Slide 1: Tower Limited full year results, 28 November 2018
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Slide 2: Chairman's update
Chairman's update Transformation of iconic NZ brand is driving growth • Strategic focus on customers is delivering strong growth • Implementation of leading technology will accelerate growth • Reported result reflects impacts of Peak Re settlement, severe weather and Canterbury Earthquake provisions
Slide 3: 2018 financial year achievements
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Slide 4: 2018 performance
2018 performance Strong growth achieved • Significant NZ growth Key metrics FY18 FY17 • Strong digital sales continue Gross written premium (GWP) $336m $312m Growth in GWP 7.6% 3.0% • Pacific remediation has positioned us for future growth 1 Growth in GWP in core NZ portfolio 11.9% 6.0% • Mo
Slide 5: More customers choosing Tower
More customers choosing Tower • 11.9% GWP growth in core NZ book • Total GWP has grown 7.6% through higher volumes and improved rating GROWTH IN GWP (NZ$m) GWP growth is across all NZ products: 2.4 8.2 • NZ House has grown 14% in FY18 15.3 2.1 336.2 • NZ Contents is up 2% in FY18 • NZ Motor has gr
Slide 6: Digital leads the way
Digital leads the way • GWP from digital channels has grown at CAGR of 133% over past 3 years • Digital channels now contribute 45% of new business GWP BY QUARTER THROUGH DIGITAL CHANNELS Digital sales increased to 45% of new business in (NZ$m) September 2018, up from less than 10% during FY16 $7.
Slide 7: Pacific set for growth
Pacific set for growth • Pacific remediation continuing to position us for future growth • Growing the Pacific business profitably is a key component of Tower’s strategy • Until FY18, the Pacific had been a significant contributor to Tower’s YEAR ON YEAR CHANGE IN GWP (NZ$m) +3 performance Samoa,
Slide 8: Pacific claims expenses
Pacific claims expenses • Cyclones Gita, Josie and Keni drove significant increases • Action taken to address claims escalation YEAR ON YEAR CHANGE IN CLAIMS RATIO 4.0% 1.2% 3.6% -1.2% 51.8% 9.2% 46.9% -1.5% 0.3% 36.2% 1 2 3 4 FY17 claims Change in mix Cyclone Gita Cyclones Josie FY17 adjusted Papua
Slide 9: New Zealand claims expenses
New Zealand claims expenses • Claims challenges are being well managed • Some claims inflation continued into 2018 YEAR ON YEAR CHANGE IN CLAIMS RATIO 0.6% 0.6% 1.2% 1.1% 57.2% 0.8% 56.2% -1.3% 54.2% 1 2 3 4 FY17 claims ratio, Change in Increases to prior FY17 adjusted for Improved claim Higher cost
Slide 10: Severe weather events
Severe weather events • Severe and unprecedented weather drove increased claims expense in both FY17 and FY18 • Losses in past two years significantly above long term trends Severe weather event impacts in FY17 totalled $15.5 million Reinsurance programme changed to reduce volatility from before
Slide 11: Reducing claims volatility
Reducing claims volatility • Reinsurance structure will reduce volatility from exposure to large events • FY19 reinsurance secured on favourable terms HIGH-LEVEL REINSURANCE STRUCTURE OVERVIEW • Increased aggregate cover to $20m, from $10m, $735m with excess increased to $10m from $7m Amount of cove
Slide 12: Building capability while controlling costs
Building capability while controlling costs • Management expense ratio continues to improve • Additional spend directed towards growth, building capability and reducing risk • Tower has achieved a significant capability lift with a lower expense ratio thanks to close management of costs GROUP MANAGE
Slide 13: Major tech upgrade progressing well
Major tech upgrade progressing well Programme delivery on track • Full replacement of our core platform with investment in leading technology announced in May 2018 • Progress to date is in line with expectations, with new business to be on sale on new platform from mid 2019 • Halfway through program
Slide 14: Enhanced risk pricing
Enhanced risk pricing • 17% reduction in extreme risk house policies • Earthquake risk-based pricing already delivering shareholder value • Address specific data means customers now fairly pay the true cost of the earthquake risk they face • We believe risk-based pricing is the right thing to do for
Slide 15: Canterbury earthquakes
Canterbury earthquakes • Continued progress with 318 claims closed in FY18 • Uncertainty continues to reduce • Settlement of Peak Re dispute achieved in first half MOVEMENT IN PROPERTIES • Tower is actively engaging with EQC in relation to recoveries and remain confident of our position. 43 115 • Ca
Slide 16: Financial
Financial Jeff Wright Chief Financial Officer
Slide 17: Financial performance Consolidated Group
Financial performance Consolidated Group GROUP PROFIT SUMMARY (NZ$m) • Significant growth in GWP of $23.7m and GEP of $17m $ million FY18 FY17 Change reflects ongoing successful turnaround in New Zealand Gross written premium (GWP) 336.1 312.4 23.7 business Gross earned premium (GEP) 323.1 306.1 17.
Slide 18: Movement in Underlying profit before tax
Movement in Underlying profit before tax MOVEMENT IN UNDERLYING PROFIT BEFORE TAX (NZ$m) • Net earned premium higher due to NZ 13.8 growth in core book and new approach to Pacific (0.7) 1.4 pricing 3.0 NZ 1.1 3.6 13.1 Pacific 0.9 • Improved investment income primarily a Corporate 1.0 result of incre
Slide 19: Financial performance New Zealand
Financial performance New Zealand NEW ZEALAND PROFIT SUMMARY (NZ$m) $ million FY18 FY17 Change Gross written premium 277.7 254.2 23.5 • Underlying profit increased by $0.7m on prior year Gross earned premium 266.8 248.8 18.1 Reinsurance expense (38.2) (34.0) (4.3) • 9.2% increase in GWP was the resu
Slide 20: Financial performance Pacific
Financial performance Pacific PACIFIC PROFIT SUMMARY (NZ$m) • Lower underlying profit after tax of $2.2m largely due to $ million FY18 FY17 Change adverse weather impacts Gross written premium 58.4 58.2 0.2 Gross earned premium 56.3 57.3 (1.0) • 3% growth in GWP in local currency terms was offset by
Slide 21: Canterbury earthquakes Reducing balance sheet risk
Canterbury earthquakes Reducing balance sheet risk • The second half saw strengthening in a number of non litigated claims as we moved closer toward finalisation, Sep- Mar- Sep- Mar- Sep- $ million as well as increases in litigated claims 18 18 17 17 16 Case estimates 37.5 48.0 58.9 73.9 93.2 • Outs
Slide 22: A robust solvency position
A robust solvency position • Strong capital position has been maintained • Funding in place to support continuing investment TOWER INSURANCE LIMITED SOLVENCY POSITION PLUS CORPORATE CASH ($m) Capital raise successfully completed with over 88% of shareholders taking up rights At 30 September, $78
Slide 23: Future outlook
Future outlook/ Richard Harding Chief Executive Officer
Slide 24: Continued delivery of strategy
Continued delivery of strategy • Digital challenger positioning enables achievement of medium-term targets Setting Company it right purpose for customers Medium-term operating targets: and their communities • GWP growth of 8-10% • Combined Operating Ratio < 85% Amazing Claims Challenger • Return on
Slide 25: FY19 priorities
FY19 priorities Keep improving core business while building digital challenger reputation and capability 1. IT and digital transformation completed 2. Continue driving strong growth in NZ and Pacific businesses 3. Deliver underwriting and pricing improvements to improve claims costs and drive profit
Slide 26: 1. Complete digital transformation
1. Complete digital transformation • Enables accelerated growth • Will deliver cost savings Completion of simplification in 2019 will provide the platform for growth • Increased digital capability will enable accelerated growth • Improved product offering building on Tower’s award-winning, plain Eng
Slide 27: 2. Keep driving growth
2. Keep driving growth • Deliver challenger value proposition • Increase use of data and analytics Challenger value proposition is differentiating Tower and will continue attracting more customers • Stunningly simple products • Great value for money • Amazing claims experiences Improved data capabil
Slide 28: 3. Improve profitability
3. Improve profitability • Ongoing pricing review and refinement • Improved underwriting and new products Continued implementation of fairer pricing • Deliver risk-based pricing for other natural perils including, flood, wind and storm • Ongoing portfolio review to offset claims inflation • Ongoing
Slide 29: 4. Continue controlling expenses
4. Continue controlling expenses • Continue investing in core business • Reduce expenses through removal of complexity Increase automation to enable focus on customers • Automation of all repeatable processes and tasks • Ongoing removal of complex systems and processes to improve efficiency Continue
Slide 30: FY19 financial outlook
FY19 financial outlook • Strong growth expected to continue • Claims ratio expected to improve Tower has provided a one-off guidance for FY19 to demonstrate its confidence in the strategy and performance of its underlying business • Tower’s guidance for underlying NPAT in FY19 is in excess of $22m •
Slide 31: Appendices
Slide 32: Reconciliation between underlying profit after tax and reported loss after tax
Reconciliation between underlying profit after tax and reported loss after tax • “Underlying profit” does not have a standardised meaning under FY18 Non- Claims FY18 Generally Accepted Accounting Practice (GAAP). Consequently it Other items $ million underlying underlying handling reported may not b
Slide 33: Balance sheet Tower Group
Balance sheet Tower Group 30 September 30 September $ million Movement $ Movement % 2018 2017 Cash & call deposits 102.0 83.9 18.1 21.6% Investment assets 198.2 186.9 11.3 6.0% Deferred acquisition costs 22.6 21.0 1.6 7.8% Intangible assets 45.0 31.3 13.7 43.7% Other operational assets 318.3 341.5 (
Slide 34: Reinsurance structure overview
Reinsurance structure overview Changes to our reinsurance structure will reduce volatility from large events, with reinsurance expense ratio expected to improve in FY19 High-level reinsurance structure overview Aggregate cover overview for FY19 • Minimum event size of $1m to qualify, max of $7.5m pe
Slide 35: Disclaimer
Disclaimer This presentation has been prepared by Tower Limited to provide shareholders with information on Tower’s business. This document is part of, and should be read in conjunction with an oral briefing to be given by Tower. A copy of this webcast of the briefing is available at http://www.towe