Slide 1: 2017 full year results and announcement of entitlement offer
2017 full year results and announcement of entitlement offer Tower Limited investor presentation 14 November 2017
Slide 2: Disclaimer
Disclaimer Disclaimer This presentation has been prepared by Tower Limited (the “Company”). This presentation has been prepared to provide information on Tower’s business and in relation to the proposed rights offer of fully paid ordinary shares (the “New Shares”) in the Company to eligible sharehol
Slide 3: Executive summary
Executive summary Michael Stiassny Chairman
Slide 4: Executive summary
Executive summary Vero strategic discussions • After considering various structural options in late 2016, Tower received two unsolicited offers for 100% of the company’s shares • Tower’s Board accepted Vero’s offer, however, the Commerce Commission declined approval • The Scheme Implementation Agree
Slide 5: Positive trends continue in FY17
Positive trends continue in FY17 Momentum picks up pace in FY17 • Significant improvements achieved in core metrics, including policy and premium growth, claims control and expense reduction, however, an unprecedented number of large natural events have affected underlying result • Tower has reporte
Slide 6: Overview of Tower
Overview of Tower Overview of Tower Richard Harding Chief Executive Officer
Slide 7: A New Zealand and Pacific general insurer
A New Zealand and Pacific general insurer Powerful platform for future growth as the #3 general insurer in New Zealand and one of the leading insurers in the Pacific $ 18 m 1 $ 312.4m 479k Personal lines UNDERLYING NPAT GWP INFORCE POLICIES GWP breakdown New Zealand 63%2 New Zealand 81% New Zealand
Slide 8: Clear strategic plan to grow Tower as the leading digital challenger brand
Clear strategic plan to grow Tower as the leading digital challenger brand Challenger Customer Digital brand experience Traditional distribution Personalised price, insurance Setting it right at the moment of truth cover, and service Digital self-service and engagement tools Power to choose when and
Slide 9: Transformation will deliver step change in results
Transformation will deliver step change in results SIGNIFICANT BENEFITS MEDIUM TERM TARGETS Simple, customer focussed products Easy product experimentation and development Challenger brand delivering: Granular, automated pricing and underwriting • GWP growth of 4 – 6% Improved access and use
Slide 10: Improving business performance
Improving business performance Positive momentum in GWP growth with effective claims management and ongoing expense reduction ACHIEVEMENTS Key metrics FY17 FY16 GWP growth of 5.8% achieved in core NZ Total GWP $312.4m $303.2m portfolio GWP growth in core NZ portfolio1 5.8% 1.9% Maintained claims
Slide 11: Focus on customers delivers growth
Focus on customers delivers growth Core book growing as a result of digital growth and strong retention ACHIEVEMENTS CORE1 NEW ZEALAND GWP GROWTH 20.0% 140.0 8.7% 10.0% 2.4% 130.0 New digital program supporting core GWP growth in 1.6% 2.1% 0.0% 120.0 second half of 8.7% on prior year 110.0 -10.0%
Slide 12: Digital continues to deliver
Digital continues to deliver Continued focus on digital capability and partnership delivers more customers ACHIEVEMENTS QUARTERLY NEW BUSINESS GWP ACROSS DIGITAL CHANNELS Online sales increased from 9% of new business transactions in March 2016, to 30% in September 2017 New Tower direct digital pl
Slide 13: Claims and underwriting update
Claims and underwriting update Improvements in pricing, underwriting controlling claims costs despite industry wide inflation ACHIEVEMENTS Over 30 product updates, pricing reviews and targeted rate TOWER CLAIMS EXPENSES ($m) changes across all New Zealand portfolios Supply chain and preferred su
Slide 14: Kaikoura earthquake and storm events
Kaikoura earthquake and storm events Highest number of natural event losses in over 25 years for Tower, excluding the Canterbury quakes IMPROVEMENTS IN FINANCIAL OUTCOMES Tower has experienced five large loss events during the year and has set up dedicated teams to help affected customers Aggregat
Slide 15: Focus on costs
Focus on costs Cost saving initiatives continue to deliver a reduction in expense base ACHIEVEMENTS Increased focus on efficiency and productivity MANAGEMENT EXPENSES Significant saving through in-housing IT service desk and other key support functions Whole of business procurement review and
Slide 16: IT simplification
IT simplification Following the pause due to ownership, focus is now on delivery of IT simplification to drive growth and productivity ACHIEVEMENTS NEXT STEPS Delivery of Tower digital solution Selection of EIS to complete formal scoping and costing following comprehensive tender process Enhan
Slide 17: Financial performance
Financial performance Jeff Wright Chief Financial Officer
Slide 18: FY17 Financial update
FY17 Financial update Business performance remains in line with expectations. Results impacted by larger than usual number of natural events • Reported loss after tax reflects: GROUP PROFIT SUMMARY (NZ$m) $11.4m impact from movement in Canterbury provisions $ million FY17 FY16 $9.8m increase in
Slide 19: Movement in underlying profit
Movement in underlying profit Growth in premiums and lower management expenses offset by large events and lower investment income • Net earned premium higher due to MOVEMENT IN UNDERLYING PROFIT BEFORE TAX (NZ$m) growth in core book and improved retention 0.3 3.9 3.6 • Focus on costs has reduced 3.1
Slide 20: Pacific business remains steady
Pacific business remains steady The Pacific offers a solid platform with significant potential for Tower PACIFIC PROFIT SUMMARY (NZ$m) • YTD NPAT stable and in line with $ million FY17 FY16 prior periods, excluding impact of Gross written premium 58.2 59.3 Cyclone Winston in FY16 Gross earned premiu
Slide 21: Canterbury update
Canterbury update Open claims and numbers of new over-cap claims are reducing, but uncertainty still remains MOVEMENT IN PROPERTIES (since Sep 2016) RESERVING UPDATE 56 106 564 (NZ$m) Sep‐17 % of case Mar‐17 % of case Sep‐16 % of case estimates2 estimates2 estimates2 323 Case estimates 58.9 73.9 93.
Slide 22: Update on Peak Re and EQC
Update on Peak Re and EQC Tower remains confident of recovery from Peak Re and EQC PEAK RE DISPUTE EQC RECOVERIES • Tower in consultation with its reinsurers is progressing its recovery • Tower is party to an arbitration process with Peak Re regarding program against the Earthquake Commission (EQC)
Slide 23: Capital requirement review
Capital requirement review Entitlement offer will strengthen solvency position to a long- term sustainable level MEDIUM-TERM CAPITAL REQUIREMENT TOWER INSURANCE LIMITED SOLVENCY POSITION ($m) • Tower’s Board and management have confidently determined to invest in a sustainable future while recognisi
Slide 24: FY18 outlook
FY18 outlook FY18 outlook Richard Harding Chief Executive Officer
Slide 25: Tower outlook for FY18
Tower outlook for FY18 • Improving retention rates and current marketing campaign resulting in strong lead enquiry Expect continuing gross written • Positive momentum in digital distribution channel premium growth in NZ core book • Continued pricing and product refinement to offset claims inflation
Slide 26: Entitlement offer
Entitlement offer Richard Harding Chief Executive Officer
Slide 27: Equity raising terms and shareholder options
Equity raising terms and shareholder options Equity raising terms Shareholder options Entitlement ratio • 1 New Share for every 1 Existing Share held • You will be able to acquire Shares at the Issue Price of Offer size • $70.8m NZ$0.42 which is at a discount to the market price Take up all or immed
Slide 28: Key risks to Tower
Key risks to Tower • Tower is subject to risk factors that are specific to its business activities and those of a more general nature. Any, or a combination, of these risk factors may have a material impact on Tower’s business, operating and financial performance. These impacts can be negative or po
Slide 29: Key risks to Tower
Key risks to Tower • Continued from prior page Risk Description • Tower is party to an arbitration process with Peak Re regarding an adverse development cover policy entered into in 2015 valued at $43.75m. PeakRe • Currently Tower anticipates the arbitration will take place in March 2018 with a deci
Slide 30: Offer timetable
Offer timetable Key dates1 for the rights offer are outlined below Shares quoted “ex-rights” and Rights Trading commences on the NZX Main Board Tuesday 21 November Record date Wednesday 22 November Offer documents sent by Monday 27 November Right trading ceases Thursday 7 December Rights offer close
Slide 31: Appendices
Appendices Appendices
Slide 32: New Zealand business improving
New Zealand business improving Improvements in key focus areas offset by storm activity and large events NEW ZEALAND PROFIT SUMMARY (NZ$m) $ million FY17 FY16 • Improvements in underlying Gross written premium business offset by natural events 254.2 243.9 Gross earned premium 249.1 244.3 • Increase
Slide 33: Balance sheet
Balance sheet Tower Group $ million 30 30 Movement Movement September September $ % 17 16 Cash & call deposits 102.9 92.2 10.6 11.5% Investment assets 167.9 188.6 (20.6) (10.9%) Deferred acquisition costs 21.0 20.0 1.0 4.9% Intangible assets 31.3 32.0 (0.6) (2.0%) Other operational assets 316.4 307.
Slide 34: Reconciliation between underlying profit after tax and net profit after tax
Reconciliation between underlying profit after tax and net profit after tax Non- FY17 Claims underlying FY17 reported $ million underlying handling Other items (3) items profit profit expenses (2) (1) Gross written premium 312.4 312.4 Gross earned premium 306.8 306.8 Reinsurance costs (49.8) (49.8)
Slide 35: Reinsurance structure overview
Reinsurance structure overview The excess on the aggregate cover has increased to $7m and the limit on catastrophe cover increased to $790m STRUCTURE OVERVIEW (per event) AGGREGATE COVER OVERVIEW FOR FY18 • Minimum event size of $1m to qualify, max of $5m per event coverage • $10m cover once $7m exc