There wouldn’t be much drama if you entered Tower’s headquarters on Fanshawe Street in Auckland on a rainy morning. The structure is not particularly noteworthy. It’s silent in the lobby. The receptionist gives you the modest greeting that most Aucklanders give. Beneath that very ordinary exterior, however, Tower has been doing something quite unusual for a 156-year-old insurance company over the past year: its dividend yield has crept into the double digits, its share price has increased by nearly 48% over the past twelve months, and a stock that most New Zealanders have never given much thought to is finally receiving the kind of attention that smaller analysts give when they suspect something intriguing is being priced in too slowly.
The shares are currently down a little on the day at NZ$1.92, although they are still far from the 52-week lows, which were closer to NZ$1.30. For general insurers, who are typically viewed by markets as dull stand-ins for interest rates and weather, such a move is uncommon. Tower’s comeback has been more nuanced. The margins for underwriting have increased. In areas of the Pacific that are vulnerable to cyclones, the corporation has increased risk. After battering the sector in 2023 and 2024, claims inflation has been gradually returning to normal. Almost covertly, investors who purchased the shares at the worst of the previous storm season have profited.
Tower is intriguing because of how out of step it has been with the larger insurance narrative. For the majority of the last two years, American property insurers have been withdrawing from high-risk regions, such as Florida and California, and raising prices to the point that regulators have objected. In some respects, Tower has taken the opposite approach, leaning more toward risk-based pricing and being more transparent with clients about the reasons behind rising premiums in Auckland neighborhoods that are vulnerable to flooding and Pacific island regions that are prone to cyclones. There have been moments when being honest has been awkward. Additionally, it has gradually begun to show up in the underwriting results.
The majority of individual investors focus first on the dividend narrative. Anyone will be drawn to a trailing yield of about 10%, especially in the New Zealand market where true yield has grown more elusive. Tower stands apart from some other yield-heavy NZX firms that have appeared stretched because its earnings per share of about NZ$0.12 during the trailing twelve months indicates that the dividend payout is being sustained by actual earnings rather than balance-sheet shifting. The fundamental question is whether the payout can continue at this level throughout the subsequent claims cycle. That’s how cruel insurance is. A year of meticulous underwriting can be ruined by a terrible summer in the Pacific.
Tower’s share price data gives the impression that the market is still hesitant to completely re-rate the stock. Depending on the reliable data source, the P/E ratio ranges from 6.8x to 15x; this broad range indicates how little coverage the company actually has. Big brokers don’t keep a close eye on it. The majority of NZX research desks view it as too small to write monthly notes about, whereas the majority of ASX research desks view it as a New Zealand story. For patient investors, that neglect has generally been a benefit rather than a drawback. When no one is looking, stocks that are not discussed can do intriguing things.
It’s worth stopping to consider the cultural aspect of this tale. Founded in 1869 as a government insurance office, Tower has been a part of New Zealand’s calm, slow-moving financial system for more than a century. The company has persevered through demutualization, the nearly catastrophic Christchurch earthquakes, multiple management upheavals, and is currently led by a leadership team that has been remarkably strategically disciplined, with Paul Johnston serving as CEO and Naomi Ballantyne serving as chair. With a lengthy career at Sovereign and Partners Life, Ballantyne in particular is one of the most well-known individuals in the insurance sector in New Zealand. Even when no one is looking, that kind of operator trustworthiness eventually shows up in share prices.
