Cyclones, deeper floods, Vanuatu disaster deliver Tower a multimillion-dollar loss, higher premiums

Tower will post a half-year loss of $3 million, not pay a dividend and raise premiums by as much as 5 per cent, after receiving more than 9000 insurance claims in just three months.

Flooding, Cyclone Gabrielle and cyclones in Vanuatu have caused the surge in claims, with flood-related claims costing twice as much as usual.

Topping up its insurance allowances and reinstating reinsurance following the events would cause its full-year net profit to fall within a range of $8m and $13m, compared with earlier guidance of $18m to $23m, the insurer said in a market update on Monday morning.

Half of the claims were from the Auckland and North Island floods - the bulk of which were now completed - and in total would cost between $195m and $225m, double an earlier estimate.

The average cost of the 5550 flood claims was double that of other large weather events, Tower chief executive Blair Turnbull said.

“This is due to deeper flood waters in high-density areas causing substantially more damage, contamination, and landslides.”

It had received 3350 claims related to damage from Cyclone Gabrielle, and estimated the cost impact of that event to be between $55m and $75m.

Another 250 claims had been received following Category 4 and 5 cyclones that hit Vanuatu in March, with the cost of those events estimated to be $10m.

“Cyclones in the Pacific and Vanuatu are relatively frequent and do not always result in substantial claims. However these consecutive events hit the capital, Port Vila, resulting in one in every five homes being significantly damaged,” Turnbull said.

How Tower will pay for it

The floods and Cyclone Gabrielle triggered Tower’s catastrophe reinsurance, of which it could access up to $889m.

It would look to reinstate the cover used this financial year.

“Tower has full protection for a third catastrophe event and will reinstate full levels of protection for a fourth catastrophe event in the financial year.”

The company would also increase its large events allowance to $50m, from $40m.

Tower would release its first-half result for the 2023 financial year on 25 May.