Slide 1: Investor update on IFRS 17 and the interim solvency standard
Tower Limited Investor update on IFRS 17 and the interim solvency standard May 2024
Slide 2: Contents
Contents IFRS 17 A new accounting standard 4 Initial impact 6 Adjustments to profit & loss 7 Key measurement changes 8 Restated financial statements and key metrics 13 Interim Solvency Standard Overview 19 Summary of key changes 20 Changes to FY23 solvency margin 22 Changes to FY23 solvency ratio 23
Slide 3: IFRS 17
IFRS 17 Accounting for insurance contracts 3
Slide 4: A new accounting standard
A new accounting standard NZ IFRS 17 Insurance Contracts (IFRS 17) is a new accounting standard applicable to all insurance companies. Tower is required to comply with IFRS 17 from 1 October 2023. Tower’s HY24 results, to be released in May 2024, will be the first interim reporting period under IFRS
Slide 5: Overview of IFRS 17
Overview of IFRS 17 IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts. It replaces NZ IFRS 4 Insurance contracts (IFRS 4). Objectives of IFRS 17 • To establish consistent accounting principles for all insurance contracts across genera
Slide 6: IFRS 17 initial impact
IFRS 17 initial impact Adopting IFRS 17 reduced shareholders’ equity by $2.7m as at 1 October 2022 317.5m 0.1m (4.8m) 1.1m 314.8m • A transition adjustment has 1.1m (0.2m) been calculated to record the impact of adopting IFRS 17 on opening equity for FY23. • On transition to IFRS 17, at 1 October 20
Slide 7: IFRS 17 adjustments to profit & loss
IFRS 17 adjustments to profit & loss Adopting IFRS 17 reduced the FY23 net loss after tax by $0.2m FY23 HY23 (Net loss after tax for the year ended 30 September 2023) (Net loss after tax for the half year ended 31 March 2023) (0.1m) (1.0m) (1.2m) (0.6m) 0.3m 0.0m (5.1m) (5.1m) (0.1m) 0.5m (0.7m) 0.4
Slide 8: Key measurement changes
Key measurement changes From IFRS 4 to IFRS 17
Slide 9: Risk adjustment
Risk adjustment IFRS 17 risk adjustment replaces IFRS 4 risk margin • The risk adjustment reflects the compensation the insurer requires IFRS 4 IFRS 17 reserves for bearing uncertainty related to timing and amount of cash flows All reserves NZ BAU Pacific CEQ arising from non-financial risks, theref
Slide 10: Discounting
Discounting Discount rate calculation Change in presentation of discounting Risk-free rate (%) + Illiquidity premium (%) IFRS 4 IFRS 17 Insurance service expense1: • Tower has adopted a 'bottom-up' approach to derive Net claims expense1: Present value adjustment on the NZ discount rate. There is a n
Slide 11: Onerous contracts
Onerous contracts The IFRS 17 onerous contracts tests replaces the IFRS 4 liability Onerous contracts calculation adequacy test (LAT) Discounted Unearned Loss claims and • An onerous contract test is performed for groups of insurance premiums less - expense = component contracts where ‘facts and cir
Slide 12: Insurance acquisition cash flows
Insurance acquisition cash flows IFRS 17 IACF replaces the IFRS 4 concept of acquisition Calculation of liability for costs remaining coverage (LRC) Premiums • Tower will defer IACF and recognise them across the received IACF life of the underlying insurance contracts, an approach amortised that is
Slide 13: Restated financial statements and key metrics
Restated financial statements and key metrics
Slide 14: Restated balance sheet
Restated balance sheet Our IFRS 17 balance sheet at 30 September 2023 and 1 October 2022 Restated consolidated balance sheet $ thousands 30-Sep-23 1-Oct-22 • While restated net assets are materially consistent with IFRS 4, the Cash and cash equivalents 64,009 84,502 total assets and total liabilitie
Slide 15: Restated statutory profit & loss
Restated statutory profit & loss Our restated statement of comprehensive income for FY23 and HY23 Restated consolidated statement of comprehensive income $ thousands 30-Sep-23 31-Mar-23 • Insurance revenue is consistent with gross earned premium Insurance revenue 472,611 225,993 under IFRS 4 plus co
Slide 16: Restated underlying profit and loss
Restated underlying profit and loss Our restated IFRS 17 underlying profit and loss for FY23 and HY23 FY23 Restated HY23 Restated $ million underlying profit underlying profit Gross written premium 526.8 245.0 • Net claims expense for large events relates to the large events Insurance revenue 487.6
Slide 17: Changes in key metrics
Changes in key metrics Metric Definition Impact from IFRS 17 adoption The total premiums on insurance, excluding taxes and Gross written premium Gross Written Premium does not exist under IFRS 17 however will levies, underwritten by Tower during the financial reporting (GWP) continue to be provided
Slide 18: Interim Solvency Standard
Interim Solvency Standard 18
Slide 19: Overview of ISS
Overview of ISS The RBNZ has introduced the Interim Solvency Standard 2023 (ISS), which replaces the Non-Life Solvency Standard (NLSS). Tower is required to comply with the ISS under its conditions of licence, from 1 October 2023. The ISS requires quarterly reporting on Tower’s solvency position. To
Slide 20: Summary of key changes
Summary of key changes The ISS introduces new terminology for the solvency measures and some changes to their inputs From the NLSS To the new ISS Calculation under ISS terminology terminology Actual solvency capital Increased due to changes to allowable adjustments and the removal of Solvency capit
Slide 21: Changes in solvency calculations
Changes in solvency calculations Adjusted solvency ratio calculation Non-life solvency Interim solvency • Intangibles and deferred tax assets (DTA) are no longer standard standard considered as a deduction from solvency capital and instead are now included as part of PCR. As a result, solvency ratio
Slide 22: Changes to FY23 solvency margin
Changes to FY23 solvency margin 39.9m (15.0m) • The waterfall shows the changes in reported solvency margin under 79.8m NLSS to the adjusted solvency margin under ISS as at 30 September 2023, for Tower’s parent entity. • The solvency figures are the 53.8m (1.9m) 2.9m mandatory regulatory solvency po
Slide 23: Changes to FY23 solvency ratio
Changes to FY23 solvency ratio 159% (2%) 3% (36%) 26% (11%) 139% • The waterfall shows the changes in reported solvency ratio under NLSS to the adjusted solvency ratio under ISS as at 30 September 2023, for Tower’s parent entity. • The solvency figures are the mandatory regulatory solvency position
Slide 24: Solvency update at 31 December 2023
Solvency update at 31 December 2023 Tower calculates the solvency position on a quarterly basis under the ISS. The table below shows the solvency position for Tower’s parent entity under the NLSS at 30 September 2023, under the ISS at 30 September 2023 and under the ISS at 31 December 2023. From NLS
Slide 25: Appendices
Appendices
Slide 26: Reclassification between balance sheet line items
Reclassification between balance sheet line items The tables to the right show how various IFRS 4 IFRS 17 line items that were reported under IFRS Reported consolidated balance sheet Reported Restated consolidated balance sheet Restated 4 have been reclassified to new line $ thousands 30-Sep-23 $ th
Slide 27: Statutory balance sheet - from IFRS 4 to IFRS 17
Statutory balance sheet - from IFRS 4 to IFRS 17 Restated consolidated balance sheet Reported IFRS 17 IFRS 17 Restated Reported IFRS 17 IFRS 17 Restated $ thousands 30-Sep-23 Reclass Adjustments 30-Sep-23 30-Sep-22 Reclass Adjustments 1-Oct-22 Cash and cash equivalents 64,009 - - 64,009 84,502 - - 8
Slide 28: Reclassification between profit & loss line items
Reclassification between profit & loss line items The tables to IFRS 4 IFRS 17 the right show Reported consolidated statement of comprehensive income Reported Restated consolidated statement of comprehensive income Restated how various line $ thousands 30-Sep-23 $ thousands 30-Sep-23 items that were
Slide 29: Statutory profit & loss - from IFRS 4 to IFRS 17
Statutory profit & loss - from IFRS 4 to IFRS 17 Restated consolidated statement of comprehensive income Reported IFRS 17 IFRS 17 Restated Reported IFRS 17 IFRS 17 Discontinued Restated $ thousands 30-Sep-23 Reclass Adjustments 30-Sep-23 31-Mar-23 Reclass Adjustments Operations 1 31-Mar-23 IFRS 4 un
Slide 30: Reconciliation of changes in underlying NPAT
Reconciliation of changes in underlying NPAT Changes in our profit & loss from IFRS 4 to IFRS 17, for FY23 and HY23 FY23 Reported IFRS 17 FY23 Restated HY23 Reported IFRS 17 HY23 Restated $ million IFRS 17 reclass IFRS 17 reclass underlying profit adjustments underlying profit underlying profit adju
Slide 31: FY23 reconciliation between underlying profit after tax and reported loss after tax
FY23 reconciliation between underlying profit after tax and reported loss after tax FY23 Reclass of Underlying and reported (loss)/profit: Management Reclass of FY23 restated Non-underlying Discontinued reinsurance & $ million expense reinsurance reported underlying items (1) operations (3) other re
Slide 32: HY23 reconciliation between underlying loss after tax and reported loss after tax
HY23 reconciliation between underlying loss after tax and reported loss after tax HY23 Reclass of Underlying and reported (loss)/profit: Management Reclass of HY23 restated Non-underlying Discontinued reinsurance & $ million expense reinsurance reported underlying items (1) operations (3) other reco
Slide 33: Disclaimer
Disclaimer This presentation has been prepared by Tower Limited to provide shareholders with information on Tower’s business. It contains summary information about Tower as at 30 September 2023 and 31 December 2023, and earlier periods, which is general in nature, and does not purport to contain all