Combined ratio fell to 74.1% as underwriting result rose to NZ$133.9m

The claims ratio excluding large events fell to 41.3% from 48.1%, while large event claims sat at just NZ$7.2m on a 1.4% large-event ratio. The expense ratio was flat at 31.4%.

Reported PBT was NZ$117.7m on insurance revenue of NZ$594.3m (FY24: NZ$555.8m), and NPAT was NZ$83.7m. Net investment income eased to NZ$19.2m from NZ$21.6m. Operating cash flow was broadly flat at NZ$143.8m. The full-year dividend rose to 24.5cps from 9.5cps in FY24, with a 16.5cps final declared.

PBT and NPAT year-on-year growth comparisons sit against an FY24 base that included a discontinued operation, so basis-discontinuity caveats apply to headline growth percentages.

The insurance service result widened by NZ$32.9m, driven by a 6.8pp drop in the BAU claims ratio that management attributes to targeted rate increases and risk selection. The combined ratio at 74.1% now sits well below the company's 87-89% target band. If the pricing-led component holds, it would be durable; the rest depends on weather.

Large-event costs were unusually light. The 1.4% large-event ratio and NZ$7.2m of cat claims are well below normal exposure for an NZ-and-Pacific insurer. Reinsurance recoveries received fell to NZ$25.2m from NZ$91.6m, consistent with a benign year rather than a structural shift. This caveats the year-on-year underwriting and earnings comparison.

PBT margin of 19.8% sits above Annolyse's historical baseline (mean 8.0%, range 1.0-18.5%), and NPAT margin of 14.1% is above the recent range. ROE is classified as unprecedented in the supplied historical baseline. These outcomes reflect both genuine pricing discipline and the cat-light tailwind, and durability cannot be cleanly separated without normalised weather assumptions.

The current 74.1% combined ratio is meaningfully better than the disclosed 87-89% target band, which signals headroom versus internal expectations - though that gap is partly cat-light.

HY25 NPAT of NZ$49.7m represented 59.4% of full-year NPAT, implying second-half NPAT moderated to roughly NZ$33.9m. That shape suggests claims experience and possibly investment income normalised somewhat in H2. What matters from here is whether rate adequacy keeps pace with claims inflation now that the headline rate increases have largely flowed through, and whether the next normal-cat year tests the BAU base.

The structural pieces - the BAU claims ratio reset to 41.3% and the flat 31.4% expense ratio - reflect operational changes Tower can plausibly sustain. The 1.4% large-event ratio cannot. The NZ$25.2m of reinsurance recoveries (versus NZ$91.6m prior) is the clearest signature that FY25 benefited from a quiet catastrophe year, not just better pricing. The effective tax rate at 28.9% is below the recent baseline mean of 40.4%, and explains the small 1.9pp gap between PBT and NPAT growth trajectories.

Cash generation looks strong at face value. FCF pre-lease of NZ$142.6m on capex of just NZ$1.2m gives FCF/NPAT conversion of 170.4%, at the upper edge of Annolyse's historical range. However, operating cash flow was effectively flat year on year (NZ$143.8m vs NZ$145.2m) despite the NZ$32.9m underwriting result improvement, suggesting claims settlement and reinsurance timing movements absorbed some of the earnings step-up. Total assets fell to NZ$612.9m from NZ$635.1m, and cash eased to NZ$71.0m.

This briefing cannot assess the durability of the 4.9pp combined-ratio improvement without normalised weather/catastrophe assumptions from management.