Kiwi insurer Tower Limited (ASX: TWR) has made it official with New Zealand-based Kiwibank. The Company announced that it has acquired and assumed the rights to its portfolio of insurance policies underwritten by Tower for $5.9 million, thus growing the two companies’ relationship from Partnership to Direct.
Since 2006, Tower has been providing insurance to Kiwibank’s customers. In FY22, the premiums from the bank’s portfolio pumped $12 million into Tower’s Gross Written Premium (GWP). Given that Kiwibank’s insurance policies have always been underwritten by Tower, customers don’t need to worry about transferring data or any such actions.
Tower CEO, Blair Turnbull, shared, “The completion of this deal brings an end to our strategy of acquiring legacy insurance books and migrating them to Tower Direct. Since February 2021, Tower has agreed to purchase books for a total price of $26 million from ANZ, Westpac, TSB and Kiwibank, ending commission payments and enabling us to have a direct relationship with these customers, who represent more than 88,000 risks. Previously, Tower paid a total commission to these partners of around $11 million per annum.”
Tower Insurance is known to provide a wide range of insurance covers, ranging from pets and cars to large events, like tsunamis and other natural disasters. With acquisitions like Kiwibank, Tower is able to save more to serve more. Following this agreement, in the future, GWP from these policies will be reported against the Tower Direct channel, rather than the Tower Partnerships channel.
Turnbull added, “Having completed our legacy book acquisitions, we are continuing to focus on building our progressive partnerships model, with both new and existing partners including TradeMe Insurance, TSB, Ray White, NZ Financial Services Group and NZ Defence Force. By securing mutually beneficial partnerships for customers we aim to drive significant, sustainable growth.”
The past two years have been turbulent ones for the Company, as has been the case for most of the world. The pandemic and inflation led to an increase in business loss claims, and events like floods, too, brought in significant domestic and commercial loss claims. The blow was worsened owing to low interest rates which meant lower investment income.
Still, the Company is counting on its new acquisition and partnership strategy to get its profits back on track. In ensuring that others are insured, it hasn’t ignored itself. On September 30, 2022, Tower announced that it has increased its catastrophe upper limit to $934 million to reflect its business growth and be better prepared for large events.
Yes, Tower’s reinsurance premiums for FY23 have increased by 6.7% as opposed to FY22 owing to business growth and a more competitive reinsurance market. Even then, Tower will be paying proportionally less for its reinsurance cover in FY23 at 13.6% of total income, compared to 14.3% of total income in FY22. This represents reinsurers’ newfound confidence in the Company’s business performance.
Over the past year, the Company has been focusing on building partnerships, aligning with advisors and expanding its portfolio in hopes of positioning itself for profit in the coming year.
Alinda is a Business Reporter for The Sentiment
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