Forsyth Barr analysts highlight ‘tempered outlook’ for Tower after the insurer raises annual profit expectations but lowers premium growth guidance again

Investment firm Forsyth Barr will be keeping a watchful eye on Tower Insurance’s slower-than-expected premium growth even though the general insurer has raised its 2025 full-year net profit guidance for the second time so far this year.

Tower on Tuesday revised its full-year underlying net profit after tax (NPAT) up to a range of between $70 million and $80 million, from the previous range of between $60 million and $70 million. 

Forsyth Barr analysts James Lindsay and Will Twiss said the general insurer had lifted its September-year underlying NPAT guidance by 15% at the midpoint which reflected Tower’s continued better-than-expected business-as-usual (BAU) claims performance.

“However, GWP [gross written premium] growth guidance for full-year 2025 has been downgraded from between +7% and +12% to ‘mid-single digits’ as price competition has intensified over the last several months,” they said.

At its annual 2024 financial results last year, Tower had said it was planning to target annual premium growth of between 10% to 15% from 2025 through to 2027. 

This premium growth target for the 2025 financial year was then revised down to between 7% and 12% in February and was cut down further this week.

“While Tower continues to see growth in customer numbers in the home insurance portfolio, a reduction in average premiums has contributed to lower-than-expected GWP growth. This reduction is due to a higher proportion of lower risk new house insurance and motor policies, as well as more competitive pricing in the New Zealand market, which benefits consumers,” the insurer said on Tuesday.

Premium guidance for the September 2025 year has now been revised to “mid-single digit”.

“While we had anticipated some moderation in the insurance rate cycle and were at or below the bottom end of TWR's guidance range over the next few years, the magnitude and speed of the slowdown leads us to materially re-base our medium-term GWP growth trajectory,” Lindsay and Twiss said in their report.

“The tempered outlook reflects: (1) a higher proportion of lower risk new house and motor policies with smaller premiums, and (2) increased price competition. While some of the impact of lower premiums will be offset by reduced costs, achieving operating leverage will now be more challenging.”

Lindsay and Twiss said as evidence of this, Tower now expects the management expense ratio (MER) in the 2025 financial year to be less than 31% versus prior guidance of less than 29%, primarily as a result of reduced premiums.

MER is a measure of profitability calculated by dividing expenses associated with acquiring, underwriting, and servicing insurance premiums by net premiums earned.

'Operational red flags'

Macquarie analysts also noted in a research report on Tower they were starting to observe “operational red flags” which could pose potential challenges for Tower meeting its medium-term guidance.

“The thesis now includes upside risk to full-year 2025 catastrophes, which could result in short-term dividend per share surprise,” Macquarie’s report said.

But Macquarie added Tower was one of the few insurance companies in the region that was “growing market share consistently”.

This is the second time this year Tower has upped its full-year net profit guidance. It previously raised its underlying net profit expectations for the September-year from between $50 million and $60 million to between $60 million and $70 million back in February.

Tower’s latest NPAT guidance assumes full utilisation of Tower's $50 million large events allowance. The only large natural event that Tower has recorded so far in the 2025 financial year has been the Dunedin flooding event in October 2024 which currently has an estimated price tag for Tower of around $3 million. 

Tower said on Tuesday it had received almost 250 claims from the storms that hit New Zealand over the Easter Weekend and this could potentially exceed Tower’s $2 million large event threshold.