New Zealand’s Tower has made changes to its underwriting after experiencing an unusual run of large claims from house fires and an 8% drop in full-year earnings.

Frequency of motor claims was flat but Tower experienced the highest number of large house claims and large event claims for many years.

Tower’s underlying net profit for the year to September 30 slipped to $NZ20.8 million ($19.98 million) as the number of large house claims rose to 92, compared with 57 a year ago, costing $NZ21.1 million ($20.27 million).

Most were fire related and Tower says it responded in August by removing an uncapped total loss house fire benefit from new and renewing policies. It now caps the benefit at 20% of the sum insured.

Tower identified no single factor that explained the rise in house fire claims and said the increase could be a changing trend or “random volatility that needs to be explained and managed”.

“It has been a tough year,” Chairman Michael Stiassny told investors last week. “Action is well underway to address these issues and their impact on profitability. Most significantly, we have already implemented rating and underwriting changes, including the introduction of a full house fire replacement cap and risk‐based pricing for inland flooding.”

Tower says COVID-related supply chain issues drove up the value of second‐hand vehicles by 13% year on year, increasing motor claims costs, and there were significant delays in completing repairs due to supply chain issues with motor parts.

Double digit building material inflation was common and Tower has applied premium increases across motor and home as an offset, and is working closely with its supply chain partners to moderate the impact as much as possible.

“As New Zealand is heavily dependent on imports, supply chain issues like those associated with COVID can be particularly challenging.”

Average motor claims increased 6% and average house claims 7%. Most of this inflation was in the second half and the signs point to it continuing.

Seven large events contributed $NZ13.9 million ($13.35 million) in costs, up from $NZ9.7 million ($9.32 million) a year earlier, mostly related to New Zealand floods.

Tower’s combined operating ratio increased 2.7% over the prior year. The New Zealand loss ratio increased 4% to 53.6% for the year.