On the company’s preferred underlying net earnings measure, which strips out large one-off items, the $3.3m loss compared to a $5.4m underlying net profit in the same period last year.
Tower’s statutory net profit after tax basis was a $5.1m loss for the half, compared with a $3m profit in the prior comparable period. The $3m sale of the company’s business in Papua New Guinea and a building in Suva, Fiji, helped reduce the scale of the loss.
In statements to the New Zealand stock exchange (NZX), chief executive Blair Turnbull said the two major events in January and February came at a capped cost of $11.9m each to Tower, once reinsurance was taken into account, and another round of storm damage in Auckland earlier this month was likely to cost the insurer a net $4m to $6m.
The company said it had now processed about 30% of claims relating to the early new year weather events in New Zealand.
The estimated cost to Tower of its exposure to two devastating cyclones in Vanuatu during the half is put at $10m, where just 5% of claims have so far been met.
“Tower has between $10m and $12m large events allowance remaining in the second half” of the current financial year,” Turnbull said.
It had completed the reinstatement of its reinsurance arrangements and “has cover for any potential third and fourth catastrophic event up to $889m in the financial year”.
Notes in the investor presentation accompanying today’s announcement said: “Tower would have further exposure to a third catastrophic event in the FY23 financial year to the extent claims costs for Cyclone Gabrielle exceed $57.5m to the catastrophe treaty.
“A third event would incur an excess of $12.5m as well as a 13.25% share of losses between $12.5m and $57.5m.”
The company will not pay an interim dividend, with a decision on a final dividend to be made once full-year results are known.
On its preferred underlying net profit basis, Tower said it now expected earnings of between $8m and $13m this year, “assuming full utilisation of the $50m large events allowance”.
Turnbull stressed that Tower would continue to practise “careful risk selection and risk-based pricing, which is a fairer way to price insurance as customers only pay for the risks that apply to their property”.
Gross written premiums rose strongly in the half year, up 15% on the first half of the 2022 financial year, at $245m, and Tower is forecasting growth in the full year to be between 15% and 20%, “reflecting organic growth and a strong rating response to address inflation, rising reinsurance premiums, and higher motor claim costs”.
A surge in vehicle thefts was the other main area of comment beyond storm and cyclone damage in the latest results, with rating and excess changes in response to this trend. This was a primary reason for Tower’s business-as-usual claims ratio rising in the half to 51.6%, from 48.6% in the first half of the last financial year.
In spite of the surge of weather-related claims activity, which saw Tower mount a recruitment drive for call-centre staff that saw a substantial increase in its Fiji-based workforce, its management expenses ratio fell slightly to 35.1% from 35.8% in the prior comparable period.
Net investment income returns improved markedly in the half, with the running yield on the core investment portfolio increasing to 5.45%, from 2.45% in March 2022 and 0.72% in March 2021, reflecting in part the rise in prevailing interest rates.
Net investment income of $6.3m was a $7.2m improvement on the same half last year.
Pacific Edge
A boom in Pacific Edge’s Cxbladder test sales saw the firm’s operating revenue soar up by 71%, with a helping hand from favourable exchange rates.
Chief executive Peter Meintjes said the 2023 financial year had been a year of “enormous change and achievement” for the cancer diagnostic company.
“Pacific Edge is geared for growth,” he told the NZX.
Operating revenue for the twelve months to March 31 rose $19.6 million, up from $11.4m in the previous year while total revenue jumped 88% to $26.1m.
The revenue climb came from a 39% rise to 26,691 tests in commercial test volumes and favourable currency movements, the firm said.
Pacific Edge’s total laboratory throughput (TLT) of its Cxbladder tests saw an increase of 37% to 31,565 tests.
The company’s Cxbladder tests focus on a particular area of cancer diagnostics called molecular diagnostics and involve analysing the genetic and molecular characteristics of a person’s cancer cells.
Net loss after tax increased to $27m from $19.m in the 2022 financial year, which Pacific Edge said reflected a 58% increase in operating expenses to $53.1m as the company invested to drive growth.
The company added that it was “well-funded” and had cash and cash equivalents and short-term deposits at $77.8m from $93.5m at the end of September 2022 and $105.4m at the end of March 2022.
Pacific Edge shares sank by almost 50% to 40 cents last August over the possibility of its cancer tests no longer being covered by major US health insurance company and Medicare provider Novitas.
Nine months later the company’s stock has edged up to 47 cents.
Meintjes said while the draft local cover determination (LCD) from Novitas had created “some uncertainty”, Pacific Edge remained “optimistic” that Cxbladder would retain coverage.
“The lack of clarity over continued Medicare coverage continues to represent a headwind for the company, but we remain confident and optimistic about our outlook,” Meintjes said on Thursday.
We have world-leading technology, a strong balance sheet and we are building momentum in the US and establishing footholds in new markets.”
