Lower-than-expected claims (and consequently, payouts) stemming from cyclones in Vanuatu earlier this year have prompted Tower (ASX:TWR), the New Zealand insurer, to revise its earnings guidance for the year ending on September 30.
Initially, Tower had allocated NZ$50 million to cover anticipated claims resulting from the Vanuatu cyclones in March. This decision had caused Tower to alter its previous earnings forecast from a potential small loss to a profit. Notably, this was the third adjustment to the insurer's September 30 earnings guidance, with previous revisions made after the floods and cyclone in New Zealand in late January and early February.
However, Tower announced on Monday that claims related to the cyclones amounted to NZ$38 million. As a result, its earnings projection has shifted from a potential loss to a modestly positive outcome. Tower now anticipates an underlying net profit after tax between NZ$7 million to NZ$10 million in 2023, compared to an earlier forecast ranging from a loss of NZ$2 million to a profit of NZ$ million.
The insurer's improved financial standing can be attributed to favorable foreign exchange rates and the absence of significant event costs since May 9. It should be noted that the reported profit for the fiscal year will be influenced by additional non-underlying costs, including an increase in the customer remediation provision, as cautioned by the company.
Tower also disclosed its expectation of gross written premiums totaling approximately NZ$526 million for the year ending on September 30, reflecting a 17% increase compared to the previous year. This growth is attributed to rating increases, organic expansion, and strong customer retention.
The positive outcome for Tower echoes similar developments and statements from Suncorp and IAG, who have also seen improvements in their financial positions due to the absence of natural disaster claims since early in the year. This can be attributed to the influence of the El Niño 'Big Dry' period along the East Coast and the absence of heavy rain and floods, unlike the beginning of the year and most of 2022.
Despite the positive news, Tower's shares have declined by approximately 16%, while IAG shares have risen by more than 21% year-to-date, and Suncorp shares have increased by nearly 18% over the same period. It remains to be seen whether Monday's trading update will reverse this trend.
