Last Update28 Jul 25Fair value Increased 56%
Since initial valuation, Tower has continued to focus heavily on risk-based pricing for its policies, resulting in the focusing of its portfolio in lower risk customers and better margins amongst customers who aren't low risk.
This combined with a streak of generally good weather has meant lower insurance claims and boosted profit margins. As weather, and therefore insurance payouts 'normalise', profit margins will likely reduce to more 'normal' levels.
However ongoing digitalisation and outsourcing should keep expense growth low, potentially keeping margins high in the face of a spike in insurance claims.
Tower previously suffered from a low P/E from Investors due to the inherent volatility of its insurance portfolio, particularly given the major storms in 2023, plus further concerns around climate change and reinsurance. The changes bought about by its risk-based pricing should mean Tower is eventually seen more favourably by investors, particularly if it can find a way to continue growing its dividend during 'high payout' years.
TWR is generally positioned as highly affordable insurance. This gives TWR plenty of headroom, relative to competitors, to increase insurance premiums in response to risk changes from climate change. This pricing control ensures TWR can maintain good profit margins and, allowing for surprisingly high disaster pay outs, continue to pay a consistently growing dividend.
How well do narratives help inform your perspective?
Disclaimer
The user KiwiInvest has a position in NZSE:TWR. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.