Annual earnings fell at New Zealand insurer Tower as both large house claims and large events were at their highest for many years.

Underlying net profit for the year to September 30, including the large events, was $NZ20.8 million ($19.98 million), down 8% from a year earlier.

Most of the large house claims were fire related and Tower has removed the uncapped total loss house fire benefit from new and renewing policies, capping the additional benefit to 20% of the sum insured.

The frequency of large house claims continued to increase in the second half, rising 61% over the year to 92, and totalling around $NZ21.1 million ($20.27 million).

Despite investigating the fire claims trends, the insurer identified no single factor that explained the rise and says analysis continues. The increase could be a changing trend or “random volatility that needs to be explained and managed,” Tower said.

CEO Blair Turnbull says the full year result reflects challenging external factors, including COVID-related claims inflation and lower investment income.

“Tower has navigated a difficult year,” Mr Turnbull said. “Our focus has been on addressing a range of external challenges, while supporting our customers and delivering on our technology and distribution growth strategies.”

The combined operating ratio was 91.4% while gross written premium (GWP) rose 5% to $NZ404 million ($388.07 million). Customer numbers increased 5% to 304,000, while market share was up to 9.2%.

The result was flagged in September when Tower lowered its earnings guidance and said large house claims were above long-term averages and industry-wide inflation was a continuing source of pressure on both motor and house claims.

It said there had been a 14% rise in the value of second-hand vehicles and almost 5% in the cost of house materials in the June quarter due to supply-chain constraints.

“The inflation raises a question of whether it is a short-term spike or a long-term change,” Tower said today. “As New Zealand is heavily dependent on imports, supply chain issues like those associated with COVID can be particularly challenging.”

Large events led to a $NZ13.9 million ($13.35 million) impact, up from $NZ9.7 million ($9.32 million) a year earlier. A large fire at Lake Ōhau and flooding in Napier and Westport contributed.

The inflationary pressures led to claims costs increasing $NZ17.1 million ($16.43 million) to $NZ166.8 million ($160.22 million).

In August, Tower changed the full replacement fire benefit in its house insurance policies to an extended sum insured offer. It is also more accurately matching flood insurance pricing to risks.

“Tower believes this a fairer and more transparent way of pricing insurance which will also further strengthen the company’s financial resilience,” it said. “The introduction of risk-based pricing for flood will enable Tower to better manage high risk exposures for large events.”

Tower’s Board has proposed a compulsory share buyback.