This article first appeared on GuruFocus.

Release Date: May 20, 2026

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Tower Ltd (ASX:TWR) reported a solid underlying net profit after-tax of $36.8 million, demonstrating resilience in a challenging environment. The company declared an interim dividend of $0.05 per share, reflecting a commitment to consistent shareholder returns. Tower Ltd is investing in technology, innovation, and AI to improve efficiency and customer experience, positioning the company for sustainable growth. The company has seen strong customer and policy growth, particularly in lower risk segments, which has improved the overall quality of its portfolio. Tower Ltd's partnerships with Trade Me, Kiwibank, and Westpac are expected to drive future revenue growth and broaden distribution channels.

Negative Points

Tower Ltd faced higher weather-related claims and pricing pressure, impacting reported profit. The company is dealing with a substantial remediation issue linked to a legacy pricing system, which is complex, time-consuming, and costly. The BAU claims ratio increased to 44% from 38% in the prior period, driven by increased storm activity. Investment income decreased by $3.5 million due to lower yields and market volatility. Tower Ltd's guidance for GWP growth has been downgraded to low single-digits due to lower average premiums and subdued market conditions.

Q & A Highlights

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Q: What has been driving the rating pressure on home insurance, and what gives you confidence in meeting the new GWP growth guidance? A: The challenging economic environment and unexpected global events have kept premiums lower than anticipated, which is beneficial for customers but also increases competition. Despite lower average premiums, Tower has grown house policies by 9%, expanding its business and customer base for when the pricing cycle turns. (Paul Johnston, CEO)

Q: Can you elaborate on the assumptions for the new guidance, particularly regarding rating changes for home and motor insurance? A: The assumptions include a decrease of about 4-5% for average house premiums and about 3% for motor. The new partnerships with Westpac and Kiwibank are expected to provide tailwinds in the second half of the year. (Paul Johnston, CEO)

Q: Are the remediation charges expected to finish now that the discount error is resolved? A: Tower has provisioned for all foreseeable remediation costs. While the company continues to innovate and simplify systems, any new issues will be identified and addressed promptly. (Paul Johnston, CEO)

Story Continues

Q: How does Tower plan to balance growth with regulatory capital requirements, and could this affect the dividend payout ratio? A: Tower has factored regulatory capital needs into its forecasts and plans to maintain a strong and steadily increasing dividend strategy, reflecting confidence in its growth and capital management. (Paul Johnston, CEO)

Q: How is AI being utilized within Tower, and how does it factor into future expense ratio targets? A: AI is used to enhance customer service, drive innovation, and improve risk management. While not explicitly factored into the three-year MER target, AI investments are expected to deliver efficiencies and improve customer experiences. (Paul Johnston, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

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