Tower says it will have to raise premiums to offset higher reinsurance costs after a spate of wild weather across the Pacific weighed on first-half earnings, and pushed it deeper into the red when combined with the insurer's settlement with Peak Re.

The Auckland-based insurer underlying earnings dropped 27 per cent to $7.3 million in the six months ended March 31, as "unprecedented storm" activity dragged down the result by $5m.

Combined with a $16.5m hit from a settlement with reinsurer Peak Re over a policy dispute and another $2.3m added to its provisioning for the Canterbury earthquakes, the net loss was $11.6m, or 4.14 cents per share, compared to $8.2m, or 4.11 cents.

Tower's reinsurance costs rose 7.1 per cent to $25.5m, outpacing a 6 per cent gain in premium revenue to $159.6m, while claims expenses fell 3.3 per cent to $129.2m, of which reinsurance recoveries climbed 12 per cent to $40.4m.

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Before the first Canterbury earthquake in 2010, Tower's half-year reinsurance bill was $19.6m on $209.8m of premium revenue, with just $6m of reinsurance recoveries on $127.6m of claims.

"The unprecedented number and severity of weather events will have implications for insurance premiums," the insurer said. "Increased claims will see reinsurance costs rise, and as a result, will mean premium increases for customers."

The insurer's move echoes a similar response by former suitor Suncorp New Zealand, which this year signalled plans to raise prices in response to rising claims and reinsurance impacts of natural hazard events, and Climate Change Minister James Shaw last week touched on the complexities insurers are facing in adapting to the risk new weather patterns are posing.

Government figures show dwelling insurance has climbed 176 per cent since the September 2010 Canterbury earthquake, or an annual pace of about 23.5 per cent, while contents insurance has climbed 34 per cent at an annual pace of 4.5 per cent. Car insurance premiums have increased a more modest 11 per cent, or 1.5 per cent per year, roughly matching a 12 per cent increase in the consumers price index, at a 1.6 per cent annual pace since then.

Tower today said the current financial year is facing a bigger impact from severe weather events than in 2017, which was the insurer's worst year for weather impacts in 25 years. The impact of those storms is estimated to be $24m, of which reinsurance will absorb $13.2m.

The insurer is still in a transition phase as it builds a new IT platform to replace what had been a fragmented and complicated backbone. Tower spent $3m on buying property, plant, equipment and intangible assets in the half, down from $5.1m a year earlier. The goal is to shift half of all transactions online to cut operating costs and make it easier for customers. Tower expects to start selling new business through the platform in the first half of calendar 2019.

Tower's board didn't declare an interim dividend, having suspended shareholder returns in 2016 when the insurer raised its provisioning for the Canterbury quakes and set up plans to carve out the remaining claims into a separate entity. That plan was scuttled during an ultimately failed takeover tussle for the firm. The board still intends to resume dividends this year and the firm said its solvency position remains significantly above its minimum regulatory requirement after last year's deeply discounted capital raising.

The shares fell 1.9 per cent to 78 cents, having gained 18 per cent so far this year.

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