Michael Luke: Milford Asset Management expert on Tower Insurance increasing their profit expectations

An optimistic update from Tower Insurance, as the company increased its profit expectations.

This is the third projected profit upgrade for the company - a significant turnaround following a chaotic 2024.

Milford Asset Management's Michael Luke explains how the company's new strategic direction helped boost these numbers.

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Episode Transcript

Speaker 1 (00:00):
First of all, though, from Milford Acid Management, Michael Luke
Kmichael hey Heaver, what's by the increase in Tower Insurance's
profit expectations yesterday?

Speaker 2 (00:09):
Well, it will certainly a positive update from Tower, and
it was actually a third profit upgrade this year, which
is a big turnaround after losing money last year with
the weaber events. Now Tower has actually undergone a big
strategic turnaround in recent years which has helped them compete
with the much larger Australian owned insurance and has also
helped them improve their own profitability. I think it's also

(00:31):
fair to say that Tower has benefited from much higher
prices on the back of last year's events and also
a general reduction and insurance claims this year with much
better weather.

Speaker 1 (00:40):
And so why have insurance costs gone up so much lately?

Speaker 2 (00:44):
Well, they have gone up quite a lot, and I'm
sure anyone looking at their insurance policy renewal has had
a bit of a shock and it was actually a
standout in recent inflation data where motor and home insurance
has gone up by about twenty to thirty percent. Now
that's really been driven by three things. Firstly, New Zealand
reinsurance costs went up significantly last year after the Auckland

(01:05):
floods and cyclone, which costs the industry about four billion dollars,
and reinsurances where insurance insurance companies like Tower go and
get their own insurance for large events like floods. So
those costs have gone up a lot with these events
happening more frequently than the one to one hundred years
that a model would suggest. And then secondly, claim costs
have also gone up a lot, where modern cars are

(01:27):
getting more expensive to repair with all their sensors and technology,
and home repairs. Home repair costs have also gone up
with build inflation. And then I think finally, we've also
seen insurers sung to adopt more risk based pricing or
increasing prices for houses and flood zones or vehicles that
get stolen frequently such as the Toyota Aqua or Mesdademia.

Speaker 1 (01:50):
Do you reckon that we're passed the peak in these
insurance costs or is there more to come?

Speaker 2 (01:54):
Well? I think the good news is that the worst
has passed and these price increases really relate to events
last year, but take time to roll through as policies
for you. So I think looking ahead, cost inflation is easy,
reinsurance costs should stabilize without any more large events, and
that should all flow through to much lower but still

(02:15):
potentially high single digit low double digit price in cruises
next year. I also think it's worth mentioning that with
risk based pricing, it could also result in a wider
range and insurance costs between cars, houses and also between
insurance companies, so it is worth shopping around it and
looking at insurance costs when you are looking to purchase

(02:35):
a new car or home, and maybe just avoiding the
Toyota Aqua, which was New Zealand's most stolen car last year.

Speaker 1 (02:42):
That's a good piece of advice, Michael. Thank you very
much appreciated. Michael Luke of Milfed Asset Management. For more
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