Tower Raises Profit Forecast on Lower Claims and Falling Reinsurance Costs
Tower Limited (NZX/ASX: TWR) has raised its full-year profit forecast for FY26 after experiencing significantly lower large event claims than anticipated. The insurer had allocated $45 million for large event claims in the year ending September 30, 2026, but only used $25 million. This $20 million gap added approximately $14 million to the expected underlying net profit after tax (NPAT), raising the forecast to between $69 million and $79 million, up from the previous guidance of $55 million to $65 million. These preliminary and unaudited figures were released to the NZX on October 6, 2026, with full results due on November 26, 2026.
The insurer described FY26 as a return to a "more typical earnings profile" after an "exceptionally strong" FY25. However, broader market data complicates this description. The Insurance Council of New Zealand reported that the full-year 2025 extreme weather total reached $278.2 million across the sector. Tower's $25 million in large event costs reflect deliberate risk selection, with over 90% of new house policies sold in the first half of FY26 assessed as low or very low risk for flood, sea surge, and landslide.
Reinsurance costs also declined, dropping from 13.3% of gross written premium (GWP) in FY25 to 10.7% in FY26. Despite these cost savings, Tower's GWP grew only 3% for FY26, while customer numbers rose 8% to 345,000. This combination points to pricing restraint rather than rate hardening, which is significant given the Reserve Bank of New Zealand's (RBNZ) concerns about insurance affordability. The RBNZ's May 2026 Financial Stability Report noted that house insurance premiums have risen significantly faster than the Consumer Price Index since around 2009.
Looking ahead, Tower's benign cat experience may not repeat, as El Niño conditions are expected to strengthen, with peak impacts during the 2026-27 summer. The insurer's November 26 full-year results will need to address whether below-budget experience in FY26 feeds into softer renewal pricing. Additionally, reported profit will continue to trail underlying NPAT due to costs from Tower’s customer remediation programme, which relates to the misapplication of multi-policy discounts affecting around 61,000 customers.