Tower turned to a profit in the first half of the year and lifted its full-year guidance as gross written premiums rose and claims costs fell.
The insurer reported a net profit of $11.9 million in the six months to March 31, up from a loss of $11.6 million in the prior year. The underlying profit after tax was $19.4 million versus $7.3 million in the prior year. It now expects an underlying net profit of $26 million in the full year, up from a prior forecast of more than $22 million.
The guidance includes a $5 million allowance for severe weather and large events in the second half and assumes that loss ratios will return to more normal levels as the winter storm period gets underway.
Tower said gross written premiums grew 8.9 per cent in its core New Zealand portfolio while its total claims expense ratio reduced to 44.5 per cent in the first half, down from 55.5 per cent in same period a year earlier. Total GWP grew 5.4 per cent.
The insurer has been overhauling its business in recent years, including the construction of a central IT platform to replace what had been a fragmented and complicated backbone.
"Simplifying and improving all aspects of our business to differentiate the company has led to strong growth in gross written premium and customer numbers, reduced claims costs and contained expenses," it said.
It is poised to launch the new platform in the coming weeks and aims to move 50 per cent to 70 per cent of all transactions online.
Tower said it continues to see solid growth through its digital channels, with almost 50 per cent of new business sales being done online in March 2019, up from 39 per cent in March 2018.
"Combined with the fact that 18 per cent of claims were lodged online in March 2019, this is further proof that our investment in digital channels is warranted," it said.
In the Pacific, Tower said its businesses in Tonga, Samoa, Vanuatu, American Samoa and the Cook Islands have returned to growth thanks to additional underwriting, pricing and marketing support for local teams. Papua New Guinea and Fiji are "returning to profitability," it said. Its underlying profit after tax in the Pacific was $4.2 million versus $200,000 in the first half of last year.
Among other initiatives, it has created a Pacific operations centre with centralised back-office functions to ensure that pricing and underwriting is consistent across the region and minimises claims leakage, or inefficiencies in managing claims.
Regarding Canterbury, Tower said its outstanding claims were down to 132, versus 163 at Sept. 30. But it noted that higher than expected over-cap claims received from the Earthquake Commission led to a $4.7 million after-tax expense for increased Canterbury provisions.
The latest of those relate to the reopening of closed claims due to "reassessment of the original scope of works, or the need to remediate poor workmanship and faulty repairs."
Tower said it would continue to push for EQC reports but "it is not our role – nor our shareholders' responsibility – to resolve and pay for situations arising from EQC's past incompetence, and the negligence of its repair providers."
As a result, it will now seek to recoup any costs incurred from settling over-cap claims from EQC where past incompetence and negligence has contributed to the claim going over-cap.
The company says it has remained focused on costs, despite significant investment. The management expense ratio was 38.7 per cent in the first half versus 39 per cent in the 2018 financial year. It expects a slight lift in management expenses in the second half as it migrates customers onto its new platform.
As previously advised, it will pay no dividend in the first half of the financial year. The board intends to pay between 50 per cent and 70 per cent of the second half 2019 net profit "where prudent to do so," it said.
Tower shares last traded at 78 cents have gained 4.7 per cent so far this year.