Tower Limited HY 18 Results for Announcement to Market

Market Information
NZX Limited
Level 1, NZX Centre
11 Cable Street
Wellington
New Zealand
Company Announcements Office
ASX Limited
Exchange Centre
Level 6, 20 Bridge Street
Sydney NSW 2000
Australia
29 May 2018
Tower Limited
Half Year 2018 Results for Announcement to Market
In accordance with NZSX Listing Rule 10.3.1, I enclose the following for release to
the market in relation to Tower Limited’s (NZX/ASX: TWR) Half Year 2018
Results:
1 Media Release
2 Management Review
3 NZX Appendix 1
4 Financial Statements (including independent review report)
5 Results announcement presentation
Tower’s Chairman Michael Stiassny, Chief Executive Officer Richard Harding and
Chief Financial Officer Jeff Wright will discuss the half year results at 10:00am
New Zealand time today.
ENDS


David Callanan
Company Secretary
Tower Limited
ARBN 088 481 234
Incorporated in New Zealand
For further information, please contact:
Nicholas Meseldzija
Head of Corporate Communications
Phone: +64 21 531 869
Email: nicholas.meseldzija@tower.co.nz

29 May 2018


TOWER’S TRANSFORMATION AGENDA DRIVING STRONG GROWTH


Tower Limited (NZX/ASX:TWR) has today announced that strong growth in Gross Written Premium,
policy numbers and digital sales are evidence that its transformation is well underway.

While significant improvements in key metrics have been achieved, severe and unprecedented
weather along with the settlement of the Peak Re dispute has resulted in Tower reporting a half
year loss of $11.6 million for the half year ended 31 March 2018.

Features of HY 2018:
• Transformation driving strong growth and providing confidence in strategy:
- Growth of core book
 Gross written premium in core book increased 15.6% over HY17
 Growth of 9,634 policies in core book this half
- Claims discipline maintained, despite exceptional weather events
 Claims costs contained at $74.4m, increasing $9.7m compared to HY17
- Management expense ratio decreased
 Management expense ratio decreased to 38.9% compared to 40.8% HY17,
while still investing in the business
• Underlying profit after tax of $7.3 million impacted by severe and unprecedented weather
events across New Zealand and the Pacific
• Reported half year loss of $11.6 million impacted by
- $16.2 million after-tax impact from Peak Re settlement
- $5 million after-tax impact from the weather events in the first half
- Slight adjustment to Canterbury provisions, resulting in a $2.3 million after-tax impact
• Continued positive progress closing Canterbury earthquake claims, with a 46% reduction in
open claims in the 12 months since 31 March 2017

Transformation well underway and decision made to accelerate momentum
Tower’s half year result shows that the business is strong and that its efforts to transform into a
digital challenger brand are driving improved performance.

A focus on customers has delivered continued growth in the core New Zealand portfolio, with
Tower’s simple and easy products and its fairer approach to pricing proving attractive to customers,
driving strong growth and increasing underwriting profit.

Tower Chief Executive Richard Harding is pleased with Tower’s underlying performance and the
continued transformation of the business.

“We are making it easier for customers to purchase insurance from us and the continued
improvement of our online offering has generated a significant increase in sales above industry
averages. While making it easier for our customers, we’re also simplifying our business which is
delivering improved operating performance,” he said.

Mr Harding said that while the reported result is disappointing, finalising the Peak Re dispute
marked a significant step forward in finalising the legacy of the Canterbury earthquakes.

“The strong growth and positive trends we’ve seen this half have been offset by the resolution of
the Peak Re dispute and a number of severe and unprecedented weather events.

“With investment being made in a new IT platform, our focus is now on accelerating the positive
momentum we’ve generated and leveraging the powerful platform we are building for further
growth,” Mr Harding said.


ENDS


Richard Harding
Chief Executive Officer
Tower Limited
ARBN 088 481 234 Incorporated in New Zealand

For media queries, please contact:
Nicholas Meseldzija
Head of Corporate Communications
Mobile: +64 21 531 869
Email: Nicholas.meseldzija@tower.co.nz

1

Tower management review – h alf year to 31 March 2018

Features of half year 2018
• Transformation of core business well underway and driving strong GWP growth of 15.6%
and almost doubling policy growth with 9,634 policies added to the core New Zealand
book in the first half.
• BAU claims costs controlled, and expenses contained against a backdrop of severe and
unprecedented weather
• Continued positive progress closing Canterbury earthquake claims, with a 46% reduction
in open claims in the 12 months since 31 March 2017, and 253 open claims remaining
• Reported half year loss after tax of $11.6 million impacted by:
- $16.2 million after-tax impact from resolution of Peak Re dispute
- $5 million after-tax impact from weather events in first half
- Slight adjustment to Canterbury provisions, resulting in a $2.3 million after-tax
impact
• Underlying profit after tax of $7.3 million impacted by severe and unprecedented
weather events
• Decision made to invest in a new IT platform to accelerate transformation and
momentum and deliver improved results

Full year summary

Tower has strong underlying New Zealand and Pacific businesses with its transformation driving
solid business results.

The potential of the Tower business is now being realised, with strong growth in GWP and
customer numbers, controlled BAU claims costs, and contained expenses, all achieved against
the backdrop of an unprecedented number of large and severe weather events which have
affected the underlying result.

Tower reported a loss after tax of $11.6 million for the six months ended 31 March 2018 (HY18),
compared to a loss of $8.2 million for the six months ended 31 March 2017 (HY17). Tower’s HY18
result was impacted by the settlement of the Peak Re dispute and severe and unprecedented
weather.
Tower delivered an underlying profit after tax of $7.3 million for HY18, a slight decline from $8.1
million in HY17.
The improvements and positive results in the underlying business show Tower’s transformation is
well underway. Thanks to the implementation of risk based pricing and improvements in digital,
Tower added 9,634 policies to its core New Zealand portfolio, seeing GWP for the half grow
15.6% to $111.3 million.

Tower’s claims costs were controlled at $74.4 million despite experiencing the worst year for
weather events in the past 25 years. A continued focus on non-personnel costs saw the
management expense ratio maintained, while still allowing further investment in the business.

2
Tower’s Pacific premium remains stable and in line with the same period in the prior year,
however, underlying profit of $0.2 million has been impacted by large commercial claims and
Cyclone Gita.

Tower continues to make solid progress settling claims in Canterbury, reducing open claims by
70. In September 2017, Tower had 323 property claims remaining. In the intervening 6 months,
the number of open Canterbury Earthquake claims was reduced by 159. However, 66 new claims
from the EQC were received.
Financial performance

The strong growth and positive trends seen in HY18 have been offset by the resolution of the
Peak Re dispute and a number of severe and unprecedented weather events.

Tower’s reported loss of $11.6 million reflects a $16.2 million impact from the Peak Re settlement
and a further $2.3 million after-tax impact due to movements in Canterbury provisions.

Severe and unprecedented storm activity resulted in a $5 million after-tax impact to Tower’s
underlying profit after tax, seeing it decline slightly to $7.3 million, from $8.1 million in the same
period last year.

Despite this, a focus on improving the underlying business enabled Tower to deliver an
underlying result where Gross Written Premium increased to $161 million, a $15.2 million
improvement compared to HY17, management and sales expenses were maintained at $52.1
million and total claims costs were contained at $74.4 million, despite the storm events
experienced in the half.

3


Solvency position

Tower holds significant capital over and above the minimum regulatory requirement.

As at 31 March 2018, following the Peak re settlement and the weather events earlier this year,
Tower Insurance Limited held approximately $75 million of solvency capital, $25 million above
RBNZ requirements, with an additional $39 million cash held in Tower Limited. As at 31 March, the
combination of Tower Insurance Limited’s solvency margin and corporate cash were $64 million
above RBNZ requirements and $114m above Tower Insurance Limited’s minimum solvency
capital requirements, equivalent to 294% of MSC.

Tower’s Board and management team remain strongly committed to paying dividends and the
Board intends to recommence dividends at the 2018 Full Year, subject to financial performance.





Transformation is accelerating momentum

Tower holds a unique position in the New Zealand insurance market, with a solid existing
customer base, yet plenty of room to grow. With a clear strategic plan to continue transforming
and growing the business, the achievements seen to date show that there is a powerful platform
for future growth.

Tower has seen solid improvements in crucial areas:
• Focus on customers has delivered strong policy and GWP growth
• Tight management of claims processes and supplier networks resulted in contained
claims costs, despite experiencing one of the worst years for weather in 25 years
• Management expenses ratio has reduced, while continuing to invest

4

Focus on customers delivers growth

Achievements
• Strong GWP growth of 15.6% in core
1
book, due to a combination of pricing (10.0%) and
volume growth (5.6%)
• Policy growth almost doubled on HY17 in core NZ book
• 39% of new business sales online in March 2018, compared to 24% in March 2017
• New approach to pricing combined with simple and easy products driving impressive
customer growth and improved mix
• Tower Direct retention levels remain steady

Tower’s focus on customers has seen continued growth in its core New Zealand portfolio in
HY18, with 9,634 policies added to the core book and GWP increasing 15.6%.

With Tower’s new product suite fully available online, and continued refinement and optimisation
of the digital sales channels, more customers are quoting and buying insurance from Tower
through their mobile, tablet or computer, delivering a significant uplift in new business sales.

Encouraging existing customers to stay with Tower through targeted retention initiatives and
offerings has seen retention rates solidify at high levels.

This positive result is being achieved through a combination of:
• building and refining Tower’s di gital offering and online sales process
• working harder to attract new customers to Tower, particularly in attractive segments
which are actively targeted
• new products making it easier for Tower’s team to convert sales leads
• tailored, targeted insurance offers available for customers using digital channels

Claims and underwriting update

Achievements
• Implemented risk based pricing
• Numerous product updates, pricing reviews and targeted rate changes across all New
Zealand portfolios
• Supply chain and preferred supplier initiatives minimising expenses
• Introduced a new data store, enabling more accurate monitoring of portfolios

Tower introduced risk-based pricing for earthquake in April, which will provide significant
competitive opportunity in lower risk areas, and deliver fairer, more equitable pricing across all of
New Zealand.

Along with this, Tower is actively managing its portfolio and delivering simple and easy insurance,
which is helping attract the right customers to Tower. This focus on underwriting excellence has
helped control claims costs despite an unprecedented number of weather events.

Recent storms have resulted in large event claims increasing from $2.4 million in the second half
of 2017 to $6.5 million in HY18, after releases from large events in the prior year. Storms have
offset all positive impacts claims initiatives are having, with claims costs contained at $74.4
million.

Claims costs are being closely managed through:
• better risk selection and underwriting processes
• tighter management of end-to-end claims supply chain
• simpler policy wordings enabling customers and claims teams to easily understand
exactly what customers are entitled to
• regular review and improvements to policy wordings, including the capping of meth
benefits and removal of excess refund

5
• continued focus on claims leakage and recoveries

Severe and unprecedented storm events

Weather events
• FY17 was the worst year for weather impacts in 25 years
• Seven months into the full 2018 financial year, weather and storm impacts are already
higher than the full prior year
• Initial estimates of losses for April events is $9.0 million, with the after reinsurance impact
expected to be around $3.8 million before tax
• Tower expects its non-catastrophe aggregate reinsurance programme to be fully utilised
this financial year
• Tower is currently pricing further aggregate reinsurance cover for the remaining 4 months
of the year, to manage further volatility driven by multiple weather events

While Tower’s aggregate reinsurance cover is helping to absorb some of the costs of the recent
storm volatility, the financial impact of the four weather events in HY18 is $7 million before tax.

Tower’s initial estimates indicate that the cost of the April storms will be $9 million, with the
before-tax, and after reinsurance impact, estimated to be around $3.8 million.

The impact of all storms in 2018 already exceeds those of the prior full year, with the total cost
estimated to be $24 million, with reinsurance absorbing $13.2 million.

The unprecedented number and severity of weather events will have implications for insurance
premiums. Increased claims will see reinsurance costs rise, and as a result, will mean premium
increases for customers. Tower is putting in considerable effort and taking all appropriate steps
to preserve capital and reduce any volatility from these short-term weather abnormalities.


Focus on costs

Achievements
• Maintained focus on efficiency and productivity
• Investment made to deliver ongoing and sustainable cost management
• Continued review of existing supplier contracts and close management of all contract
negotiations

Tower has maintained its focus on non-personnel related costs, reducing the management
expense ratio to 38.9% in HY18, compared to 40.8% HY17.

Tower’s efforts have been driven by:
• implementing new performance, development and achievement frameworks that drive
performance, resulting in greater efficiency and productivity
• identifying and reducing expenditure for business and technology support services and
building capability internally

Tower expects expenses will continue to stabilise as simplification programme initiatives are
embedded.










1. Core portfolio is the NZ business and excludes ANZ legacy portfolio

6
Opportunity to drive growth and quality in the Pacific

The underlying Pacific business remains strong and Tower continues to believe that there is
unrealised potential here.

Pacific GWP for HY18 was $27.8 million, reflecting a slight drop on HY17. This slight decrease is
partly due to strengthening of the NZ dollar relative to Pacific currencies.

In core Pacific markets of Fiji, Vanuatu, Samoa and American Samoa, solid growth has been seen.
However, this growth has been offset with GWP in PNG reducing significantly over the past two
years, reflecting a very soft commercial lines market and a desire to reduce Tower’s risk profile
appropriately in the country.

Underlying NPAT of $0.2 million for the first half reflects the impact of Cyclone Gita, a number of
large claims and investment in a new Pacific hub.

Tower’s plan for the Pacific is to leverage the underwriting excellence, data and pricing capability
of the New Zealand business and combine it with the local knowledge and expertise of the
teams in the region.

The Pacific hub will deliver quality and consistency across all Pacific teams with local
underwriting and claims management expertise ensuring that the right controls are in place when
pricing and writing risk, and accepting claims. This will ultimately enable better quality growth
across the region by allowing local branches to do what they do best, service and sell to their
customers.


IT simplification

The key to accelerating Tower’s transformation is a new IT platform that enables the
simplification of products and processes. This will remove complexity for frontline teams and
enable the delivery of a unique and revolutionary customer experience.

Combined with Tower’s push to move 50% of all transactions online, removing complexity from
the business will deliver significant cost savings and productivity gains.

With Tower’s Board having approved investment in a new IT platform, work is now underway to
deliver on a programme of work that will accelerate momentum and enable Tower to rapidly
respond in today’s constantly changing digital landscape.

Tower will be able to combine existing data with that of partners to increase market share by
actively targeting niche customer segments with compelling and appropriately priced
propositions.

Other key benefits to be seen from Tower’s new IT platform include the ability to:
• create and deliver a unique customer experience
• quickly deliver simple, customer focussed products
• target specific, profitable customer segments through granular, and automated
pricing and underwriting
• charge fairer and more accurate premiums through improved access to, and use of,
internal and external data
• easily experiment with products and pricing
• rationalise products and reduce claims costs by improving the customer claims
journey and overall claims management
• significantly reduce our cost base and realise large productivity gains by moving low
value transactions online
• add value through improved employee engagement

7
Tower’s approach to implementing this new IT platform is designed to deliver on a dual purpose
– accelerate transformation and protect and realise shareholder value.

A significant amount of work has already been completed to ensure that this programme of work
will deliver benefits, create no future legacy issues and avoid the pitfalls that many other
organisations face when replacing their core IT platform.

A robust governance approach and clear roadmap forward will enable Tower to commence
selling new business on the new platform in the first half of the 2019 calendar year. Once new
business is live, migration of the existing book can start.


Canterbury update

As has been regularly reiterated by Tower and other industry players, the ongoing legacy of the
Canterbury earthquakes has resulted in significant issues for customers and insurers, with the
receipt of EQC over-cap claims continuing in 2018.

Tower continues to make solid progress settling claims in Canterbury, reducing open claims by
70. In September 2017, Tower had 323 property claims remaining. In the intervening 6 months,
the number of open Canterbury Earthquake claims was reduced by 159. However, 66 new claims
from the EQC were received.
Tower’s outstanding case estimates have almost halved since September 2016. This
demonstrates that solid progress is being made. In addition, the amount of IBNR / IBNER and risk
margin has increased from 60% to 89% of case estimates.



While Tower is making significant progress closing claims, the need for a permanent fix grows
ever more pressing and Tower welcomes the recent government announcement of an enquiry
into EQC as an important first step.

EQC Act reform will assist in ensuring past experience is not repeated and that the pitfalls and
problems associated with the EQC set up and the 2010 model can be avoided. Tower strongly
believes that the Kaikoura model is successful and that any reform of the EQC must include these
changes.








Notes:
1. IBNR / IBNER includes claims handling expenses
2. Ratio of IBNR / IBNER plus risk margin to case estimates

8
EQC receivables

As previously advised, Tower has commenced recovery action against EQC and remains
confident in its position.

It is important to note the differences between the Peak Re outcome and EQC receivables. The
Peak Re dispute was subject to a single issue and binary in nature, meaning there would either be
a 100% recovery or nothing.

The EQC receivables have multiple dimensions, each with alternative courses of action. Tower
estimates total potential recoveries to be significantly higher than the $66.9 million recorded in its
financial statements. The recorded number reflects the discounted actuarial reviewed value.

While Tower has commenced recovery action in regards to one subset of the land dispute with
EQC, resolution of the entire receivable is expected to occur in stages, over a number of years.

In respect to the building component, Tower has commenced discussions with EQC through an
alternative dispute resolution process and continues to apply significant resources to the EQC
recovery programme. Based on legal advice to date, Tower remains confident in its position.


Outlook

Tower is transforming, and the continued improvements seen in the underlying business will
deliver long-term shareholder value. With investment in a new IT platform being made,
momentum will now accelerate.

Tower remains focussed on progressing initiatives that will drive results:
• Delivering what customers want and constantly refining the customer experience
offering to ensure growth continues
• Risk based pricing will enable targeting of profitable customers in low-risk regions
• Continued use of data and customer feedback to improve conversion rates through
our digital channels
• A continued focus on the efficient management of claims and improved business
processes will see the stabilisation of BAU claims costs and management expenses.

This focus will support the achievement of Tower’s medium term targets:
• drive GWP growth of 4 – 6%
• reduce expense ratio to below 35%
• deliver return on equity of 12 – 14% through the cycle

Tower is being transformed and the work underway will deliver significant long-term value.

TOWER LIMITED
Results for announcement to the market

Reporting Period 6 months to 31 March 2018
Previous Reporting
Period
6 months to 31 March 2017

Amount (000s) Percentage change
Revenue from ordinary
activities
$NZ 163,972 5%
Profit (loss) from
ordinary activities after
tax attributable to
security holder
$NZ (11,620) 42%
Net profit (loss)
attributable to security
holders
$NZ (11,535) 37%

Interim/Final Dividend Amount per security Imputed amount per
security
Nil Nil

Record Date Not Applicable
Dividend Payment Date Not Applicable

Comments:
For the six months ended 31 March 2018 Tower
Limited reported a 5% increase in revenue as a
result of policy and premium growth.
Tower Limited reported a net loss attributable to
security holders of $11.6m due to an impairment
charge related to the settlement of a reinsurance
claim and the impact from severe and
unprecedented storm activity

Refer attached 31 March 2018 unaudited Financial Statements for Tower
Limited and its subsidiaries and Presentation for more detailed analysis and
explanation

PricewaterhouseCoopers, 188 Quay Street, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent review report
to the shareholders of Tower Limited

Report on the interim financial statements
We have reviewed the accompanying interim financial statements of Tower Limited (the “Group”) on
pages 2 to 20 which comprise the consolidated balance sheet as at 31 March 2018, and the
consolidated income statement, the consolidated statement of comprehensive income, the
consolidated statement of changes in equity and the consolidated statement of cash flows for the
period ended on that date, and selected explanatory notes.

Directors’ responsibility for the interim financial statements
The Directors are responsible on behalf of the Group for the preparation and presentation of these
interim financial statements in accordance with International Accounting Standard 34 Interim
Financial Reporting (IAS 34) and New Zealand Equivalent to International Accounting Standard 34
Interim Financial Reporting (NZ IAS 34) and for such internal controls as the Directors determine are
necessary to enable the preparation of interim financial statements that are free from material
misstatement, whether due to fraud or error.

Our responsibility
Our responsibility is to express a conclusion on the accompanying interim financial statements based
on our review. We conducted our review in accordance with the New Zealand Standard on Review
Engagements 2410 Review of Financial Statements Performed by the Independent Auditor of the
Entity (NZ SRE 2410). NZ SRE 2410 requires us to conclude whether anything has come to our
attention that causes us to believe that the interim financial statements, taken as a whole, are not
prepared in all material respects, in accordance with IAS 34 and NZ IAS 34. As the auditors of the
Company, NZ SRE 2410 requires that we comply with the ethical requirements relevant to the audit of
the annual financial statements.

A review of interim financial statements in accordance with NZ SRE 2410 is a limited assurance
engagement. The auditor performs procedures, primarily consisting of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying analytical and other review
procedures. The procedures performed in a review are substantially less than those performed in an
audit conducted in accordance with International Standards on Auditing (New Zealand) and
International Standards on Auditing. Accordingly, we do not express an audit opinion on these interim
financial statements.
We are independent of the Group. Our firm carries out other services for the Group in the areas of
solvency return assurance and agreed upon procedures. In addition, certain partners and employees of
our firm may deal with the Group on normal terms within the ordinary course of trading activities of
the Group. These matters have not impaired our independence. We have no other interests in the
Group.

Conclusion
Based on our review, nothing has come to our attention that causes us to believe that these interim
financial statements of the Group are not prepared, in all material respects, in accordance with IAS 34
and NZ IAS 34.

Who we report to
This report is made solely to Tower Limited’s shareholders, as a body. Our review work has been
undertaken so that we might state to the Tower Limited’s shareholders those matters, which we are
required to state to them in our review report and for no other purpose. To the fullest extent permitted
by law, we do not accept or assume responsibility to anyone other than the shareholders, as a body, for
our review procedures, for this report, or for the conclusion we have formed.

For and on behalf of:



Chartered Accountants Auckland
29 May 2018

2018 half year results
Tower Limited investor presentation29 May 2018

IntroductionMichael StiassnyChairman

Strong underlying performance through GWP growth and cost discipline•
Significant improvements achieved in
policy and premium growth, claims
control and management expense ratio
•
Half year result impacted by one-offs: Pe
ak Re settlement and
severe weather events
Transformation of iconic
NZ brand well underway
•
Challenger brand positioning already de
livering community and business benefits
•
Decision made to invest in transf
ormation to accelerate trajectory
Solid capital base and commitment
to efficient capital management
•
Tower’s Board and management team remain
strongly committed to paying dividends
•
The Board intends to recommence dividends at the 20
18 Full Year, subject to financial performance
Transformation is driving growth
3

Overview of To w e r
First half performance overviewRichard HardingChief Executive Officer

Delivering strong underlying performance
5
Strong growth offset by unprecedented frequency and severity of weather events
Key metrics
H1 18
H1 17
To t a l G W P
$161.0m
$145.8m
GWP growth in core NZ portfolio
1
15.6%
2.4%
Growth in policies in core NZ portfolio
1
9,634
4,949
Claims expenses
$74.4m
$64.7m
Claims expense ratio
55.5%
51.0%
Claims expense ratio exc. severe weather
50.6%
47.0%
Management expense ratio
38.9%
40.8%
Underlying profit after tax
2
$7.3m
$8.1m
Reported loss after tax
3
$11.6m
$8.2m
Open Canterbury earthquake claims
253
474
1.
Core portfolio is the NZ business and excludes ANZ legacy portfolio
2.
“Underlying profit” does not have a standardised meaning prescr
ibed by Generally Accepted Acco
unting Practice (GAAP) and may
not be comparable to similar measures presented by other entities. While
Tower has applied a consistent approach to measuring underlying profit in the current and comparative periods, it is not subjec
t to audit or independent review. Tower
uses underlying profit as an internal
reporting measure as management believes it provides a better me
asure of Tower’s underlying perfor
mance than reported profit, a
s it excludes large or non-recurring it
ems that may obscure trends in the
underlying performance of the Tower group. Tower considers that
underlying profit is useful to investors as it makes it easier
to compare the underlying financial performance of Tower between periods.
3.
“Reported loss after tax” is calculated and presented in accord
ance with GAAP and is taken fr
om Tower Limited’s unaudited int
erim financial statements for the
half-year ended 31 March 2018.
ACHIEVEMENTS
Strong GWP growth of 15.6% achieved in core NZ portfolio

Maintained claims discipline despite exceptional weather events

Management expense ratio improvement

New approach to pricing implemented

46% reduction in open Canterbury earthquake claims in the 12 months since 31 March 2017

ACHIEVEMENTS
Strong GWP growth of 15.6% in core book, due to a combination of pricing (10.0%) and volume growth (5.6%)

Policy growth almost doubled on
first half of FY17 in core
NZ book

New approach to pricing comb
ined with simple and easy
products driving impressive customer growth and improved mix

Tower Direct retention levels remaining steady
INVESTMENT WILL ACCELERATE TRAJECTORY•
Unique customer experience
•
Leverage new and existing partnerships to drive retention
•
Innovative new offerings delivered through partners
Focus on customers leads to growth
Core book growing as a result of digital growth and strong retention
CORE
1
NEW
 
ZEALAND
 
GWP
 
GROWTH
6
1.
Core portfolio is the NZ business and excludes ANZ legacy portfolio
POLICY
 
GROWTH
 
IN
 
CORE
1
NEW
 
ZEALAND
 
PORTFOLIO
1,285
 
1,224
 
4,949
 
7,492
 
9,634
 
H1
 
16
H2
 
16
H1
 
17
H2
 
17
H1
 
18
Core
 
Policy
 
Movement
93.9
107.2
96.2
116.6
111.3
1.6%
2.1%
2.4%
8.7%
15.6%
H1
 
16
H2
 
16
H1
 
17
H2
 
17
H1
 
18
60.080.0100.0120.0140.0160.0
Core
 
GWP
 
($m)
GWP
 
growth
 
%
 
on
 
same
 
period
 
last
 
year
1

$4.9m
$4.4m
$1.1m
$1.7m
$2.1m
$2.9m
$3.3m
Jul-Sep16 Oct-Dec16 Jan-Mar17 Apr-J
un17 Jul-Sep17 Oct-Dec17 Jan-Mar18
Trade Me Insurance
Tower Digital
ACHIEVEMENTS
39% of new business sales online
in March 2018, compared to
24% in March 2017

Tailored, targeted insurance o
ffers available for customers
using digital channels

Trade Me Insurance platform
continues to contribute to
positive result
INVESTMENT WILL ACCELERATE TRAJECTORY•
Online conversion rate op
timisation and improvement
•
Digital self-service, policy management and claims lodgement
Digital: a stand-out performer
Continued focus on digital capability and partnerships sees growth above industry norms achieved
7
QUARTERLY NEW BUSINESS GWP
- DIGITAL CHANNELS
New Tower direct
digital platform
launched
CAGR = 171%

Claims and underwriting updateImprovements in pricing and underwriting
is controlling claims costs despite
industry wide inflation and severe weather
8
ACHIEVEMENTS
New approach to weather events helps set things right for customers faster and more efficiently

New approach to pricing enabli
ng targeted underwriting and
risk attraction

Supply chain and preferred su
pplier initiatives continue
delivering savings
INVESTMENT WILL ACCELERATE TRAJECTORY•
Sophisticated pricing and underwriti
ng to offset claims inflation
and improve long-term profitability
•
Advanced rating algorithms and address based pricing
•
Improved supply chain management and focus on fraud and claims leakage
TOWER CLAIMS EXPENSES ($m)
Note: Claims costs includes BAU and large storm events, but excludes Christchurch and Kaikoura movements
62.9
61.0
59.6
64.6
67.9
3.3
0.5
5.1
2.4
6.5
50%
48%
47%
50%
51%
52%
48%
51%
51%
55%
30%35%40%45%50%55%60%
35.0
45.0
55.0
65.0
75.0
85.0
95.0
H1 16
H2 16
H1 17
H2 17
H1 18
BAU Claims
Large Events
Loss Ratio excl Large Events
Loss Ratio

Severe weather and storm eventsUnprecedented frequency and severity of large weather events have resulted in impacts that already exceed full 2017 financial year
WEATHER EVENTS•
FY17 was the worst year for weather impacts in 25 years and seven months into FY18, weathe
r and storm impacts are already
higher than the full prior year
•
Industry experts reporting that
these weather conditions are
one-off
•
Initial estimates of losses for Ap
ril events is $9.0m, with a
before-tax, and after reinsurance
impact, expected to be around
$3.8 million
•
Tower expects its non-catastrophe aggregate reinsurance programme to be fully utilised this financial year
•
Tower is currently pricing furt
her aggregate reinsurance cover
for the remaining 4 months of
the year, to manage further
volatility driven by multiple weather events
9
Event
Date
Incurred
to Date
Ultimate
Estimate +
Risk Margin
Estimated
Reinsurance
Recoveries
Estimated
Impact Net
of
Reinsurance
H1 18 EventsNZ - New Year Storm
Jan-18
$1.4m
$1.8m
-
$1.8m
NZ - Ex-Cyclone Fehi
Feb-18
$2.6m
$3.7m
-
$3.7m
Pacific -Cyclone Gita
Feb-18
$4.0m
$7.7m
$6.2m
$1.5m
NZ - Ex-Cyclone Gita
Feb-18
$1.1m
$1.8m
$1.8m
-
Total Storms
$9.1m
$15.0m
$8.0m
$7.0m
H2 18 Events – impact not included in reported loss to 31 March 2018Auckland Storm Apr-18
N/a
$7.2m
$5.0m
$2.2m
North Island Storm
Apr-18
N/a
$1.8m
$0.2m
$1.6m
Note: Estimated reinsurance recoveri
es includes amounts received under
aggregate and proportional treaties

Underwriting profit growingTransformation is driving improved underwriting profit
10
NZ UNDERLYING PROFIT TREND
(NZ$m)
•
Underwriting profit increased $2.3m vs. H1 17, before tax and excluding large loss events
•
Improvements reflect:
•
new approach to pricing
•
actively targeting profitable market segments
•
better control of claims costs
5.4
9.3
10.4
10.2
12.7
(5.1)
(2.4)
(5.2)
3.2
2.5
1.9
2.6
2.9
H1 16
H2 16
H1 17
H2 17
H1 18
Investment income less financing costsLarge loss eventsUnderwriting profit, excl
uding large loss events

Focus on costsCost saving initiatives deli
vering sustainable cost base
11
ACHIEVEMENTS
Maintained focus on efficiency and productivity

Investment made to deliver
ongoing and sustainable cost
management

Continued review of existing supplier contracts and close management of all contract negotiations
INVESTMENT WILL ACCELERATE TRAJECTORY•
IT simplification will deliver s
ignificant productivity gains and
step-change in expense reduction
•
In shorter term, additional spend
is required for legacy system
stabilisation and changing compliance requirements
MANAGEMENT EXPENSE
Note: Management expenses include
commission cost, depreciation and
amortisation and excludes corporate transaction costs.
53.6
 
52.8
 
51.8
 
50.6
 
52.1
 
42.2%
41.6%
40.8%
38.9%
38.9%
30.0%32.0%34.0%36.0%38.0%40.0%42.0%
 
45.0
 
47.0
 
49.0
 
51.0
 
53.0
 
55.0
 
57.0
 
59.0
H1
 
16
H2
 
16
H1
 
17
H2
 
17
H1
 
18
Management
 
Expenses
Expense
 
Ratio

Financial performanceJeff WrightChief Financial Officer

Financial performanceBusiness turnaround well underway, as evidenced by strong growth and contained expenses
GROUP PROFIT SUMMARY
(NZ$m)
13
•
Significant growth in GWP of $15.2m
•
Underlying profit of $7.3m after tax, was affected by severe and unprecedented storm activity
− A $15.0m gross loss due to storms was
reduced to $7.0m by reinsurance
•
Reported loss of $11.6m after tax driven by

$16.2m after-tax impact from resolution of Peak Re dispute
•
Canterbury provisions continue to stabilise with $2.3m impact in first half
$ million
H1 18
H1 17
Gross written premium
161.0
145.8
Gross earned premium
159.6
150.5
Reinsurance costs
(25.5)
(23.8)
Net earned premium
134.1
126.8
Net claims expense
(67.9)
(59.6)
Large events
(6.5)
(5.1)
Management and sales expenses
(52.1)
(51.8)
Underwriting profit
7.6
10.4
Investment revenue and other revenue
3.8
2.4
Financing costs
(0.4)
(0.2)
Underlying profit before tax
11.0
12.6
Income tax expense
(3.7)
(4.5)
Underlying profit after tax
7.3
8.1
PeakRe settlement
(16.2)
0.0
Christchurch impact
(2.3)
(9.8)
Kaikoura impact
0.5
(7.2)
Corporate transaction costs
(0.2)
(1.0)
Revaluation of PacificRe
(0.7)
0.0
Business in runoff
0.0
1.7
Reported loss after tax
(11.6)
(8.2)
Key ratiosLoss ratio
55.5%
51.0%
Expense ratio
38.9%
40.8%
Combined ratio
94.3%
91.8%

•
Net earned premium higher due to growth in core book and new approach to pricing
•
Improved investment income a result of increased balances
•
Management expenses continue to be contained
•
Increase in net incurred claims reflective of severe weather, a number of large house fires and large claims in the Pacific
Movement in underlying profitGrowth in premiums and stable management expenses offset by weather events and large claims in the Pacific
14
MOVEMENT IN UNDERLYING PROFIT BEFORE TAX
(NZ$m)
12.6
11.0
7.4
1.4
0.3
0.4
1.5
8.3
H1
 
17
 
Underlying
profit
 
before
 
tax
Net
 
earned
premium
Investment
income
 
and
 
other
revenue
Financing
 
costs Management
expenses
Large
 
event
 
claims Net
 
incurred
claims
H1
 
18
 
Underlying
profit
 
before
 
tax

Premium remains stable across PacificPacific business impacted by larg
e commercial claims and Cyclone Gita
PACIFIC PROFIT SUMMARY
(NZ$m)
15
$ million
H1 18
H1 17
Gross written premium
27.8
28.3
Gross earned premium
28.1
28.4
Reinsurance costs
(7.5)
(7.6)
Net earned premium
20.7
20.8
Net claims expense
(9.8)
(7.0)
Large events
(1.3)
0.0
Management and sales expenses
(8.7)
(7.4)
Underwriting profit
0.9
6.4
Investment revenue
and other revenue
0.4
0.3
Underlying profit before tax
1.3
6.7
Income tax expense
(1.0)
(2.3)
Underlying profit after tax
0.2
4.4
•
Growth in Fiji and Vanuatu offset by softening market and tightened approach to risk in Papua New Guinea
H1 FY18H1 FY17H1 FY16
•
Underlying result reflects
changing country mix, a
number of large claims, Cy
clone Gita, and investment
in a new Pacific hub
MIX OF PACIFIC REVENUE – TOP FOUR
COUNTRIES
29%
32%
34%
30%
26%
24%
14%
14%
14%
5%
6%
8%
1H16
1H17
1H18
FijiPapua New GuineaAmerican SamoaVanuatu

Canterbury updateSolid progress continues to be made towards finalising Canterbury earthquake legacy
16
Notes:1.
IBNR / IBNER includes claims handling expenses
2.
Ratio of IBNR / IBNER plus risk margin to case estimates
3.
Protocol 1 claims are where EQC are managing
repairs yet the total cost
is over the EQC cap.
MOVEMENT IN PROPERTIES
•
Gross ultimate claims increased $0.7m
•
Case estimates almost halved
and risk margin significantly
increased since September 2016
•
Number of open Canterbury Ea
rthquake claims reduced by 70
•
253 claims remain open

51 claims currently under litigation

35 “Protocol 1” claims
3

167
claims moving towards settlement
•
Decision made to close Christch
urch office at conclusion of
Canterbury Earthquake recovery programme
RESERVING UPDATE
(NZ$m)
Mar
‐
18
%
 
of
 
case
 
estimates
2
Sep
‐
17
%
 
of
 
case
 
estimates
2
Mar
‐
17
%
 
of
 
case
 
estimates
2
Sep
‐
16
%
 
of
 
case
 
estimates
2
Case
 
estimates
48.0
58.9
73.9
93.2
IBNR/IBNER
1
22.0
34.4
47.4
44.0
Risk
 
margin
10.8
13.9
18.2
11.9
Additional
 
risk
 
margin
10.0
10.0
‐‐
Combined
 
IBNR/IBNER/risk
 
margin
42.8 89%
58.3
99%
65.6
89%
55.9
60%
Gross
 
outstanding
 
claims
90.8
117.2
139.5
149.1
323
253
66
23
159
Open properties
30 September
2017
New properties
Reopened
Closed
Open properties 31
March 2018

EQC receivablesTower continues to progress recovery programme and remains confident in its position
17
•
EQC receivables are fundamentally di
fferent to Peak Re, which was a
single issue with a binary outcome
and recorded at 100% in financial
statements
•
EQC receivables has multiple dimens
ions, with alternative causes of
action
•
The value of EQC receivables record
ed in financial statements is
actuarially valued at $66.9m, signific
antly less than Tower’s estimates of
the total amount due
•
If $66.9m is received from EQC, $1
8.5m will be payable to reinsurers
•
Resolution is unlikely to be a single event and will possibly occur over a number of years
•
Proceedings against EQC have been issu
ed in regards to a subset of land
claims, with a court hearin
g expected in early 2019
•
Tower continues applying significan
t resources to the EQC recovery
program and based on legal advice
to date remains confident in its
position
LAND $13.5M
BUILDING $53.4M
COMPONENTS
•
Land remediation
•
Foundation repair
PROGRESS
•
Recovery action commenced on a subset of land
•
Further litigation expectedRECOVERY
OPTIONS
•
Litigation
•
Negotiated settlement
COMPONENTS
•
Apportionment of EQC liability for a variety of case types
PROGRESS
•
Significant resources dedicated to building recovery programme
•
Discussions with EQC commenced and Alternative Dispute Resolution (ADR) process commenced
•
Litigation will be pursued if outcome is not reached through ADR
RECOVERY OPTIONS
•
Alternative dispute resolution
•
Negotiated settlement
•
Litigation

Strong capital and solvency positionCapital base allows investment in transformation
18
TOWER INSURANCE LIMITED SOLVENCY POSITION
PLUS CORPORATE CASH
($m)
CAPITAL RAISE COMPLETED•
Capital raise successfully completed with over 88% of shareholders taking up rights
•
Strong capital base allows investment in future and acceleration of transformati
on into a challenger brand
STRONG CAPITAL POSITION•
$75m of solvency margin held in
Tower Insurance Limited (TIL);
$25m above RBNZ requirements
•
Additional $39m of cash held in Tower Limited’s corporate entities
•
As at 31 March, the combinatio
n of TIL’s solvency margin and
corporate cash were $114m ab
ove TIL’s minimum solvency
capital, equivalent to 294% of MSC
-30
61
60
59
50
50
50
38
47
25
1
39
39
As at Sep-
17
Post
capital
raise as at
Dec-17
As at Mar-
18
Net cash held in corporateTIL's solvency margin aboveRBNZ minimumTIL's RBNZ minimumsolvency marginTIL's MSCBNZ facility (drawndown)
300%200%
180%
100%

FY18 outlook
Strategy and outlookRichard HardingChief Executive Officer

Clear strategic plan to grow Tower as the leading digital challenger brand
20
To achieve high performanc
e, investment is required
Challenger culture, capability,
and leadership
Personalised price,
cover, and service
Power to choose when and
how to pay
Innovative leadership (i.e.
instant claims)
Community of loyalists
and vocal advocates
Challengerbrand
Product and price
transparency
Claims process
efficiency
Underwriting refinement and
capability build
Simplification of
policies and processes
IT refresh, security, and
regulatory requirements
Traditionalinsurance
Digitaldistribution
Customerexperience
Sophisticated pricing and risk
understanding
Simple and easy underwriting
and claims experiences
Automation and technology
to accelerate claims
Predictive modelling and data
analytics
Setting it right at the moment
of truth
Digital self-service and
engagement tools
Partnerships through extended
ecosystem
Data-driven insights for risk
and decision-making
Product and underwriting
experimentation
Pacific operating
model & growth plan
Solid foundations in place

Transformation is accelerating momentum
21

Simple, customer focussed products

Easy product experimentation and development

Granular, automated pricing and underwriting

Improved access and use of internal and external data

Improved claims management

Significant operational effi
ciencies and reduced costs

Highly engaged employee group
SIGNIFICANT BENEFITS
Challenger brand delivering:•
GWP growth of 4 – 6%
•
Expense ratio <35%
•
ROE of 12 – 14% through the cycle
MEDIUM TERM TARGETS
Transforming all aspects of our business is delivering improved results and creating a unique offering for customers

IT simplification enables transformationDecision made to invest $33.5m to accelerate transformation, with amortisation in line with current levels
22
ADDITIONAL OPERATIONAL INVESTMENT – APPROXIMATELY $3.5m
Improved business processes and systems delivering significant efficiencies and enabling dynamic and flexible workforce

Simpler, improved customer communications management system to support and enhance unique experience
NEW CORE PLATFORM – APPROXIMATELY $24m
Flexible, modern, integrated core insurance
platform that will deliver the capability
to drive and accelerate change

New business to go live on new platform in
first half of 2019 calendar year, with
product rationalisation and customer migration in the following 12 months

Platform will allow improved use of internal and external data, enabling targeted and granular pricing
DIGITAL TRANSFORMATION – APPROXIMATELY $6m
Full digital integration will enable a truly self service, omni-channel offering for customers

Online claims lodgement, tracking and
management will revolutionise the way
customers manage their claim

Ability to offer specialised and targeted offe
rs to highly profitable customer segments
based on individual needs and wants
1
2
3
$0m
$2m
$4m
$6m
$8m
FY17
FY18
FY19
FY20
Amortisation outlook
IT Simplification
Other capitalised software

Implementation planStaged implementation to protect and enhance value
23
FY18
FY19
Current progress
Scoping
Roadmap
Getting ready to launch
Mobilisation
Delivering the new platformRealisingbenefits
Configuration of platform
Digital integration and developmentProduct rationalisation
Customer migration (12 months) Improved pricing and rating (ongoing)Full omni-channel service (ongoing)
New business on sale

Driving growth and quality in the PacificA new operating model to better meet the needs of our customers, drive sales growth and realise potential
•
NZ based manufacturer to leverage underwriting, data and pricing capability and experience
•
Local distribution teams to maximise individual relationsh
ips and local area
knowledge
•
Centralised Pacific hub to process high volume transactions enabling local teams to focus on growth and retention initiatives
•
Improved underwriting, compliance, pricing and product optimisation will ensure long-term sustainability
24

Tower outlook for FY18
25
Accelerate brand transformation and develop unique customer experience
•
Ongoing development and delivery of unique customer value proposition
•
Brand transformation activity to enable Tower’s transition into challenger brand territory
•
Continued improvement of digital channels to improve acquisition and conversion
Expect continuing gross written premium growth in NZ core book
•
Risk based pricing will deliver equitable pricing and continue driving growth
•
Current marketing activity resu
lting in strong lead enquiry
•
Positive momentum in digital distribution channel
•
Continued pricing and product refinement to offs
et claims inflation and improve profitability
Claims expenses to be controlled
•
Industry wide claims inflation expected to be offset
by product updates, targeted rate/pricing changes and
supply chain initiatives
•
Aggregate reinsurance cover fully utilised.
•
Tower is currently pricing further aggregate reinsuranc
e cover for the remaining 4 months of the year, to
manage further volatility driven by multiple weather events
Management expenses maintained
•
Maintain current expense level
•
Investment is being made to deliver IT change and growth
Pacific offers significant potential
•
New operating model to improve risk management an
d underwriting discipline in key Pacific markets
•
Repricing of portfolios to improve profitability
Investment in simplification will accelerate improvements in FY19 and beyond
•
Significant management focus will go into IT
simplification and EIS implementation in FY18
•
Step-change in expense reduction and productivity ga
ins to be realised following implementation of new
technology systems which is expected to yield benefits from FY19

Appendices

New Zealand business improvingImprovements in key focus areas offset by storm activity and large events
NEW ZEALAND PROFIT SUMMARY
(NZ$m)
•
Improvements in underlying business offset by natural events
•
Increase in GWP on back of new pricing approach, customer growth and retention initiatives
•
Claims costs increase due to unusually large number of weather events and industry wide inflation
•
Management expenses contained
27
$ million
H1 18
H1 17
Gross written premium
133.2
117.5
Gross earned premium
131.5
122.2
Reinsurance costs
(18.0)
(16.2)
Net earned premium
113.5
106.0
Net claims expense
(58.0)
(52.6)
Large events
(5.2)
(5.1)
Management and sales expenses
(42.8)
(42.9)
Underwriting profit
7.5
5.3
Investment revenue
and other revenue
2.9
1.9
Underlying profit before tax
10.4
7.3
Income tax expense
(2.8)
(2.6)
Underlying profit after tax
7.6
4.7

Balance sheetTo w e r G r o u p
28
$ million
31 March 18 30 September 17
Movement $ Movement %
Cash & call deposits
142.6
102.9
39.8
38.6%
Investment assets
157.3
167.9
(10.7)
(6.4%)
Deferred acquisition costs
21.2
21.0
0.2
1.1%
Intangible assets
31.6
31.3
0.2
0.8%
Other operational assets
310.3
334.1
(23.8)
(7.1%)
Total assets
662.9
657.2
5.7
0.9%
Policy liabilities & insurance provisions
320.2
336.0
(15.8)
(4.7%)
External debt
0.0
29.9
(29.9)
100.0%
Other operational liabilities
74.7
75.5
(0.8)
(1.0%)
Total liabilities
394.9
441.4
(46.5)
(10.5%)
Total equity
268.0
215.7
52.3
24.2%

Reconciliation between underlying profit after tax and net profit after tax
29
1.
Non-underlying items are shown separately
in Tower’s management report
ing, yet included within ‘n
et claims expense’, ‘managem
ent and sales expenses’ and ‘tax expense’
(depending on the nature of the item) in
the financial statements.
2.
In Tower’s management reportin
g, claims handling expenses are reported within
‘management and sales expenses’. In the financia
l statements, claims handling expenses ar
e reclassified to ‘net claims expense’.
3.
Certain items of revenue are netted off ‘management and sales expe
nses’ in Tower’s management reporting, and are reclassified
to ‘other revenue’ in the financial statem
ents. This primarily re
lates to commission
received by Tower.

4
3
1
5
22
2
1
4
44
7
2
3
4
Event 1
Event 2
Event 3
Event 4
Event 5
Event 6
Contribute to excess (Tower cost)
Covered by aggregate
Above coverage (Tower cost)
Reinsurance structure overview
STRUCTURE OVERVIEW (per event)
AGGREGATE COVER OVERVIEW FOR FY18
Aggregate –
$5m per
event (non
earthquake)
Event Size
Catastrophe
Cover
(including
earthquakes)
$10m excess
$790m limit
$10m
$790m
•
Minimum event size of $1m to qualify, max of $5m per event coverage
•
$10m cover once $7m excess filled
•
No coverage for earthquake in New Zealand
Excess of $7m -
Tower cost
Max coverage of
$5m per event
$10m coverage
exceeded
$5m
The excess on the aggregate cover has increased to $7m and the limit on catastrophe cover increased to $790m
30

This presentation has been prepared by Tower Limited to provide
shareholders with information on
Tower’s business. This documen
t is part of, and should be read in
conjunction with an oral briefing to be given by Tower.
A copy of the webcast of the briefing is available at
http://www.tower.co.nz/investor-centre/
It contains summary
information about Tower as at 31 March 2018, which is general in
nature, and does not purport to contain all information a pros
pective investor should consider when evaluating
an investment. It is not an offer or invitation to buy Tower sh
ares. Investors must rely on th
eir own enquiries and seek approp
riate professional advice in relation to the
information and statements in relation to
the proposed prospects, business and operatio
ns of Tower. The data contained in this
document is for illustrative purposes only. Past
performance is not a guarantee of future performance and must not
be relied on as such. The info
rmation in this presentation do
es not constitute financial advice.
Forward looking statementsThis document contains certain forward-looking statements. Such st
atements relate to events and
depend on circumstances that wi
ll occur in the future and are subject to
risks, uncertainties and assumptions. There are a number of fact
ors which could cause actual results and developments to differ
materially from those expressed or implied by
such forward-looking statements, including,
among others: the enactment of legislation or
regulation that may impose costs or r
estrict activities; the re-negotiation of contracts;
fluctuations in demand and pricing in the industry; fluctuations
in exchange controls; changes in government policy and taxatio
n; industrial disputes; and war and terrorism.
These forward-looking statements speak only
as at the date of this document. Solvency estimates contained herein are yet to be
reviewed by the Reserve Bank of New
Zealand.DisclaimerNeither Tower nor any of its advisers or any of their respective
affiliates, related bodies corporate, directors, officers, par
tners, employees and agents (other persons) makes any
representation or warranty as to the currenc
y, accuracy, reliability or completeness of
information in this presentation. To th
e maximum extent permitted by law, Tower and the
other persons expressly disclaim any liability incurred as a result
of the information in this Presentation being inaccurate or
incomplete in any way. The statements made in this
presentation are made only as at the date
of this presentation. The accuracy of the
information in this presentation remains su
bject to change without notice.
Disclaimer
31