Slide 1: Full Year Results to 30 September 2016
Tower Limited Full Year Results to 30 September 2016 29 November 2016
Slide 2: Introduction
Introduction Michael Stiassny Chairman
Slide 3: Results overview
Results overview • FY16 has been a year of tough decisions setting Tower up for the future reported loss of $21.5m due to IT impairments and adjustments to Canterbury provisions underlying profit of $20.1m reflecting competitive industry environment • Improving core metrics gives confidence in u
Slide 4: A broken industry model
A broken industry model The Canterbury quakes are taking longer to settle and costing more than other comparable events TIME TAKEN TO RESOLVE CLAIMS CONTINUED ESCALATION INDUSTRY OVERCAP PROPERTIES BY QUARTER Canterbury quakes have taken significantly longer No material slow down in claims paid with
Slide 5: Creating focus
Creating focus Separation will create focus, the two businesses will be separately managed for the benefit of both shareholders and policy holders Tower shareholders “New” Tower RunOff Co • High performing General Insurer • Settle remaining 564 claims in a fair manner • Challenger to the large incum
Slide 6: Performance overview
Performance overview Richard Harding Chief Executive Officer
Slide 7: FY16 in review
FY16 in review FY16 has been a year of tough decisions, setting up Tower for the future ACHIEVEMENTS GWP (NZ$m) 159.7 157.1 Return to policy growth in the core NZ book 145.9 146.2 28.6 32.0 29.9 29.4 Reversed trend on management expenses 127.7 127.6 117.3 116.3 Claims costs controlled in H2 H1
Slide 8: Financial performance
Financial performance Reported loss of $21.5m for the full year driven by IT impairments and further Canterbury provisions GROUP PROFIT SUMMARY (NZ$m) $ million FY 16 FY15 Movement $ Movement % • Reported loss reflects : Gross written premium 303.2 305.6 (2.3) (0.8%) $25.3m impact from movement Un
Slide 9: Movement in profit
Movement in profit Full year profit impacted by industry claims inflation and lower interest rate environment MOVEMENT IN UNDERLYING PROFIT (NZ$m) • Higher NEP due to reinsurance cost savings 2.0 1.0 30.3 • Reduced expenses as a result of focus on costs • Higher claims costs in line with (7.1) indus
Slide 10: Capital position
Capital position $26.5m capital above regulatory minimum including corporate cash at the year end Solvency ratio Solvency (% of MSC) capital ($m) Solvency ratio Solvency (% of MSC) capital ($m) • Tower Board has a long term target of 180 – 200% solvency ratio for Tower Corporate cash $19.0m $12.2m1
Slide 11: Claims update
Claims update Claims management initiatives have driven reduced claims costs in the second half • Claims costs increased due to: TOWER CLAIMS EXPENSES ($m) Industry wide trends Active storm season in the Pacific 62.9 60.1 61.0 Legacy policy issues in New Zealand 8.5 55.5 7.4 7.3 • Actions to a
Slide 12: Focus on costs
Focus on costs Tide has turned on management expenses. Overall expenses have fallen allowing reinvestment in the business MANAGEMENT EXPENSES (NZ$m) • Focus on simple initiatives has reduced expenses supplier and vendor management 101.9 review of wastage across all business areas 99.9 3.0 • Some
Slide 13: Return to positive policy growth
Return to positive policy growth Focus on retention has delivered policy growth CORE 1 NEW ZEALAND POLICY MOVEMENT (policies) • Positive policy growth critical to delivering 2,509 1,336 long term profit growth • FY16 improvement driven by focus on retention (5,442) • FY17 expected to benefit from ne
Slide 14: Disciplined approach to the Pacific
Disciplined approach to the Pacific The Pacific has significant potential for Tower, we will increase our focus on this important market going forward PACIFIC GWP (NZ$m) 60.5 59.3 • FY16 NPAT impacted by Cyclone Winston ($2.9m post 53.9 tax impact), launch in Vanuatu and one off fire losses in PNG •
Slide 15: Canterbury update
Canterbury update
Slide 16: Canterbury update
Canterbury update Costs continue to escalate, driven primarily by EQC and disputed claims TOTAL CANTERBURY CLAIM FEB 11 EVENT CLAIM COSTS COSTS ($m) ($m) +$78.0m • Ultimate incurred claims costs increase by $78m, +$36.1m (gross ) +$35.1m (net of reinsurance) net impact on Tower of $35.1m (before tax
Slide 17: Continued uncertainty
Continued uncertainty We continue to receive new claims from EQC and additional hard landscaping claims when EQC does the work MOVEMENT IN PROPERTIES BREAKDOWN OF REMAINING PROPERTIES 98 297 Largely finalised or settlement offers made 703 163 564 (534) In construction 90 Open properties New properti
Slide 18: Creating focus
Creating focus Strength gained from separation based on singular focus – RunOff Co to manage Canterbury tail and New Tower to build on improving core business “New” Tower RunOff Co Ownership • Listed on NZX • Separate legal entity structure Management and • Current management and Board structure • M
Slide 19: Creating focus
Creating focus Three key steps required for the separation • Separate licence required for both RunOff Co and New Tower • Initial discussions have been held - RBNZ has consented to the creation of two separate licensed RBNZ approval entities, subject to licensing criteria being satisfied • Process o
Slide 20: Confident in our future
Confident in our future
Slide 21: Focusing on the core
Focusing on the core Our strategic imperatives will drive high performance High performance MEDIUM TERM TARGETS customer service culture GWP growth 4 – 6% Expense ratio <35% Accurate Operational ROE of 12 – 14% through the cycle pricing excellence of risk Culture and Capability 21
Slide 22: Creating simple and easy access
Creating simple and easy access We will build our digital capability - 50% of all transactions to be online within the next 3 – 5 years TOWER COVER 4 CAR RELAUNCH • Programs in place to enable digital functionality: Daily policy sales • Cover for Car launched on 5 +10% Cover for car relaunch Octob
Slide 23: Leveraging digital partnerships
Leveraging digital partnerships We will use our enhanced digital capability to leverage our key partnerships • 1.8 million subscribers • Offer Tower customers retention and acquisition propositions • Digital capability will allow us to work with partners and deliver • Different demographic to curren
Slide 24: Delivering underwriting excellence
Delivering underwriting excellence Underwriting excellence is critical to delivering growth and consistent levels of profitability Product Pricing Risk selection Monitoring • Modern effective • Advanced rating • Ensure active • Monitoring of portfolio products in plain English algorithms using under
Slide 25: Simple and easy products
Simple and easy products Rationalising into a simple and easy package style product OUR NEW PRODUCTS Modern product packages Tiered product structure to create choice and clarity of offer Tightened wording to address claims leakage Simple clear products to enable staff to easily serve custom
Slide 26: IT simplification
IT simplification IT simplification is a key enabler that will allow us to both drive growth and reduce costs OUR FUTURE STATE EXPECTED BENEFITS THE PROCESS Scoping • Determine costs, Digital front Operational efficiencies end timeline and appropriate MVP Granular pricing Approval Flexibility
Slide 27: Developing a challenger culture
Developing a challenger culture Building a more dynamic, constructive culture will help deliver improved financial performance OUR VALUES 27
Slide 28: Our plan
Our plan We have a plan that addresses change across our entire business FY17 FY18 FY19 Tower online Digital Full omni-channel service proposition New TradeMe Insurance platform Underwriting Remediation of legacy policy issues Implementation of more sophisticated pricing and and repricing increased
Slide 29: Outlook
Outlook Successful delivery of our transformation will deliver an improved financial trajectory for Tower INDUSTRY DYNAMICS TOWER DYNAMICS Short term Medium term • High claims environment • Ongoing improvement • GWP growth 4 – 6% resulting in movement on Digital to drive GWP pricing • Expense rati
Slide 30: Appendices
Appendices
Slide 31: A New Zealand and Pacific general insurer
A New Zealand and Pacific general insurer FY16 FY16 As at 30 September 2016 As at 30 September 2016 $ 20.1m 1 $ 303.2m 475k Personal lines focus UNDERLYING NPAT GWP INFORCE POLICIES GWP breakdown New Zealand 74%2 New Zealand 80% New Zealand 86% House 43.7% Contents 20.5% Pacific Islands 26% 2 Pacifi
Slide 32: Underlying performance Tower Group
Underlying performance Tower Group Half year results Full year results $ million H2 16 H1 16 H2 15 H1 15 FY 16 FY15 Movement % Gross written premium 157.1 146.2 159.7 145.9 303.2 305.6 (0.8%) Gross earned premium 151.5 151.5 154.3 150.4 302.9 304.7 (0.6%) Reinsurance Costs (24.6) (24.5) (26.3) (25.7
Slide 33: General Insurance New Zealand
General Insurance New Zealand Half year results Full year results $ million H2 16 H1 16 H2 15 H1 15 FY 16 FY15 Movement % Key financial metrics Gross written premium 127.6 116.3 127.7 117.3 243.9 245.1 (0.5%) BAU claims 53.5 54.4 52.8 49.6 107.9 102.4 5.3% 1 Large event claims (0.3) (0.1) 4.9 (0.0)
Slide 34: General Insurance Pacific
General Insurance Pacific Half year results Full year results $ million H2 16 H1 16 H2 15 H1 15 FY 16 FY15 Movement % Key financial metrics Gross written premium 29.4 29.9 32.0 28.6 59.3 60.5 (2.0%) BAU Claims 7.4 8.5 7.3 5.9 16.0 13.2 21.5% 1 Large event claims 0.8 3.3 - - 4.1 - n/a Underwriting pr
Slide 35: Balance sheet Tower Group
Balance sheet Tower Group $ million FY16 FY15 Movement $ Movement % Cash & call deposits 92.2 125.1 (32.9) (26.3%) Investment assets 188.6 213.6 (25.0) (11.7%) Deferred acquisition costs 20.0 20.3 (0.3) (1.5%) Intangible assets 32.0 48.4 (16.4) (33.9%) Other operational assets 307.5 302.9 4.7 1.5% T
Slide 36: Impact of Canterbury claims
Impact of Canterbury claims ` Feb 11 event Total Canterbury ($m) H2 16 H1 16 H2 15 H2 16 H1 16 H2 15 Ultimate incurred claims Customer claims 493.6 461.4 457.5 869.6 822.3 792.0 Reinsurance recoveries (375.4) (375.4) (374.4) (734.7) (719.7) (692.2) Net claims cost to Tower 118.2 86.0 83.2 134.9 102.
Slide 37: Reinsurance structure overview
Reinsurance structure overview STRUCTURE OVERVIEW (per event) AGGREGATE OVERVIEW • Min event size of $1m to qualify, max of $5m per event coverage • $10m cover once $5m excess filled • No coverage for EQ $770m Catastrophe Max coverage of cover $5m per event Event size $10m excess $10m coverage 7 exc
Slide 38: This presentation has been prepared by Tower Limited to provide shareholders with information on
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.tower.co.nz/inv