TWR - Tower Insurance

[Basil]

excerpt "Tower estimates it will pay 11.7% of total income for reinsurance cover in FY25 down from 13.9% in FY24. "
https://www.nzx.com/announcements/438509

Comment from the other channel
This has got to be good.  Gross written premium was $511m last year, so 2.2% is over $11m??

Maybe more than $12m extra profit based on FY25's expected gross premiums ?

[lorraina]

I added a few more today at $1.225,as I do not think any of us, including Forbar or Craigs expected this extra profit..

[Left Field]

Here's the full text of today's notice..... good news for holders.......Towers 'risk based' premiums working well.

Successful placement of FY25 reinsurance programme
 
 Kiwi insurer Tower (NZX/ASX: TWR) has successfully renewed its reinsurance programme for FY25. The Company has secured comprehensive cover at competitive rates for its home, motor, boat and commercial portfolios across New Zealand and its Pacific markets.
 
 Tower CFO Paul Johnston says Tower's reinsurance arrangements are designed to provide financial protection from large events volatility and maintain financial flexibility to support growth, while underpinning strong solvency.
 
 "Tower's focus on risk-based pricing combined with our dynamic rating ability helped us secure favourable terms for our FY25 reinsurance. We've further strengthened relationships with global reinsurers, with several agreeing to new multi-year arrangements, which provides greater long-term certainty of reinsurance costs and catastrophe excesses."
 
 FY25 reinsurance programme
 
 To support growth and align with its prudent risk appetite, Tower has:
 • Increased its catastrophe upper limit to $800m (from
 $750m)
 • Expanded cover for a third catastrophe event to $85m (up
 from $75m in FY24)
 
 For FY25, Tower's catastrophe reinsurance excess is:
 • $18.75m for the first two events (up from $16.9m in FY24,
 due to expiring multi-year arrangements)
 • $20m for a third event (unchanged from FY24)
 
 Tower estimates it will pay 11.7% of total income for reinsurance cover in FY25, down from 13.9% in FY24.
 
 "We're pleased to have secured a comprehensive reinsurance programme with stable excesses and pricing. This will help Tower maintain competitive pricing for customers," says Mr Johnston.
 

[Basil]

https://api.nzx.com/public/announcement/431819/attachment/419559/431819-419559.pdf
This has got to be good.  Gross written premium was $511m last year, so 2.2% is over $11m??[/quote]
Maybe more than $12m extra profit based on FY25's expected gross premiums ?
Just updating that a bit because I was relying on someone else's figures and they were referring to 2023 gross revenue.  For the current year, a straight doubling of the interim gross written premium $269.4m, see link attached, would be $538.9m gross premiums.  Assuming gross premiums move in line with inflation of (currently 3.3% for 2025) and noting they have been increasing at a much faster rate than inflation in recent years), gives $556.7m gross premiums and the 2.2% reduction in the percentage going to reinsurers would boost net profit before tax by $12.25m and I believe that's quite a conservative figure and could conceivably go above $13m depending on the rate at which insurance premiums increase.
Just thought it would be good to try and put a reasonably based forecast on it based on more current numbers.  I suppose being a bean counter I couldn't help myself crunching the numbers.

[lorraina]

Tower gained 1.5c to $1.225 after renewing its reinsurance programme for the 2025 financial year and increasing its catastrophe upper limit to $800m, from $750m, as well expanding cover for a third catastrophe event to $85m, up from $75m.

Tower's catastrophe reinsurance excess is $18.75m for the first two events and $20m for a third one. It will pay 11.7% of total income for reinsurance cover, down from 13.9% in the previous year.

Goodson said Tower looks to be heading for a significant profit upgrade next year as the reinsurance was replaced at cheaper rates than analysts expected.

[Shareguy]

Fbar latest

We make cuts to our reinsurance cost estimates for FY25 and FY26, leading to earnings upgrades. Our blended spot valuation rises +8cps to NZ$1.78, representing ~10x our new underlying EPS estimate for FY25.

[Basil]

Thanks for sharing, Shareguy.   Just a reminder that the Arvida ASM is tomorrow with the vote on the takeover happening.  My expectation is the takeover will be approved by shareholders.  If all goes to plan the last day of trading for ARV shares is scheduled for 21 October and I expect an announcement from Dow Jones S&P indices regarding TWR replacing ARV in the NZX50 approx 5 trading days beforehand.  How much of this index inclusion hope is already built into the share price, is anyone's guess.

[Basil]

I added a few more today at $1.225,as I do not think any of us, including Forbar or Craigs expected this extra profit..

I did the same today because the reinsurance thing has not been factored in by the market, yet.
Not sure how widely known this is so I'm posting this in here.
https://www.insurancebusinessmag.com/nz/news/breaking-news/two-companies-continue-to-dominate-general-insurance-market-503739.aspx
My opinion is IAG and Suncorp who absolutely dominate the market here are not interested in passing on the savings from benign weather event years, they're in it here to make money and they take no prisoners.  This leaves the gate wide open for Tower in terms of its margins and profitability going forward.   The gate is open so wide there appears to be little in the way of any form of restraint in terms of lack of competitive pressure so owning some shares in Tower, as previously mentioned, is a very good way to hedge against rapidly rising insurance premiums.   I now own more than sufficient Tower such that for the first time in my life I want my insurance premiums to go up at faster than the rate of inflation lol

[Shareguy]

Well Craig's latest is out

[Poet]

Well Craig's latest is out

And what did they say?

[Basil]

Target price increases from $1.46 to $1.67
Rating OVERWEIGHT.
NZX50 inclusion in Dec 2024 or March 2025 but some dog thinks he has sniffed this out more thoroughly and knows better   

[Shareguy]

I will try again

Craig's latest. Very positive

While the stock has rallied c.17% since we initiated in late Jul-24, we continue to see value on the table, given TWR 1) trades at a 38% discount to peers (historically -25%), 2) offers a 10.2% gross yield (7.3% cash), and 3) has a number of short-term catalysts (incl. NZX50 index inclusion in either Dec-24 or Mar-25 and a $45m capital return). Maintain Overweight.

Having assumed there are no large events in the next week, we lift our FY24 uNPAT forecast by 23% to $78.8m and our dividend forecast from 7cps to 8cps for FY24. Incorporating TWR's lower than expected reinsurance costs, our uNPAT forecasts for FY25/26 lift by 13%/4% to $59.2m/$72.1m respectively. In early Sep-24 TWR announced that the Board are looking to return $45m to shareholders (likely in Mar-25), by way of mandatory share buy-back (see page 3). Given the buy-back is still subject to IRD approval, and is conditional on TWR satisfying solvency and prudential capital requirements, we exclude this from our forecasts for the time being.

Outperform $1.67

[Basil]

More than 99% of votes cast supported Arvida's takeover which has just been approved this afternoon.
https://api.nzx.com/public/announcement/438860/attachment/428081/438860-428081.pdf
See my earlier comments for the implications for Tower and the likely estimated timing of NZX50 inclusion.
https://www.nzx.com/announcements/438860

Shareholders in Arvida Group Limited (Arvida) have today voted in favour of the scheme of arrangement under which all Arvida shares would be acquired by Stonepeak Alps BidCo Limited (Stonepeak BidCo) at NZ$1.70 per share (Scheme).

Commenting on the Scheme, Arvida Chair Anthony Beverley said, "The Board was unanimously in favour of this proposal, and it is pleasing to see shareholders have overwhelmingly supported the Scheme in terms of both those voting in favour of the Scheme and the number of shareholders voting."

Voting Results

The resolution to approve the Scheme was passed by the requisite majorities of shareholders – 75 per cent or more of the votes cast in each interest class and more than 50 per cent of the total number of Arvida shares on issue.

Voting results of the Scheme meeting today are detailed in the attachment to this announcement.

Timetable

The Scheme remains subject to receipt of a 'no objection statement' from the Takeovers Panel[1], approval under the Overseas Investment Act and final orders of the High Court (Regulatory Approvals), with these Regulatory Approvals currently expected to be obtained by late-October 2024, and satisfaction of other customary completion conditions.

If the Regulatory Approvals are received prior to 17 October, the date currently scheduled for the final court hearing, it is anticipated that the Scheme will be implemented, and shareholders will be paid NZ$1.70 per share on or around 13 November 2024.

Shareholders do not need to take any further action at this stage. Shareholders will be notified of the dates for implementation of the Scheme following receipt of the Regulatory Approvals.

My comment on timetable - If everything tracks according to the original scheme implementation agreement booklet the last day of trading of Arvida shares will be 21 October 2024.

[LoungeLizard]

SP hits $1.30. Very glad to have backed the truck up on this one, the obvious risk notwithstanding. Methinks the projections around $1.50 might turn out to be a bit light, given all the good news to come. Who'd have thought Tower would have been the shining light on the NZX?

[Basil]

Well done.  Craigs $1.67 and Forbar @ $1.78 seem reasonable to me in light of the dominance of the major market players, as noted in link in post #157 above, their metrics and their ongoing determination to get strong returns on capital.   The gate is wide open for Tower to continue to increase insurance premiums at faster than the rate of inflation and get ongoing decent returns on capital in the years ahead.