Slide 1: Tower 2023 Half Year Results
Tower 2023 Half Year Results 1 October 2022 to 31 March 2023 25 May 2023
Slide 2: Agenda
Agenda Chairman’s update Michael Stiassny, Chairman Business update Blair Turnbull, Chief Executive Officer HY23 financial performance Paul Johnston, Chief Financial Officer Looking forward Blair Turnbull, Chief Executive Officer 2
Slide 3: Chairman's update
Chairman’s update Taking decisive action to address external challenges Catastrophic events Inflation Motor crime Strong rating and underwriting actions Expansion of risk-based pricing Maintaining a prudent dividend policy 3
Slide 4: Business update
Business update Blair Turnbull Chief Executive Officer 4
Slide 5: Our performance
Our performance Business performance impacted by catastrophe events GWP growth BAU claims ratio MER Underlying profit (Gross written premium) (Management expense ratio) excl. large events costs 1 15% | $245m 51.6% 35.1% $23.6m vs $216m in HY22 vs 48.6% in HY22 vs 35.8% in HY22 vs $18.2m in HY22 Larg
Slide 6: Catastrophic and large weather events
Catastrophic and large weather events 1 Auckland & Upper North Island weather event • $195m-$225m, ~5,550 claims, $11.9m net impact • 30% claims settled Cyclone Gabrielle • $55m-$75m, ~3,350 claims, $11.9m net impact Tower Rolling 12 Month Large Events • 30% claims settled (Gross Estimate) Vanuatu C
Slide 7: Managing impacts of increasing weather events
Managing impacts of increasing weather events Observed flooding Transparent underwriting and risk-based pricing • Landslide risk selection implemented • Increased weighting of flood risk portion of premium • Automated coastal & landslide risk-based pricing launching 2023 Tower flood model Product in
Slide 8: Managing impacts of inflation and motor crime
Managing impacts of inflation and motor crime Rating to mitigate reinsurance/weather Inflation costs • Monthly inflation rate changes • Sum insured amounts matched to Cordell or CPI at renewal • Rating to mitigate reinsurance and weather- related costs New Zealand Motor theft and related offences (N
Slide 9: Outlook for second half
Outlook for second half • Efficiently settling large event claims • Targeted rate increases and further underwriting improvements to address inflation • 15% - 20% GWP growth • Continuing to deliver operational efficiencies • Reinsurance protection for two additional catastrophe events in FY23 up to
Slide 10: Continued customer and premium growth
Continued customer and premium growth 1 12 MONTH ROLLING CUSTOMERS 15% GWP INCREASE GWP BY PRODUCT($m) 320,000 60:40 2 Up 5% on HY22 NZ rate vs organic NZ risks up 5% to 592k TOWER DIRECT RETENTION NZ CUSTOMERS WITH MULTI PRODUCTS 79% 51% With an average Up from 78% in HY22 tenure of 8 years Note 1:
Slide 11: Channel and efficiency improvements
Channel and efficiency improvements TOWER DIRECT PARTNERSHIPS PACIFIC • 20% premium growth to $183m • 23% active partner growth to $37m • Simplifying: PNG sale • 88% legacy bank book policy retention • Advisor network grew 57% to 2,200 • My Tower live in 7 countries, vs 1 HY22 • 237k My Tower regist
Slide 12: Improving efficiency through leading data and digital
Improving efficiency through leading data and digital NZ DIRECT SALES ONLINE • Digital driving down costs to acquire and serve • Lowering telephony and service costs through Suva hub • Leading NZ online NPS, improved to 58% from 56% in HY22 • Continuous improvement via core platform agility NZ SERVI
Slide 13: Reducing MER as simplification and digitisation realised
Reducing MER as simplification and digitisation realised MANAGEMENT EXPENSE RATIO (% NEP) • Streamlining our business - 1 platform, all countries • Simplified organisational alignment • Scale and operational efficiency enabled through digitisation 13
Slide 14: Financial performance
Financial performance Paul Johnston Chief Financial Officer
Slide 15: Group underlying financial performance
Group underlying financial performance • Strong premium growth of 15% • BAU loss ratio of 51.6%, an increase of 3% as a result of increased motor frequency • $3.4m reinsurance reinstatement costs expensed in the half year • Management expense ratio improved to 35.1% as a result of expense efficienci
Slide 16: Underlying NPAT impacted by large events
Underlying NPAT impacted by large events MOVEMENT IN UNDERLYING NPAT • Underlying NPAT loss of $3.3m • Reduction in commission expense from legacy book purchase 1 • Additional large event impact of $14m ($37.3m pre-tax HY23 • Liability Adequacy Test (LAT) one-off unwind included in HY22 vs $17.9m HY
Slide 17: BAU claims challenged by motor frequency and inflation
BAU claims challenged by motor frequency and inflation NZ MOTOR FREQUENCY & SEVERITY • High inflation period impacting cost of claims (severity) • NZ motor claims frequency above historical norms • Covid lockdowns lowered motor frequency in previous periods • Motor theft contributing to higher frequ
Slide 18: Continued improvement in management expenses
Continued improvement in management expenses MOVEMENT IN MANAGEMENT EXPENSE RATIO (MER) • MER reduced 0.7% to 35.1% • Scale contributes a 4.8% reduction in MER • Commission expenses decreased due to the purchase of back book legacy portfolios • Nil reinsurance profit share impacts net commission exp
Slide 19: Higher investment returns as yields increase
Higher investment returns as yields increase • Net Investment Income $6.3m for HY23, $7.2m higher than HY22 • Interest rates have stabilised resulting in higher running yields • Tower maintains a conservative investment strategy • Strategy has minimised profit impact from macroeconomic factors and m
Slide 20: Reinsurance programme supports resilience
Reinsurance programme supports resilience $889m • Reinsurance expected to cover up to $276m of large events costs in HY23 • $187m of catastrophe cover has been reinstated • Catastrophe reinsurance of $889m each for two further events available for the balance of FY23 $200m • Reinstatement cost inclu
Slide 21: Canterbury earthquake claims reducing
Canterbury earthquake claims reducing OPEN CEQ CLAIMS • Adverse P&L charge of $1m after tax as a non-underlying item • Steady progress in closing claims with 31 properties open as at 31 March 2023 vs 35 at March 2022 • Numbers of new claims have reduced over the half • Remaining gross outstanding cl
Slide 22: Capital and solvency position
Capital and solvency position TOWER SOLVENCY - NZ PARENT ($m) SR = 225% SR = 215% SR = 205% SR = 125% • Minimum solvency capital increased due to increased catastrophe risk and capital required for open catastrophe claims • Solvency ratio of 125%, $25m above RBNZ minimum solvency capital, but below
Slide 23: Full year guidance
Full year guidance FY23 Guidance 15% - 20% GWP growth (excluding Tower PNG) Large events allowance $50m Underlying NPAT (assuming $50m large events $8m-$13m allowance is used) 1 Dividend Decision will be made when full year results are finalised Note 1: Tower’s ordinary dividend policy is to pay a s
Slide 24: Looking forward
Looking forward Blair Turnbull Chief Executive Officer
Slide 25: Investing in future resilience and sustainability
Investing in future resilience and sustainability SCALING PARAMETRIC REDUCED SCOPE 1 & 2 EMISSIONS BY Continually developing hazard modelling Fiji, Tonga, Samoa 59% to 98.5tCO2 in HY23, Partnering with United on track to meet 2025 Nations 21% reduction target LEADING GLOBAL ESG PROGRESSING CLIMATE B
Slide 26: Positioned to deliver long-term earnings
Positioned to deliver long-term earnings • Robust risk management and rating actions • Targeted customer and premium growth • Enhanced margin through efficiency and organisational improvements • Mitigating large event impacts • Investing for resilience and sustainability • Attractive earnings and di
Slide 27: Questions?
Questions?
Slide 28: Reconciliation between underlying profit after tax and reported profit after tax
Reconciliation between underlying profit after tax and reported profit after tax Underlying and reported (loss)/profit: • “Underlying (loss)/ profit” does not have a standardised meaning under Generally Accepted Accounting Practice (GAAP). Consequently it may not be comparable to similar measures pr
Slide 29: 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