financial value of the revised third-limit structure will depend on its undisclosed terms and actual claims experience.
Questions in the middle?
- How much will the lower 9.5% reinsurance ratio reduce Tower’s FY27 dollar expense?
- What are the pricing and duration of the new multi-year reinsurer agreements?
- How would the contingent third catastrophe limit perform if two major events occur?
