Growth in its life insurance business has softened the impact of weak investment markets on TOWER Australia’s first-half profit.
TOWER, the only life insurer listed on the Australian Securities Exchange and the country’s fourth-largest life insurer in terms of in-force premium, reported a 12 per cent slide in net profit after tax to $27.1 million but said its preferred measure of earnings, underlying profit, was up 13 per cent to $38.2 million for the six months to March 31.
Underlying profit strips out non-cash items and normalises investment income.
Managing Director, Jim Minto, said growth in revenue from TOWER’s core life business offset a weak result from its investment business amid the global financial crisis.
“The strength of our life insurance business has carried us very well through this difficult period,” he said.
The life business reported a 60 per cent rise in net profit to $42.4 million, while the investment business showed a net loss of $1.8 million compared with a profit of $7.0 million at the same time a year ago.
“The strength of our life insurance business has carried us very well through this difficult period.”
Falling fee income as funds under management shrank 24 per cent in value, plus one-off impacts from market volatility such as meeting product guarantees, contributed to the investment business loss.
In contrast, sales of new individual life polices rose 24 per cent and the policy “lapse rate” fell to 12 per cent, its lowest for some time.
This tallies with Plan for Life and DEXX&R industry research showing continued healthy growth in risk insurance sales and inflows in calendar 2008.
Mr Minto said business through financial advisers was growing strongly because of increased consumer demand and TOWER’s strengthened capability in this area.
“In today’s economic environment consumers are seeking greater comfort and financial protection through life insurance and this is being reflected in increased sales,” he said.
The introduction of electronic underwriting via TOWER’s new Accelerate product had improved efficiency considerably both for the company and for advisers, he said. Almost half of sales through the adviser channel were now completed using Accelerate and TOWER would continue to invest “significantly” in such innovations.
The company also sells life insurance through superannuation and workplace schemes and via its now wholly owned customer-direct InsuranceLine business.
Looking ahead, Mr Minto said TOWER saw room for continued growth in the underinsured Australian market but didn’t expect the benefits to be shared evenly.
“Being in a strong growing market will not in itself lead to success. Greater investment in technology and other sources of competitive advantage will see greater disparities in performance and success of industry participants in the future,” he said.
“You just can’t pitch a tent in this market and hope to be successful.”
