Tower Limited FY20 Results Announcement to Market

25 November 2020

Tower Limited
FY20 Full Year Results for Announcement to Market
In accordance with NZX Listing Rule 3.5.1 we enclose the following for release to
the market in relation to Tower Limited’s (NZX/ASX: TWR) FY20 Full Year
Results:
1 Media Release
2 NZX Appendix 2
3 Financial Statements (including Independent Auditor’s
Report)
4 Results Announcement Presentation
5 Results Announcement Call Script
Tower’s Chairman Michael Stiassny, Chief Executive Officer Blair Turnbull and
Chief Financial Officer Jeff Wright will discuss the full year results at 10:00am
New Zealand time today.
Tower’s Board confirms for the purposes of ASX Listing Rule 1.15.3 that Tower
continues to comply with the NZX Main Board Listing Rules.

ENDS

Authorised by the Board.

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

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

25 November 2020

Digital and data delivers strong customer and profit growth for Tower

Kiwi insurer Tower Limited (NZX/ASX:TWR) today announced underlying profit excluding large events
increased 23% on the prior year to $34.7m, underlying profit including large events increased 3% on the
prior year to $28.4 million, passing the top end of its guidance.

Tower’s reported profit of $12.3 million, includes the $9.5 million impact from the recently announced EQC
settlement of $42.1 million. Tower will receive $42.1m after disbursement to reinsurers and cost which
amounts to 76% of the gross carrying value listed in Tower’s accounts.

Tower’s investment in digital and data has helped the company grow GWP 8% to $385 million and increase
customer numbers by 11% to 300,000.

Tower CEO Blair Turnbull, who joined the company in August 2020, says the company’s digital and data
strategy is a game changer and is laying the groundwork to fundamentally transform how we deliver
insurance in New Zealand and the Pacific.

“New Zealand and the South Pacific are beautiful locations, but there’s no doubt we face a few natural
perils, like earthquakes and cyclones, which is why insurance is so important” says Turnbull.

“As an insurer it’s our job to help get customers back on their feet and the recent flooding in Napier and fires
in Lake Ōhau demonstrate the importance of the role we play in communities. But we want to do more than
just help customers when they need to claim, we want to support them to avoid accidents.

“We have a significant amount of data and we’re investing in innovations that will help customers
understand risk, create safer driving habits and get customers to see insurance as a valued part of their life.”

Turnbull says that as well as deepening customer relationships, digitisation will continue simplifying
insurance and deliver efficiencies.

“Digitisation allows Tower to reach customers in new and exciting ways. As a result of our simplified online
processes, two-thirds of new business is now coming through online channels and close to half of all claims
are being logged online. Less than a year ago we launched MyTower, a fully online sales and service portal,
and since then we’ve had over 50,000 people register. It’s this type of innovation that will set us apart,” says
Turnbull.

“To help accelerate our digital and data progress, we’ve entered new partnerships with the likes of the
University of Auckland’s Science Faculty, Ushur in the US, Amodo in Croatia, as well as existing partners such
as Corelogic.

“Digital and data also allows us to reduce our operating ratios, by giving us the tools and insights we need to
manage our claims expenses closely. Tower improved its loss ratio from 48% to 46% in FY20 which
demonstrates our ability to grow the business while managing claims effectively and without a significant
increase in our cost base.

“Following the recent settlement with the EQC, our strong capital base has been further
strengthened and we are well placed to accelerate. Our competitors should be left in no doubt
that we are here to compete and show Kiwis they can expect more from their insurer.”

ENDS

Results for announcement to the market
Name of issuer Tower Limited
Reporting Period 12 months to 30 September 2020
Previous Reporting Period 12 months to 30 September 2019
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$410,818 10%
Total Revenue $410,818 10%
Net profit/(loss) from
continuing operations
$11,892 -28%
Total net profit/(loss) $11,892 -28%
Interim/Final Dividend
Amount per Quoted Equity
Security
No dividend has been proposed
Imputed amount per Quoted
Equity Security
N/A
Record Date N/A
Dividend Payment Date N/A
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.56 $0.56
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Revenues increased 10% year-on-year due to the purchase of
Youi’s New Zealand portfolio and organic growth in the New
Zealand business.
Net profit reduced by 28% year-on-year due to impairment of EQC
receivable based on the settlement agreed on the 24
th
of
November.
Authority for this announcement
Name of person

authorised
to make this announcement
Rachael Watene, Company Secretary
Contact person for this
announcement
Nicholas Meseldzija, Head of Corporate Communications
Contact phone number +64 21 531 869
Contact email address nicholas.meseldzija@tower.co.nz
Date of release through MAP

25 November 2020

Audited financial statements accompany this announcement.

PricewaterhouseCoopers, 15 Customs Street West, Private Bag 92162, Auckland 1142, New Zealand
T: +64 9 355 8000, F: +64 9 355 8001, pwc.co.nz
Independent auditor’s report
To the shareholders of Tower Limited
We have audited the consolidated financial statements which comprise:
● the consolidated balance sheet as at 30 September 2020;
● the consolidated statement of comprehensive income for the year then ended;
● the consolidated statement of changes in equity for the year then ended;
● the consolidated statement of cash flows for the year then ended; and
● the notes to the consolidated financial statements, which include a summary of significant
accounting policies.

Our opinion
In our opinion, the accompanying consolidated financial statements of Tower Limited (the Company),
including its subsidiaries (the Group), present fairly, in all material respects, the financial position of
the Group as at 30 September 2020, its financial performance and its cash flows for the year then
ended in accordance with New Zealand Equivalents to International Financial Reporting Standards
(NZ IFRS) and International Financial Reporting Standards (IFRS).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs
(NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the consolidated financial
statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
We are independent of the Group in accordance with Professional and Ethical Standard 1
International Code of Ethics for Assurance Practitioners (including International Independence
Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards
Board and the International Code of Ethics for Professional Accountants (including International
Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA
Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.
Our firm carries out other services for the Group. These services are assurance services in respect of
solvency and regulatory insurance returns and agreed upon procedures in respect of voting at the
Annual Shareholders Meeting and a regulatory insurance return. 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 as auditor of the Group.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the consolidated financial statements of the current year. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.

PwC 60

Description of the key audit matter
How our audit addressed the key audit
matter
(1) Valuation of outstanding claims
(2020: $107,747,000, 2019: $124,060,000)
We considered the valuation of outstanding
claims a key audit matter because this involves
an estimation process combined with
significant judgements and assumptions made
by management to estimate future claims cash
outflows.
The outstanding claims liability includes a
central estimate of the future cash outflows
relating to claims incurred, as at and prior to
the reporting date, and the expected costs of
handling those claims. There is uncertainty
over the amount that reported claims and
claims incurred at the reporting date but not
yet reported to the Group will ultimately be
settled at. The estimation process relies on the
quality of underlying claims data and the use
of informed estimates to determine the
quantum of the ultimate loss.
Key actuarial assumptions applied in the
valuation of outstanding claims (excluding
Canterbury earthquakes) include:
● expected future claims development
proportion; and
● claims handling expense ratios.
Outstanding claims in relation to the
Canterbury earthquakes have a greater degree
of uncertainty and judgement. This mainly
arises due to the Earthquake Commission
(EQC) reporting new claims to the Group
which have gone over the $100,000 statutory
liability cap (over cap claims), new litigation
claims, reopening of closed claims, expected
claims costs for open claims and estimates of
future claims management expenses.
Changes in assumptions can lead to significant
movements in the outstanding claims.
The outstanding claims liability includes a risk
margin that allows for the inherent uncertainty
in the central estimate of future claim cash
outflows. In determining the risk margin, the
Group makes judgements about the volatility
of each class of business written and the
correlation between each division and between


Claims data is a key input to the actuarial
estimates. Accordingly, we:
● evaluated the design effectiveness and
tested controls over claims processing;
● assessed a sample of claim case estimates
at the year end to check that they were
supported by appropriate management
assessment and documentation;
● assessed on a sample basis the accuracy of
the previous claim case estimates by
comparing to the actual amount settled
during the year and analysed any
escalation in the claim case estimate to
determine whether such escalation was
based on new information available
during the year;
● inspected a sample of claims paid during
the year to confirm that they were
supported by appropriate documentation
and approved within delegated authority
limits; and
● tested the integrity of data used in the
actuarial models by agreeing the relevant
model inputs, such as claims data, to
source.
Together with our actuarial experts, we:
● considered the work and findings of the
actuaries engaged by the Group;
● evaluated the actuarial models and
methodologies used, and any changes to
them, by comparing with generally
accepted models and methodologies
applied in the sector;
● assessed key actuarial judgements and
assumptions and challenged them by
comparing with our expectations based
on the Group’s experience, our own sector
knowledge and independently observable
industry trends (where applicable), taking
into consideration COVID-19 impacts;
● assessed the risk margin, by comparing
known industry practices. In particular
we focused on the assessed level of
uncertainty in the central estimate; and

PwC 61
different geographical locations. The Directors
include an additional $5 million risk margin in
respect of the Christchurch earthquake claims.
Relevant references in the consolidated financial
statements.
Refer to note 2.4, which also describes the
elements that make up this balance.
● considered the Directors’ $5 million
Christchurch earthquake additional risk
margin with reference to the inherent
uncertainty in the remaining
Christchurch earthquake claims and its
consistency with prior periods.
(2) Valuation of EQC recovery receivable
related to the Canterbury earthquakes
(2020: $52,883,000, 2019: $69,900,000)
The EQC recovery receivable relates to
amounts paid by the Group for land and
building damage arising from the Canterbury
earthquake events in respect of EQC’s
statutory liability under the Earthquake
Commission Act 1993. The EQC and the Group
were in disagreement on the quantum of
damage paid by the Group on EQC’s behalf
with the Group having commenced litigation
in respect of this matter.
We considered the valuation of the EQC
recovery receivable to be a key audit matter
because significant management judgement
was required to estimate the expected
recoveries from the EQC in respect of land and
building damage.
However, on 24 November 2020, the Group
and the EQC agreed to settle all amounts
outstanding for $53,600,000 (excluding GST)
resulting in the Group impairing the previously
recorded receivable and reducing the amounts
payable to reinsurers by $13,126,000 (before
tax). The settlement, being agreed after the
end of the financial reporting period, but
before the financial statements were
authorised for issue, provides evidence of
conditions that existed at the end of the
reporting period and therefore is an adjusting
event under the accounting standards. The
financial statements have been adjusted to
reflect the agreed settlement.



We understood how the Group had determined
their initial estimate of the receivable at 30
September 2020 by:
● reviewing reports of the experts engaged
by the Group and holding discussions
with them to understand the legal and
technical arguments and judgements
considered in the estimation of the
receivable;
● testing on a sample basis the claims detail
used in the experts’ calculations to the
Group’s claim records and with the data
used in previous years to estimate the
receivable; and
● holding discussions with management
and the Directors to understand the
progress of the litigation and of any
discussions with the EQC about possible
settlement.

Following the agreement of a settlement on 24
November 2020 between the Group and the EQC,
we reviewed the signed settlement agreement,
confirmed this was an adjusting event as defined
in the accounting standards and ensured the
financial statements appropriately reflected the
settlement agreed, including the disclosure
thereof.

Relevant references in the consolidated financial
statements
Refer to note 2.7 to the consolidated financial
statements.

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(3) Recoverability of the deferred tax asset
arising from tax losses
(2020: $25,720,000 2019: $24,527,000)
The majority of the Group’s deferred tax asset
arises from tax losses. We considered
recoverability of the deferred tax asset a key
audit matter because utilisation of the asset is
sensitive to the Group’s expected future
profitability and sufficient continuity of the
ultimate shareholders.

Management judgement is involved in
forecasting the timing and quantum of future
taxable profits, which are inherently uncertain,
and whether it is probable the tax losses will be
utilised in the foreseeable future.

Relevant reference in the consolidated financial
statements
Refer to note 7.3 to the consolidated financial
statements.




Together with our tax experts, we:
● understood the progress made by
management in improving the
profitability of the business in recent
periods;
● compared the previous management
budget with actual results to assess the
reliability of management’s forecasts;
● considered the reasonableness of the
assumptions in the FY21 operational plan
on the forecast utilisation of tax losses;
and
● assessed the Group’s ability to maintain
sufficient continuity of the ultimate
shareholders and its entitlement to offset
the tax losses against future taxable
profits.

Our audit approach
Overview

An audit is designed to obtain reasonable assurance whether the
consolidated financial statements are free from material misstatement.
Overall Group materiality: $3.7 million, which represents approximately
1% of gross earned premium.
We chose gross earned premium as the benchmark because, in our view, it
is a key financial statement metric used in assessing the performance of
the Group and is a generally accepted benchmark for insurance
companies. The 1% is based on our professional judgement, noting that it
is also within the range of commonly accepted revenue related thresholds.
As reported above, we have three key audit matters, being:
● Valuation of outstanding claims
● Valuation of EQC recovery receivable related to the Canterbury
earthquakes
● Recoverability of the deferred tax asset arising from tax losses.

PwC 63
Materiality
The scope of our audit was influenced by our application of materiality.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out
above. These, together with qualitative considerations, helped us to determine the scope of our audit,
the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the consolidated financial statements as a whole.
Audit scope
We designed our audit by assessing the risks of material misstatement in the consolidated financial
statements and our application of materiality. As in all of our audits, we also addressed the risk of
management override of internal controls including among other matters, consideration of whether
there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an
opinion on the consolidated financial statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry in which the Group operates.
Our Group audit mostly focused on the Company, which contributes approximately 84% of the
Group’s gross earned premium. We performed audit procedures over material balances and
transactions of the non-significant subsidiaries and the consolidation of the Group’s subsidiaries.
Information other than the consolidated financial statements and auditor’s report
The Directors are responsible for the annual report. Our opinion on the consolidated financial
statements does not cover the other information included in the annual report and we do not and will
not express any form of assurance conclusion on the other information. At the time of our audit, there
was no other information available to us.
In connection with our audit of the consolidated financial statements, if other information is included
in the annual report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the
work we have performed on the other information that we obtained prior to the date of this auditor’s
report, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
Responsibilities of the Directors for the consolidated financial statements
The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of
the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal
control as the Directors determine is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic alternative but to do so.

PwC 64
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements, as a whole, are free from material misstatement, whether due to fraud or error, and to
issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is
located at the External Reporting Board’s website at:
https://www.xrb.govt.nz/standards-for-assurance-practitioners/auditors-responsibilities/audit-
report-1/
This description forms part of our auditor’s report.
Who we report to
This report is made solely to the Company’s shareholders, as a body. Our audit work has been
undertaken so that we might state those matters which we are required to state to them in an auditor’s
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 Company and the Company’s shareholders, as a body, for our
audit work, for this report or for the opinions we have formed.

The engagement partner on the audit resulting in this independent auditor’s report is Karen Shires.


For and on behalf of:





Chartered Accountants Auckland
25 November 2020

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B l a i r T u r n b u l l , C h i e f E x e c u t i v e O f f i c e r

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FY18FY19FY20

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1)Non-underlying items are shown separately in Tower's underlying reporting, yetincluded within other lines (depending on the nature of the item) in the
financial statements.
2)Premium refunds that were offset against GWP in the statutory reported results but were treated as non-underlying.
3)Reclassification of claims handling expenses from management expenses to net claims expense; reclassification of corporate costsfrom underwriting
profit to underlying profit; reclassification of forex movements to management and sales expenses.
4)In Tower’s management reporting, indirect claims handling expenses are reported within ‘management and sales expenses’.In the financial statements,
indirect claims handling expenses are reclassified to ‘net claims expense’. Corporate costs are included in management expenses for Tower’s management
reporting, howeverare excluded from underwriting profit for statutory reporting.
Underlying and reported profit:
•“Underlying profit” does not have a
standardised meaning under Generally
Accepted Accounting Practice (GAAP).
Consequently it may not be comparable to
similar measures presented by other
reporting entities and is not subject to audit
or independent review.
•Tower uses underlying profit as an internal
reporting measure as management believes
it provides a better measure of Tower’s
underlying performance than reported profit,
as it excludes large or non-recurring items
that may obscure trends in Tower’s
underlying performance, and is useful to
investors as it makes it easier to compare
the Tower’s financial performance between
periods.
•Tower has applied a consistent approach to
measuring underlying profit in the current
and comparative periods.
•“Reported profit after tax” is calculated and
presented in accordance with GAAP and is
taken from Tower Limited’s audited financial
statements for the year ended 30
September 2020.

1

Slide 3 – Chairman’s update – Michael Stiassny
Mōrena, good morning and thank you for making the time to join us for this
investor call and presentation of our results.
With me in Auckland is our Chief Executive Officer, Blair Turnbull and our Chief
Financial Officer, Jeff Wright who will take you through our full year results and
answer your questions.
The transformation we embarked on five years ago has seen the Tower
business turn around and deliver continued profit growth.
In an uncertain world, where many businesses are now having to pivot, our
digital-first strategy has positioned Tower well. Tower has emerged from the
initial response to the pandemic strong and resilient, demonstrated by the
continued improvement in results over the past year.
While no company is immune to the ongoing challenges presented by COVID-
19, the insurance industry is inherently resilient, and the team have guided
Tower well. Our reported results are at the top end of our guidance and
provide a strong base for continued investment in growth.
Our new IT platform continues to deliver benefits for both customers and the
business. And with new CEO Blair Turnbull joining us, we are ready to embark
on our next ambitious phase.
Our strategic direction – which is serving us well – does not change. Our
relentless focus on customers and driving our digital and data programme
forward remains vital for us as we continue to disrupt insurance industry
norms. But the speed of change ... our momentum ... is accelerating.
[PAUSE]

2

Tower’s response to COVID-19 focused on putting customers and people first.
Dedicated teams supported those people suffering hardship and we were the
first general insurer to refund customers, to the tune of $7.2 million, for the
lower claims due to the COVID-19 lockdown.
I’d like to pay tribute to the Tower team who have led the business so well
through COVID-19. Our investment in digital has enabled our people to work
remotely when needed and has allowed us to maintain full operations, despite
numerous lockdown periods.
[PAUSE]
Yesterday we announced that we entered into a settlement agreement with
the Earthquake Commission regarding an outstanding receivable resulting
from the Canterbury Earthquakes.
Under the settlement agreement Tower will receive $42.1m after
disbursement to reinsurers and costs. The write off of the residual amount will
result in an impact of approximately $9.5m on our FY20 reported net profit.
In recent years we have progressively been removing legacy risks from the
business and removing this significant piece is an important milestone and
provides the management team with clear air to move the business forward
and accelerate.
The Board determined that reaching this settlement agreement gives certainty
to you, our shareholders who will be pleased to see this risk removed from our
business.
This further increases the strength of our capital position and provides us with
a solid foundation to keep driving the business forward, innovating and
ultimately delivering growth.

3

Tower’s Board and management team remain strongly committed to paying
dividends and to the efficient management of capital.
Earlier this year, the Reserve Bank of New Zealand advised the financial sector
to protect solvency positions and preserve capital in light of the COVID-19
disruption and uncertain economic outlook.
The RBNZ has more recently updated their guidance thanks to a stronger than
expected economy and recovery from COVID-19.
While no dividend will be paid for FY20, Tower intends to resume dividend
payments in FY21, subject to market conditions and the careful consideration
of any growth opportunities that may arise.
This year, we also amalgamated multiple entities to further simplify the
business and remove complexity and additional administration.
This change had no impact on our shareholders, insurance licence, or to our
customers, but is another important step in creating the Tower of the future.
[PAUSE]
On behalf of the Board I’d like to welcome and thank Blair, the management
team and our frontline teams for their resilience and sustained focus on
delivering good outcomes for customers and improving profitability.
I’ll now hand over to Blair and Jeff, who will take you through the results and
outlook before we take questions.
Slide 4 – Business update title slide – Blair Turnbull
Kia ora and thank you Michael.
A warm welcome to everyone joining us today. I am delighted to be here
sharing with you a very good set of Full Year 2020 results, which have been

4

achieved while navigating a very challenging year for us all. As well as updating
you on the past year, I would also like to take this opportunity to give you a
high-level overview of Tower’s plans to continue growing and innovating in the
future.
Slide 5 – A journey of continued focus and streamlining
There is no doubt that Tower has had quite the journey.
From over a decade ago we transitioned from a composite insurer with
multiple lines of business to a mono-line, general insurer, this was an
important first step in creating the Tower of today.
Then, around five years ago we embarked on a significant transformation
programme to modernise the business from its multiple legacy systems with
complex product offerings, while also dealing with the aftermath of the
Canterbury earthquakes.
The transformation has been successful, with the implementation of a new
cloud-based technology platform, rationalised product set and migration of
customers onto the platform close to complete.
This transformation has delivered improved results each year, and today we
are well-placed to accelerate our strategy, driving for higher growth and
increased innovation.
The next step in our journey is a logical one – it’s the same path we’ve been
on, but faster, more focused, more energetic and more creative.
Perhaps one of the most symbolic recent shifts is the creation of three new
businesses, Direct, Partnership and Pacific, each with end-to-end
accountability.

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I will talk to this in more detail later, but the key to our success is leveraging
our new cloud-based, scalable digital and data platform for our flagship Tower
Direct business and also our Partnerships and Pacific businesses.
Let’s now turn to a summary of our Full Year 2020 results.
Slide 6 – Delivering consistent growth in profitability
When you exclude the impact of large events, you can see that our underlying
business is performing strongly, up 23% on the prior year to $34.7 million. We
are growing the business while closely managing claims, underwriting and
operating expenses.
Importantly, underlying NPAT has just surpassed the top end of our guidance,
at $28.4 million and our combined operating ratio is steady at 88.5%,
demonstrating the strength of our core insurance fundamentals.
The EQC settlement is an important step forward for us, allowing us to focus
fully on driving growth and value. Reported profit is $12.3 million, including the
$9.5 million impact from the EQC settlement of $42.1 million.
This is a good set of results for Tower and demonstrates our ability to deliver
consistent growth and profitability.
Slide 7 – Strong growth in customers and premium
A continued focus on customers and building a compelling digital offering has
seen our customer numbers increase to 300,000, up 11% on the prior year.
This growth in customer numbers has driven a strong GWP result of $385
million, up 8% on the prior year and this has also helped to increase our
market share in NZ Personal lines to 9.1%, up from 8.3% in the prior year.

6

Thanks to more effective and efficient marketing, we have seen steady
increases in the number of people visiting us online. This combined with
competitive pricing, plain language products and self-service offering, is driving
customer growth. Our task is to further engage with our customers to build
deeper relationships by leveraging data and providing more personalised
offers.
Our self-service portal, MyTower, has passed the 50,000 registration mark,
which is a significant achievement given it launched less than a year ago. Its
growth highlights the increasing importance of easy online access and
customers being comfortable with transacting online to purchase insurance
and make claims.
Migration of our Tower Direct customers to our new platform is almost
complete. We are also well underway with the migration of our Youi NZ
customers, both of which are achieving strong retention rates. Youi NZ
contributed around $12.6m in GWP to our total of $385m.
Youi was a first test of our digital and data platform capability to on-board
customers effectively and efficiently, and it has been very successful. We now
have a proven, scalable blueprint to migrate other books and we will continue
to seek value-accretive, bolt-on acquisitions.
Slide 8 – Disciplined claims management improved through digitisation
Claims sits at the very heart of everything we do and it’s a core insurance
fundamental alongside underwriting, product and pricing.
Over the past 12 months we have taken significant steps forward in improving
the way we underwrite business, which is delivering improving results. Key
actions include:

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• Continued focus on claims leakage and recoveries
• Refinement of our plain language products that provide clarity to
customers at claims time
• Implementation of new data practices to support risk selection and to
enable us to more accurately monitor our portfolio
• Refinement of our online claims capability that has seen 45% of our
claims lodged online in September, up from 27% at the same time
last year
• And the launch of straight through claims processes that enable low
value, low risk claims straight through to our suppliers, enabling us to
reduce costs and customer wait times.
The result of all of this work is an ongoing improvement in our claims ratio
excluding large events to 46%, 2% better than the prior year.
We are seeing some inflation in our motor book, but we are managing this
closely through ongoing product and pricing reviews and supplier engagement.
This inflation is mostly due to a higher number of expensive cars being on the
road, with increased levels of technology in windscreens and bumper bars.
Slide 9 – Product, pricing and underwriting enhanced through data
Tower is focussed on creating a risk portfolio that is well balanced and
profitable. In New Zealand, almost two thirds of our new business is motor,
which brings the total percent of motor on our book to 43% of all risks.
A key strategic priority to support our growth and innovation is to deepen our
customer relationships and increase the number of policies they hold with us.
On average, each of our customers insure two risks with us.

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Rationalisation of our products from hundreds of variations to a core set of 12
is now complete for New Zealand and is delivering a consistent, simple and
rewarding experience. We are now undertaking a similar process in our Pacific
business with reduction of product variations by 30%.
Complexity drives cost into the business and slows our delivery down. We
remain vigilant to mitigating it at every opportunity.
Slide 10 – MER maintained while continuing to invest and simplify
Our Tower Direct business is our best example of what can be achieved
through a new generation insurance business.
In Tower Direct, nearly all the work is completed on the cloud, which delivers
significant efficiencies and sees us operating at a management expense ratio of
34%, versus our overall Tower expense ratio of 39%.
This continued digital and data push has seen us increase the effectiveness of
our marketing, where we have reduced our cost to acquire a customer to 13%
of net earned premium, 2% lower than the prior year.
While our business has grown, our people numbers have reduced to 601 with
the focus now on evolving new skill sets in key areas like digital data, while also
supporting flexible, remote working.
Slide 11 – Investing in digital platform for efficiency and scalability
Our digital platform is transforming and enabling agility in the way we do
business and engage with our customers.
Core to this capability is our agile cadence – our ability to make improvements
and put these live quickly. We have more than doubled the number of digital
releases in the past year to 117. Over 90% of all Tower Direct customers are

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now on our EIS cloud-based platform and over 70% of our workloads are now
cloud-based.
Four legacy systems have been decommissioned in the past six months, with
another four to be decommissioned in the coming year, leaving us with only
two to complete beyond that.
This consistency of systems and use of the cloud means that all team members
are now on the same operating systems, enabling sharing of work across
locations to drive efficiency. We are now leveraging our Pacific hub in Fiji to
support claims and service operations for NZ Direct and Partnerships. This
supports work-load flexibility, demand spikes and a lower cost to serve.
Slide 12 – Strong capital and solvency position
Tower is a strong and sound business.
Yesterday’s announcement on settling the EQC receivable further strengthens
our position while also removing a legacy issue from the business.
Currently, we have significant capital above regulatory minimums and
following amalgamation our financial strength ratings have been confirmed.
Canterbury Earthquake claims have reduced significantly, with more than 100
claims closed in the last two years. Jeff will provide a further update on this,
but it shows that this period of legacy risks is almost at an end.
In the past six months we have also repaid and closed our $15 million BNZ
credit line, so we have no outstanding borrowings.
This puts us in a strong position to resume dividends in 2021, subject to market
conditions and the consideration of any growth opportunities that may arise.

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Slide 13 – Managing through Covid-19, demonstrated resilience
Like all businesses around the world, we are also navigating a COVID-19 world,
and it is pleasing to see the resilience demonstrated by Tower and the team.
Following the initial lockdown, we moved quickly to enable 100% of our
workforce to operate remotely. This capability is still in place, so we are ready
to respond to any future changes.
As I mentioned earlier, all of our team are now working from the same
operating system, ensuring that all locations can assist with workloads in the
event of further lockdowns.
Our response for customers has also been in place for a number of months
now. We have a dedicated hardship team who are providing case-by-case
customer support.
Importantly, we were the first general insurer to refund our motor customers
for lower claims due to the COVID-19 level four lockdown. Proactively
refunding our customers for a service they were not using was absolutely the
right thing to do.
I will now hand over to Jeff who will take you through our detailed financial
results.
Slide 14 – FY20 financial performance title slide – Jeff Wright
Thank you Blair and good morning everyone.
Slide 15 – Group financial performance
Looking at the consolidated results, we can see that continued growth was a
key driver of Tower’s full year results. This growth was offset by the impacts of

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Cyclone Harold and the Timaru Hailstorm, along with lower investment
income.
We have continued to deliver solid growth, with gross written premium
increasing $28.4 million compared the same period last year. Claims costs
excluding large events rose $9.4 million due to the growth in risks. Underlying
profit after tax increased slightly to $28.4 million thanks to these improving key
metrics.
The Canterbury Earthquake portfolio is performing in line with expectations in
most areas. The after tax strengthening $2.7m for FY20 represents the lowest
annual increase since 2014. Along with the settlement of the EQC receivable,
this is a clear sign that we are nearing the end of the impacts of the Canterbury
earthquakes.
Our reported profit of $12.3 million after tax was impacted by the EQC
settlement and is $4.5 million lower than the prior year.
The motor refund of $7.2 million related to the Covid-19 lockdown is included
in Claim Expenses in this slide. In the financial statements, it is deducted from
GWP, as per the reconciliation in the appendices.
Slide 16 – Movement in underlying profit before tax
Slide 16 details the key drivers of underlying profit before tax from financial
year 2019, to financial year 2020.
The solid growth is reflected in the $33.3 million increase in net earned
premium, a combination of growth in our core portfolio and our risk-based
pricing approach.

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On this slide you can also see the impact of large events at $9.7 million. While
our net claims expenses increased $9.4 million, this is proportionally lower
than the increase in NEP.
Management expenses are higher due to the completion of our IT
transformation and investment in customer migration, along with the
amortisation of the Youi NZ portfolio.
Slide 17 – $800m reinsurance programme increases resilience
Managing risk is at the heart of what we do as an insurer and our reinsurance
programme provides certainty and protection.
In November 2019, a large hailstorm hit Timaru, causing claims expenses of
$4.7m. $2m of this was recovered from reinsurance which resulted in a before-
tax impact of $2.7m.
In April 2020, Tropical Cyclone Harold caused widespread damage in the Pacific
Islands. While Vanuatu & Tonga were most impacted, we also received claims
in Solomon Islands and Fiji, and this impacted results by $8m before tax.
Our total large event expense for FY20 is $9.7m before tax. This is $1.7m more
than the $8m large event assumption in Tower’s FY20 market guidance.
Already this year we have experienced two large events and our thoughts are
with everyone in these communities who have been impacted.
A before-tax provision of $6 million is in place for the Lake Ōhau fires.
And preliminary estimates for the recent Napier floods show an impact on our
FY21 results of between $3 million and $4 million before tax.
Our reinsurance programme for FY21 provides increased catastrophe cover of
$812 million, secured on flat pricing and similar excess.

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Our aggregate insurance programme was maintained at a lower cost, but with
a higher excess of $14 million.
This means that some exposure to large events remains until the total excess
of large events reaches $14 million.
Slide 18 – Continued focus on improving claims ratio
Our claims ratio has improved over the past 12 months with a number of
underwriting and pricing initiatives helping to offset inflation.
As you can see on this slide, there are four key factors that have contributed to
this positive result.
The increase in mix of motor policies, relative to lower loss ratio products,
contributed an increase in the claims ratio.
$9.7m of large events were incurred in FY20 compared to $1.3 million in FY19.
The Timaru Hailstorm and Northland Floods totalled $4.5 million net of
reinsurance, and Cyclone Harold cost $5.2 million net of reinsurance.
The higher average cost of claims is being driven by increasing technological
changes in vehicles as well as supply chain pressures starting to be seen from
COVID-19.
While it is pleasing to have improved our claims ratio, we remain focussed on
refining our products and pricing approach to ensure we continue addressing
claims costs.
Slide 19 – Continued discipline on management expenses
Tower’s group expense ratio improved one percent on the prior year, thanks to
continued growth and close management of expenses.
The main contributor to increased actual expenses was the amortisation of:

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• the Youi NZ portfolio acquisition
• the EIS digital platform, and
• implementation of the lease standard IFRS16
You will notice slightly higher people costs, which was due to the increased
resources required to manage customers through the migration and product
rationalisation process. This resource will now shift toward growth as we move
forward.
Our new cloud-based tech platform will ensure we can keep growing at scale.
The proven model of Tower Direct, which Blair will address in more detail
shortly, is our blueprint for the future and this year we are shifting our
Partnerships and Pacific businesses to work in this way, on our digital platform.
Our new platform supports the efficient aggregation of other books of
business, similar to the Youi NZ portfolio, and will continue driving growth and
scale benefits.
Slide 20 – Over 15,000 Christchurch EQ claims now settled
The Canterbury Earthquakes resulted in significant issues for customers and
insurers and we are now nearing the final stages of the Canterbury earthquake
impacts.
We have settled over 15,000 claims and at year end had less than 60
remaining. As of today, the number is less than 50.
Pleasingly, the pace of new over-caps and reopened claims slowed during the
second half of 2020. However, the finalisation of claims also slowed during this
period. This is due in part by COVID-19 restrictions, and also because the
remaining claims are the most complex.

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We continue making good progress and our focus remains on achieving fair
and efficient settlements for our customers.
As we have already mentioned today, settlement of the EQC receivable is a
significant milestone for us, and a clear demonstration that the legacy risks are
being removed from Tower’s business.
Slide 21 – Solid solvency position and simplified structure
Tower is in a strong capital position.
At 30 September 2020, Tower Limited New Zealand had $98m of solvency
margin. This is $48m above the $50m minimum solvency margin required
under the RBNZ licence condition.
During the year, we also amalgamated several corporate entities to remove
complexity from our business. Our financial strength was reconfirmed at A-
(excellent) following the amalgamation.
The $15 million BNZ loan to Tower Limited was also finalised on amalgamation
with Tower Insurance Limited.
Thank you. I will now hand back to Blair who will provide an update on our
strategy and outlook.
Slide 22 – Looking forward title slide – Blair Turnbull
Thank you Jeff.
Slide 23 – A good result and an exciting future
Tower’s results this year are good and at the top end of expectations. We’ve
achieved this despite some unprecedented headwinds and challenges.

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As we start to move into a new era of Tower though, the business will look and
behave differently.
To be clear, we don’t just want to be a smaller version of a big global insurer.
That is not the path we choose.
At Tower, we’re choosing a direction that leads to higher growth through a
relentless focus on our customers.
We’re more determined than ever, more energised than ever, and over the
coming months we’ll be demonstrating that we’re far more dynamic than ever
before.
Slide 24 – Our Southern star
All of this work is being guided by our southern star, or our guiding common
purpose.
It is our purpose to deliver beautifully simple and rewarding experiences that
our customers rave about, every time.
Slide 25 – Clear and focused strategic priorities – building for growth and
innovation
We have a clear and focused set of strategic priorities.
We will relentlessly focus on our customers, deepening our relationships
through rewards, new products and other offerings that make sense and drive
value.
We will take our new cloud-based platform and leverage its full capability
through the use of data and digital to attract more customers and partners to
Tower.

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And importantly, we will find the best people to partner with and to get their
help to keep innovating and delivering.
These three pillars will contribute significantly to our higher growth and
innovation ambitions.
We also need to grow the capability of our business. Tower is a great place to
work and we want to keep attracting the best people to come and work for us,
so that we keep innovating and leading the way.
Our shift to agile is well underway and this regular cadence of delivery has
seen us move forward in leaps and bounds.
And importantly, we are committed to maintaining a strong capital and
solvency structure, demonstrating we are a strong and stable business that
delivers value for shareholders.
Slide 26 – Three focused businesses: Direct, Partnership & Pacific
Our leading, cloud-based digital and data platform enables us to adapt and
grow at scale, while achieving consistency and efficiency across our back office.
When I joined Tower, I could see that there was an opportunity to surface this
platform differently for our core customer groups, Direct, Partnerships and
Pacific.
As a result, three new business units have been created, each with end-to-end
accountability for driving growth and reducing costs.
As you can see, our Tower Direct business is growing strongly and affords our
best expense and operating efficiencies. It operates almost fully on our new
platform and is an example of what Partnerships and the Pacific will begin to
look like going forward.

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Slide 27 – Growing our leading Tower Direct business
The Tower Direct business is our flagship model. Moving forward, our focus
here is around digital, data and innovation to attract and convert more
customers.
• We are simplifying the purchase journey by automating the process
• We are partnering with data providers, so customers only need to
answer a few questions
• We’re delivering new innovations and propositions, such as a new safe
driving app that we will be launching to the market shortly
• And at every opportunity we are promoting MyTower, a full online sales
and service platform that that has over 50,000 registered users.
Slide 28 – Investing in Partnerships and the Pacific
We are now well underway with the migration of Trade Me and TSB customers
to our new platform, all of which will contribute to an ongoing push to improve
the customer experience, drive growth and reduce expenses.
This year, our focus is on securing mutually beneficial partnerships that drive
significant growth for this part of the business.
In the Pacific, our business remains steady with GWP consistent for the past
three years.
The Pacific business generates 15% of our group GWP, so plays an important
role in our performance, but has historically suffered from complexity and
remediation issues.
We are well advanced on rationalising our product set and remediation work is
mostly complete.

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We are now processing NZ customer claims from our Suva office, providing
capacity overflow and business continuity options for New Zealand.
But more importantly, before Christmas we will begin selling our new motor
product in Fiji on our cloud-based digital platform. Customers will be able to
purchase and manage their motor policies online through MyTower, just as
they do in New Zealand.
This is a significant achievement and once complete, will act as a blueprint for
our remaining product lines Pacific countries.
Slide 29 – Investing in technology, innovation and a sustainable environment
We will leverage our leading tech platform to accelerate growth and
innovation.
As I mentioned earlier, new products will enable us to deepen our
relationships with customers and in the coming weeks we will be launching a
new marine product and following that, an innovative pet product.
We are also expanding our risk-adjusted pricing, to ensure that every quote is
tailored to the customer and the pricing accurately reflects the individual risk.
The next step is to include flood risk, which will launch in the first half of 2021.
Data is what fuels our new tech platform and a recently signed partnership
with the University of Auckland’s Science faculty will further help us leverage
the skills and knowledge of bright minds to help us tackle insurance problems
and opportunities.
The recent agreement with EQC, to act as their agent following natural
disasters, will ensure we have all the data we need to put things right for
customers as quickly as possible after an event. It’s a new, proactive and
partner-based way forward, that will deliver better outcomes for customers.

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And importantly, this year we will develop and report on a carbon action plan.
We are currently commencing a carbon audit and by this time next year, we
will be able to demonstrate the steps we have taken to reduce our carbon
footprint and develop transparent climate reporting.
These are all important parts of our strategy to ensure that our customers rave
about us every time, and we keep delivering growth and value for our
shareholders.
Slide 30 – FY21 guidance
While we continue to operate in an uncertain environment due to COVID-19,
we understand the market appreciates receiving guidance and we have
provided this detail to help you understand the shifts we are trying to achieve.
In FY21, Underlying NPAT will exceed 5% on FY20, assuming the same large
event experience as FY20.
Two key areas we are focusing on to achieve this are GWP growth of 5% or
more, and continued improvement in our management expense ratio.
Slide 31 – Summary – a good result and an exciting future
As you can see, we have delivered a good result and what lies ahead is exciting.
Looking forward, our focus is on
• Driving higher growth through a relentless focus on customers
• Continuing to leverage digital and data platform to drive efficiency and
acquire growth
• A commitment to delivering shareholder value.

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As Michael mentioned earlier, it is our intention to resume dividends in FY21,
with careful consideration given to market conditions and any growth
opportunities that present.
We will be holding an analyst day in March 2021 and we look forward to
talking to you in more detail on our strategy to accelerate momentum.
Thank you for your time this morning, I will now hand back to the operator to
ask for questions.