New Zealand insurer Tower says it has successfully renewed reinsurance terms for the next 12 months, with moderate increases in pricing and excesses.

Tower purchased cover for two catastrophe losses up to $NZ750 million ($697.84 million), inclusive of an automatic reinstatement, and cover for a third catastrophe event up to $NZ75 million ($69.78 million).

Its excess is $NZ16.9 million ($15.72 million) for the first two events, up from $NZ11.9 million ($11.07 million) in its previous arrangements. An excess of $NZ20 million ($18.61 million) applies for a third event.

“The market has experienced significant increases in reinsurance prices and excesses, so we are pleased to have achieved a comprehensive reinsurance program with moderate increases in pricing and excesses,” Tower CFO Paul Johnston said today.

The new reinsurance was secured at competitive rates for home, motor, boat and commercial portfolio cover, across New Zealand and the Pacific, he says, and Tower received “ongoing support from some of the world’s largest reinsurers as well as backing from reinsurers looking to start new relationships with us.”

"Reinsurers are impressed by our ability to proactively manage risks throughout our portfolio via risk-based pricing, our dynamic rating capability, and digital direct customer relationships.” 

Tower estimates it will pay 14% of income for reinsurance cover in the year to September 30 2024, compared to almost 16% a year earlier, or 12% excluding back-up cover. That reflects both adjustments to risk-based pricing and movements in the business mix, Tower says.

In May, Tower announced it had bought additional reinsurance for the remainder of the financial year following impacts from record Auckland flooding and Cyclone Gabrielle. The extra $NZ100 million ($94.5 million) of cover reinstated protection for a fourth catastrophe event up to $NZ889 million ($840 million) for the year ending September 30 2023. 

Tower also cut its full-year guidance due to a string of catastrophes in New Zealand and Vanuatu over a three-month period, and as inflation, car thefts and supply chain difficulties increase claim frequency.

The Auckland-based insurer forecast a range of an underlying loss of $NZ2 million ($1.85 million) to profit of $NZ3 million ($2.77 million) in the year to September. In October last year, Tower had given guidance of around $NZ26 million ($23.3 million), and $NZ40 million ($35.8 million) excluding large events. 

In March, Tower appointed Australian Prudential Regulation Authority (APRA) General Manager Sharyn Reichstein as its new Chief Risk Officer, and it says heightened risk selection criteria for landslide risks has since been introduced, and the weighting on the flood risk portion of customer premiums increased. 

Car theft has been addressed with higher premiums and raising the excess for models stolen more regularly.

The team is also automating claims management processes and working with suppliers to manage rising costs. 

Tower said today it decreased its catastrophe upper limit from $NZ934 million ($869.04 million) as a result of last year’s Toka Tū Ake EQC doubling of its cap to $NZ300,000 ($279,135), which reduced the amount of coverage needed.