Tower Limited Half Year 2022 Results Announcement
Tower Limited
Level 5, 136 Fanshawe Street
Auckland 1142, New Zealand
ARBN 645 941 028
Incorporated in New Zealand
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
26 May, 2022
Tower Limited Half Year 2022 Results Announcement
In accordance with NZX Listing Rule 3.5.1, please find enclosed the following for release to the market in relation to Tower
Limited’s (NZX/ASX: TWR) Half Year 2022 Results:
1 Media Release
2 Results Announcement
3 Interim Financial Statements (including Independent Auditor’s Review
Report)
4 Results Announcement Presentation
5 Results Announcement Call Script
6 NZX Distribution Notice
Tower’s Chairman Michael Stiassny, Chief Executive Officer, Blair Turnbull and Chief Financial Officer, Paul Johnston will discuss the
half year results at 10.00am New Zealand time today.
For the purposes of ASX Listing Rule 1.15.3 Tower confirms that its primary listing is on the main board of the New Zealand Stock
Exchange and Tower therefore continues to comply with the NZX Listing Rules.
ENDS
This announcement is authorised by Blair Turnbull, CEO, Tower Limited.
For media enquiries, please contact in the first instance:
Emily Davies
Head of Corporate Affairs and Sustainability
Tower Limited
Mobile: +64 021 815 149
Email: emily.davies@tower.co.nz
---
Level 5, 136 Fanshawe Street
Auckland 1142, New Zealand
ARBN 645 941 028
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
26 May, 2022
Strong growth and efficiencies drive improved business performance
Tower maintains guidance and announces half-year dividend
Kiwi insurer, Tower Limited (NZX/ASX:TWR) has today reported half-year underlying profit excluding large events
of $18.2m, up 6.4% from $17.1m at the half-year 2021. Reported profit including large events of $17.9m was
$3m, compared to $11.1m in the prior year.
Summary of key results:
• Gross written premium (GWP) $216m, up 11% on HY21
• Customer numbers increased 6% to 312,000
• Management expense ratio (MER) improved to 35.8% vs 37.1% in HY21
• Large event costs $17.9m vs $9.3m in HY21
• Underlying net profit after tax (NPAT) excluding large events $18.2m vs $17.1m in HY21
• Underlying NPAT including large events $5.4m vs $10.4m in HY21
• Combined operating ratio (COR) 94.8%, increased 3.9%
• Reported profit including large events $3m vs $11.1m in HY21
Tower maintains its full year guidance of between $21m and $25m underlying NPAT and the Board announces a
half-year dividend of 2.5 cents per share.
Strong business performance
Tower’s operational business performance has improved over the half through positive growth, improved
efficiencies and effective management of inflationary pressures.
Tower CEO, Blair Turnbull says, “By building deeper, more engaging relationships with customers Tower is
experiencing consistent growth in both premium and customer numbers year-on-year. Our digitisation and
distribution strategy focused on simple and rewarding customer experiences has seen us welcome another
18,000 customers to Tower and increase GWP by 11% to $216m.”
Disciplined cost control and improved efficiencies through increasing scale saw Tower’s overall MER improve to
35.8% versus 37.1% in HY21. Supporting these improvements was Tower’s investment in digitising its Pacific
business where MER dropped 5% compared to HY21.
Level 5, 136 Fanshawe Street
Auckland 1142, New Zealand
ARBN 645 941 028
The decisive actions taken last year to address claims inflation are also delivering results with Tower’s BAU loss
ratio being brought back to a more normal level of 48.6%, after reaching 52.1% in the second half of the FY21
year.
Turnbull says, “Tower is continuing to leverage our unique direct model and scalable technology platform to
provide simpler and easier experiences for customers along with efficiencies for the business.”
Tower’s transformed Partnerships business contributed to commission payments nearly halving year-on-year to
2.3% of gross earned premium.
Mitigating climate-related and other large events volatility
Large event costs over the half-year were substantial, totalling $17.9m, up from $9.3m in the prior year. This
includes $7.6m from the eruption of Tonga’s Hunga Tonga–Hunga Ha'apai volcano and subsequent tsunami in
January; $3.6m from February’s Cyclone Dovi in New Zealand; and $6.7m from the significant rainstorms that
swept through the North Island in March.
Tower’s reinsurance programme has been designed to provide protection from the volatility of large event costs.
Under these arrangements, Tower pays the first $20m of large event costs in the year (currently totalling $17.9m)
and reinsurance covers the next $20m, up to $40m. Tower’s catastrophe cover is triggered by a single event of
over $11.25m.
Large event costs of $20m have also been planned for within the FY22 guidance range.
In November last year, Tower commenced risk-based pricing for flooding with the aim of assisting customers to
better understand their risks from flooding while more accurately matching insurance pricing to risks. To date
Tower has transitioned around 70,000 customers to this new pricing model as their house insurance policies have
come up for renewal. Tower plans to add other climate-related risks to its ratings tool in the coming year
including coastal inundation and erosion, and windstorms.
Turnbull says, “Tower is acutely aware of the ways climate change is increasingly affecting our communities. We
are responding. By expanding our risk-based pricing policies and focusing on a high quality reinsurance
programme, we ensure Tower remains in the strongest possible position to continue protecting both our
customers’ and shareholders’ interests.”
In the last 12 months Tower has returned $51m to shareholders through dividends and a capital return. As at 31
March, Tower New Zealand parent’s solvency ratio was 210% after the declaration of an interim dividend, and
Tower was holding $72.2m above its minimum solvency capital.
ENDS
This announcement has been authorised by Tower CEO, Blair Turnbull.
For media enquiries, please contact in the first instance:
Emily Davies
Head of Corporate Affairs and Reputation
Tower Limited
Mobile: +64 21 815 149
Email: emily.davies@tower.co.nz
---
Template
Results announcement
(for Equity Security issuer/Equity and Debt Security issuer)
Updated as at 17 October 2019
Results for announcement to the market
Name of issuer Tower Limited
Reporting Period 6 months to 31 March 2022
Previous Reporting Period 6 months to 31 March 2021
Currency NZD
Amount (000s) Percentage change
Revenue from continuing
operations
$214,130 5%
Total Revenue $214,130 5%
Net profit/(loss) from
continuing operations
$2,930 -72%
Total net profit/(loss) $2,930 -72%
Interim/Final Dividend
Amount per Quoted Equity
Security
2.5 cents
Imputed amount per Quoted
Equity Security
N/A
Record Date 16 June 2022
Dividend Payment Date 30 June 2022
Current period Prior comparable period
Net tangible assets per
Quoted Equity Security
$0.52 $0.57
A brief explanation of any of
the figures above necessary
to enable the figures to be
understood
Revenues increased 5% year-on-year through a mix of premium
rating increases and attracting new customers to Tower, partly
offset by lower investment revenue.
Net profit decreased by 72% year-on-year, primarily due to the
impact of large storm events in New Zealand and the Tonga
volcanic eruption on Tower’s claims expenses, plus the impact
of rising interest rates on Tower’s investment portfolio. The
comparative period has been restated due to the retrospective
application of the change in accounting policy for software-as-a-
service assets.
Please refer to the 2022 half year results presentation for further
information.
Authority for this announcement
Name of person
authorised
to make this announcement
Tania Pearson. Company Secretary
Contact person for this
announcement
Emily Davies, Head of Corporate Affairs and Reputation
Contact phone number +64 21 815 149
Contact email address emily.davies@tower.co.nz
Date of release through MAP
26 May 2022
Unaudited financial statements accompany this announcement.
---
Tower Limited
Consolidated
interimfinancial
statements
for the half year ended 31 March 2022
Tower Limited
Consolidated interim financial statements
Financial Statements
Consolidated statement of comprehensive income2
Consolidated balance sheet3
Consolidated statement of changes in equity4
Consolidated statement of cash flows5
Notes to the interim financial statements
1Overview6
1.1About this report6
1.2Critical accounting judgements and estimates6
1.3Segmental reporting7
2Underwriting activities8
2.1Net claims expense8
2.2Net outstanding claims8
2.3Unearned premiums9
2.4Receivables9
3Investments10
3.1Investment income10
3.2Investment assets10
3.3Fair value hierarchy10
4Risk Management11
4.1Capital risk management11
5Capital structure12
5.1Contributed equity12
5.2Earnings per share12
6Other balance sheet items13
6.1Intangible assets13
7Other information14
7.1Notes to the consolidated statement of cash flows14
7.2Contingent liabilities15
7.3Subsequent events15
7.4Capital commitments15
7.5Change in comparatives15
7.6Impact of new accounting standards16
1
Tower Limited
Consolidated statement of comprehensive income
For the Half Year Ended 31 March 2022
Restated
$ thousandsNote31-Mar-2231-Mar-21
Gross written premium
216,090 194,563
Unearned premium movement
(9,012)1,317
Gross earned premium
207,078 195,880
Outward reinsurance premium
(31,498)(27,320)
Movement in deferred reinsurance premium
(1,875)(804)
Outward reinsurance premium expense
(33,373)(28,124)
Net earned premium173,705 167,756
Claims expense(121,193)(106,146)
Less: Reinsurance and other recoveries revenue4,408 4,683
Net claims expense2.1(116,785)(101,463)
Gross commission expense(7,286)(10,194)
Commission revenue2,584 2,047
Net commission expense(4,702)(8,147)
Underwriting expenses(46,016)(41,976)
Underwriting profit6,202 16,170
Investment (losses)/income3.1(734)716
Investment expenses (180)(241)
Other income794 213
Other expenses(27)(26)
Financing and other costs(460)(137)
Profit before taxation5,595 16,695
Tax expense(2,613)(5,580)
Profit after taxation2,982 11,115
Items that may be reclassified to profit or loss
Currency translation differences(326)(1,418)
Items that will not be reclassified to profit or loss
Other reserves-(6)
Other comprehensive (loss) net of tax(326)(1,424)
Total comprehensive income for the half year2,656 9,691
Earnings per share:
Basic and diluted profit per share (cents)
5.20.7 2.5
Profit after taxation attributed to:
Shareholders
2,930 10,585
Non-controlling interests
52 530
2,982 11,115
Total comprehensive income attributed to:
Shareholders
2,590 9,163
Non-controlling interests
66 528
2,656 9,691
The above statement should be read in conjunction with the accompanying notes.
2March balances unaudited, September audited
Tower Limited
Consolidated balance sheet
As at 31 March 2022
Restated
$ thousandsNote31-Mar-2230-Sep-21
Assets
Cash and cash equivalents
7.1101,191 116,129
Investments3.2245,155 277,470
Receivables 2.4226,275 215,853
Current tax assets12,686 12,901
Deferred tax assets21,352 22,659
Deferred insurance costs33,683 31,967
Right-of-use assets24,193 25,577
Property, plant and equipment 8,818 9,374
Intangible assets6.189,110 88,592
Total assets762,463 800,522
Liabilities
Payables54,755 68,905
Unearned premiums2.3221,190 212,275
Outstanding claims2.2136,105 122,338
Lease liabilities37,015 39,421
Provisions5,865 6,709
Current tax liabilities134 170
Deferred tax liabilities530 984
Total liabilities455,594450,802
Net assets306,869349,720
Equity
Contributed equity5.1460,200 492,424
Accumulated losses(47,606)(39,995)
Reserves(105,725)(105,385)
Total equity attributed to shareholders306,869 347,044
Non-controlling interests-2,676
Total equity306,869 349,720
The above statement should be read in conjunction with the accompanying notes.
The interim financial statements were approved for issue by the Board on 26 May 2022.
Michael P StiassnyGraham R Stuart
ChairmanDirector
3March balances unaudited, September audited
Tower Limited
Consolidated statement of changes in equity
For the Half Year Ended 31 March 2022
$ thousands
Note
Contributed equity
(Accumulated losses) /
Retained earnings
Reserves
Non-controlling
interest
Total Equity
Half year ended 31 March 2022
Balance as at 30 September 2021
492,424 (39,995) (105,385) 2,676 349,720
Comprehensive income
Profit for the half year-2,930-52 2,982
Currency translation differences- - (340)14(326)
Total comprehensive income-2,930(340)662,656
Transactions with shareholders
Capital return to shareholders5.1 (30,625) - - -
(30,625)
Purchase of non-controlling interests5.1 (1,599) - - (2,742)(4,341)
Dividend payment
-(10,541) - - (10,541)
Total transactions with shareholders(32,224)(10,541)-(2,742)(45,507)
At the end of the half year460,200(47,606) (105,725)-306,869
Half year ended 31 March 2021 Restated
Balance as at 30 September 2020492,424 (42,990) (104,431) 2,160
347,163
Adoption of accounting policy on cloud
computing arrangements
7.5 -(5,117) - - (5,117)
Restated balance at beginning of the year492,424 (48,107) (104,431) 2,160 342,046
Comprehensive income
Profit for the half year-10,585-53011,115
Currency translation differences - - (1,416)(2)(1,418)
Gain on asset revaluation - (25)19 -(6)
Total comprehensive income-10,560(1,397)528 9,691
At the end of the half year492,424(37,547) (105,828)2,688351,737
The above statement should be read in conjunction with the accompanying notes.
Attributed to Shareholders
4March balances unaudited, September audited
Tower Limited
Consolidated statement of cash flows
For the Half Year Ended 31 March 2022
Restated
$ thousandsNote31-Mar-2231-Mar-21
Cash flows from operating activities
Premiums received 210,779 195,216
EQC settlement receipt-42,142
Interest received 2,894 2,555
Fee and other income received2,573 1,406
Reinsurance and other recoveries received773 10,716
Reinsurance paid(32,926)(33,866)
Claims paid(108,633)(108,353)
Employee and supplier payments(49,757)(51,299)
Income tax paid(646)(1,325)
Net cash inflow from operating activities 7.125,057 57,192
Cash flows from investing activities
Proceeds from sale of interest bearing investments139,890 66,010
Proceeds from sale of unlisted equity investments-572
Payments for purchase of interest bearing investments(122,342)(98,413)
Payments for purchase of intangible assets (8,059)(3,140)
Payments for purchase of customer relationships(560)(14,000)
Payments for purchase of property, plant & equipment(14)(470)
Net cash inflow/(outflow) from investing activities 8,915 (49,441)
Cash flows from financing activities
Payments for capital return to shareholders5.1(30,625) -
Purchase of non-controlling interests(4,341) -
Dividend paid(10,541) -
Payments relating to lease liabilities(3,077)(1,327)
Net cash outflow from financing activities (48,584)(1,327)
Net (decrease)/increase in cash and cash equivalents(14,612)6,424
Effect of foreign exchange rate changes(326)(1,405)
Cash and cash equivalents at the beginning of the half year 116,129 80,108
Cash and cash equivalents at the end of the half year 101,191 85,127
The above statement should be read in conjunction with the accompanying notes.
5March balances unaudited, September audited
Tower Limited
Notes to the interim financial statements
1
1.1 About this Report
a. Entities reporting
b. Statutory base
c. Basis of preparation
d. Accounting policies
1.2 Critical accounting judgments and estimates
Net outstanding claimsNote 2.4, Annual Report (30 September 2021)
Liability adequacy testNote 2.5, Annual Report (30 September 2021)
Intangible assets and goodwillNote 6.2, Annual Report (30 September 2021)
Lease liabilities (incremental borrowing rate)Note 6.3a(ii), Annual Report (30 September 2021)
Deferred taxationNote 7.3, Annual Report (30 September 2021)
'Software-as-a-service' arrangementsNote 8.7a, Annual Report (30 September 2021)
Overview
In preparing these interim financial statements management is required to make estimates and related assumptions
about the future. The estimates and related assumptions are based on experience and other factors that are
considered to be reasonable, and are reviewed on an ongoing basis. Revisions to the estimates are recognised in
the period in which they are revised, or future periods if relevant. The key areas in which estimates and related
assumptions are applied are as follows:
The interim financial statements for the six months ended 31 March 2022 are unaudited.
The principal accounting policies adopted in the preparation of the interim financial statements are consistent with
those of the audited annual financial statements for the year ended 30 September 2021.
This section provides information that is helpful to an overall understanding of the interim financial statements and
the areas of critical accounting judgements and estimates included in the interim financial statements. It also
includes a summary of Tower's operating segments.
The interim financial statements presented are those of Tower Limited and all of its subsidiaries (the "Group"). The
address of the Group's registered office is 136 Fanshawe Street, Auckland, New Zealand.
Tower Limited (the "Parent") is a company incorporated in New Zealand under the Companies Act 1993 and listed
on the NZX Main Board and the Australian Securities Exchange. The Company is a reporting entity under Part 7 of
the Financial Markets Conduct Act 2013.
The interim financial statements of the Group have been prepared in accordance with New Zealand Generally
Accepted Accounting Practice (NZ GAAP), and for the purposes of NZ GAAP, the Group is a for-profit entity. They
comply with NZ IAS 34 Interim Financial Reporting and IAS 34 Interim Financial Reporting and consequently
include a lower level of disclosure than is required for annual financial statements.
The interim financial statements should be read in conjunction with the annual financial statements for the year
ended 30 September 2021, which have been prepared in accordance with International Financial Reporting
Standards and New Zealand Equivalents to International Financial Reporting Standards.
6March balances unaudited, September audited
Tower Limited
1.3Segmental reporting
a. Operating segments
b. Financial performance
$ thousands
New Zealand Pacific Islands OtherTotal
Half year ended 31 March 2022
Gross written premium189,569 26,521 -216,090
Gross earned premium - external179,769 27,309 -207,078
Outwards reinsurance expense(24,377)(8,996)-(33,373)
Net earned premium155,392 18,313 -173,705
Net claims expense(103,412)(13,469)96 (116,785)
Net commission expense(3,920)(782) - (4,702)
Underwriting expense(39,454)(6,562)-(46,016)
Underwriting profit/(loss)8,606 (2,500)96 6,202
Net investment income(993)79 -(914)
Other227 80 -307
Profit/(loss) before tax7,840 (2,341)96 5,595
Profit/(loss) after tax4,593 (1,707)96 2,982
Half year ended 31 March 2021 Restated
Gross written premium169,189 25,374 -194,563
Gross earned premium - external168,311 27,569 -195,880
Outwards reinsurance expense(19,638)(8,486)-(28,124)
Net earned premium148,673 19,083 -167,756
Net claims expense(98,236)(3,227)-(101,463)
Net commission expense(7,303)(844) - (8,147)
Underwriting expense(35,474)(6,502)-(41,976)
Underwriting profit7,660 8,510 -16,170
Net investment income391 84 -475
Other10 40 - 50
Profit before tax8,061 8,634 -16,695
Profit after tax5,068 6,047 -11,115
c. Financial position
Total assets 31 March 2022665,256 112,150 (14,943)762,463
Total assets 30 September 2021705,577 105,561 (10,616)800,522
Total liabilities 31 March 2022395,983 60,324 (713)455,594
Total liabilities 30 September 2021399,732 51,688 (618)450,802
Total equity 31 March 2022269,273 51,826 (14,230)306,869
Total equity 30 September 2021305,845 53,873 (9,998)349,720
Tower operates in two geographical segments, New Zealand and the Pacific region. New Zealand comprises the
general insurance business underwritten in New Zealand. Pacific Islands comprises the general insurance business
underwritten in the Pacific by Tower subsidiaries and branch operations. Other contains balances relating to Tower
Services Limited (management services entity), and also includes intercompany eliminations and group
diversification benefits. The Group does not derive revenue from any individual or entity that represents 10% or
more of the Group's total revenue.
7March balances unaudited, September audited
Tower Limited
2 Underwriting activities
2.1Net claims expense
31-Mar-2231-Mar-2131-Mar-2231-Mar-2131-Mar-2231-Mar-21
Gross claims expense114,192 105,817 7,001 329 121,193 106,146
Reinsurance and other recoveries revenue(616)(4,089)(3,792)(594)(4,408)(4,683)
Net claims expense113,576 101,728 3,209 (265)116,785101,463
2.2Net outstanding claims
31-Mar-2230-Sep-2131-Mar-2230-Sep-2131-Mar-2230-Sep-21
Central estimate of future cash flows100,946 87,535 16,353 16,402 117,299 103,937
Claims handling expense5,657 5,430 1,027 1,314 6,684 6,744
Risk Margin7,239 6,724 4,883 4,933 12,122 11,657
Gross outstanding claims113,842 99,689 22,263 22,649 136,105 122,338
Reinsurance recoveries(16,807)(18,970)(3,136)(3,880)(19,943)(22,850)
Net outstanding claims97,035 80,719 19,127 18,769 116,162 99,488
Canterbury earthquakeTotal
This section provides information on Tower's underwriting activities.
Tower collects premiums from customers in exchange for providing insurance coverage. These premiums are
recognised as revenue when they are earned by Tower, with a liability for unearned premiums recognised on the
balance sheet.
When customers suffer a loss that is covered by their policy, Tower will make payments to customers or suppliers,
which it recognises as claims expenses. To ensure that Tower’s obligations to customers are properly recorded
within the financial statements, Tower recognises provisions for outstanding claims.
To manage Tower’s risk and optimise its returns, Tower reinsures some of its exposure with reinsurance
companies. The premiums paid to reinsurers are recognised as an expense, while recoveries from reinsurers are
recognised as revenue.
$ thousands
Exc. Canterbury
earthquake
$ thousands
Exc. Canterbury
earthquake
Canterbury earthquakeTotal
8March balances unaudited, September audited
Tower Limited
2.3Unearned premium liability
%31-Mar-2230-Sep-21
44.2%45.2%
10.6%11.0%
2.4 Receivables
$ thousands31-Mar-2230-Sep-21
Gross premium receivables183,334 177,141
Provision for impairment(653)(655)
Premium receivables182,681 176,486
Reinsurance recoveries (excluding Canterbury earthquakes)21,032 20,326
Canterbury earthquake reinsurance recoveries5,167 3,880
Other recoveries6,202 5,208
Reinsurance and other recoveries32,401 29,414
Finance lease receivables3,340 4,278
Prepayments4,887 3,279
Other receivables2,966 2,396
Receivables226,275215,853
Risk margin as a % of net claims
Central estimate net claims as a % of unearned premium liability
Adequacy of unearned premium liability
Tower undertakes a liability adequacy test ("LAT") to determine whether the unearned premium liability is
sufficient to pay future claims net of reinsurance recoveries.
If the present value of expected future net cash flows relating to current insurance contracts, plus a risk margin,
exceeds the unearned premium liabilities less related deferred acquisition costs and intangible assets, then the
unearned premium liability is deemed deficient. This deficiency is immediately recognised in profit or loss. In
recognising the deficiency, Tower will first write down any related deferred acquisition costs or intangible assets
The unearned premium liabilities as at 31 March 2022 were sufficient across all businesses for the Group. The total
deficit recognised for the Group as a charge against deferred acquisition cost was nil (30 September 2021: $2.5m).
The write down held as at 30 September 2021 of $2.5m has been released to underwriting expenses during the
period ending 31 March 2022.
9March balances unaudited, September audited
Tower Limited
3 Investments
3.1Investment (losses)/income
$ thousands31-Mar-2231-Mar-21
Interest income2,928 2,695
Net realised loss(1,864)(463)
Net unrealised loss(1,798)(1,516)
Investment (losses)/income(734)716
3.2Investments
$ thousands31-Mar-2230-Sep-21
Fixed interest investments245,121 277,436
Property investment34 34
Investments245,155 277,470
3.3Fair value hierarchy
$ thousandsLevel 1Level 2Level 3Total
As at 31 March 2022
Fixed interest investments - 245,121 - 245,121
Property investment - 34 - 34
Investments - 245,155 - 245,155
As at 30 September 2021
Fixed interest investments - 277,436 - 277,436
Property investment - 34 - 34
Investments - 277,470 - 277,470
Tower designates its investments at fair value through the statement of comprehensive income in accordance
with its Treasury policy.
Net realised losses relate to the maturity of fixed interest bonds, with interest coupon rates higher than market
rates, purchased at higher than face value. The corresponding higher interest received is reflected in the interest
income amount.
Tower invests funds collected as premiums and provided by shareholders to ensure it can meet its obligations to
pay claims and expenses and to generate a return to support its profitability. Tower has a low investment risk
tolerance and therefore the majority of its investments are in investment grade supranational and bank bonds.
10March balances unaudited, September audited
Tower Limited
4 Risk Management
4.1 Capital management risk
Regulatory solvency capital
$ thousands
ParentGroupParentGroup
Actual solvency capital137,875 171,405 179,439 214,128
Minimum solvency capital65,695 77,624 66,252 79,927
Solvency margin72,180 93,781 113,187 134,201
Solvency ratio210%221%271%268%
31-Mar-2230-Sep-21
Tower is required to hold a minimum solvency margin of $25.0m as a license condition of the Reserve Bank of
New Zealand (30 September 2021: $25.0m).
Tower is exposed to multiple risks as it works to set things right for its customers and their communities
whilst maximising returns for its shareholders. Everyone across the organisation is responsible for ensuring
that Tower's risks are managed and controlled on a daily basis.
11March balances unaudited, September audited
Tower Limited
5 Capital Structure
5.1Contributed equity
$ thousands31-Mar-2230-Sep-21
Opening balance492,424 492,424
Return of share capital to shareholders*(30,625) -
Purchase of non-controlling interests**(1,599) -
Total contributed equity460,200492,424
Represented by:
Opening balance421,647,258 421,647,258
Cancellation of shares on return of capital(42,163,271) -
Total shares on issue379,483,987421,647,258
5.2Earnings per share
Restated
31-Mar-2231-Mar-21
Profit attributable to shareholders ($ thousands)2,930 10,585
Weightedaverage number of ordinary shares for basic anddiluted
earnings per share (number of shares)
416,318,933 421,647,258
Basic and diluted earnings per share (cents)0.7 2.5
This section provides information about how Tower finances its operations to provide financial security to its
customers, employees and other stakeholders.
*On 9 March 2022 the Group completed its ordinary share buy-back for a consideration of $30.6m (including
transaction costs). This resulted in 42.2m shares being cancelled for the half year ended 31 March 2022.
**On 14 October 2021 Tower Limited reached an agreement to increase its shareholding in National Pacific
Insurance Limited from 71.39% to 93.88% for a consideration of $3.4m. Tower Limited subsequently
commenced a process to acquire the remaining 6.12% shareholding which completed on 17 December 2021
for a consideration of $0.9m.
12March balances unaudited, September audited
Tower Limited
6 Other balance sheet items
6.1 Intangible assets
As at 31 March 2022
$ thousands
GoodwillSoftware
Customer
Relationships
Total
Composition:
Cost17,744 73,000 29,216
119,960
Accumulated amortisation - (22,118)(8,732)(30,850)
Intangible Assets17,74450,88220,48489,110
Reconciliation:
Opening balance17,744 48,527 22,321 88,592
Amortisation - (4,675)(2,397)(7,072)
Additions - 8,059 560 8,619
Disposals - (184) - (184)
Transfers - (845) - (845)
Closing Balance17,74450,88220,48489,110
As at 30 September 2021
Composition:
Cost17,744 98,850 28,656 145,250
Accumulated amortisation - (50,323)(6,335)(56,658)
Intangible Assets17,74448,52722,32188,592
Reconciliation:
Opening balance17,744 47,866 12,238 77,848
Amortisation - (8,205)(4,351)(12,556)
Additions - 10,528 14,434 24,962
Disposals - (237) - (237)
Transfers - (1,425) - (1,425)
Closing Balance17,74448,52722,32188,592
This section provides information about assets and liabilities not included elsewhere.
Additions to software assets during the period ended 31 March 2022 relate to continued investment in Tower's
core insurance platform, including development of MyTower, as well as the development of data analytics
tools.
13March balances unaudited, September audited
Tower Limited
7
7.1
Composition of Cash and cash equivalents
Restated
$ thousands31-Mar-2231-Mar-21
Cash at bank74,545 67,357
Deposits at call26,646 17,770
Cash and cash equivalents101,191 85,127
Reconciliation of profit for the half year to cash flows from operating activities
Profit for the half year2,982 11,115
Adjusted for non-cash items
Depreciation of property, plant and equipment1,027 1,052
Depreciation, impairment and disposals of right-of-use assets1,222 1,123
Amortisation of intangible assets7,071 6,082
Financing costs460 137
Fair value losses on financial assets3,662 1,978
Gain on disposal of fixed assets(82) -
Change in deferred tax853 4,169
Change in receivables(12,489)57,031
Change in payables19,238 (25,581)
Change in taxation1,113 86
25,057 57,192
Net cash inflows from operating activities
Other information
This section includes additional disclosures which are required by financial reporting standards.
Notes to the consolidated statement of cash flows
Adjusted for movements in working capital
14March balances unaudited, September audited
Tower Limited
7.2Contingent liabilities
Claims and disputes
7.3Subsequent events
7.4Capital commitments
7.5Change in comparatives
'Software-as-a-service' arrangements
SaaS arrangements are service contracts providing the Group with the right to access a cloud provider’s
application software over a stated time period. Costs the Group incurs to configure, customise and
maintain access to providers’ application software are recognised as operating expenses when incurred and
in accordance with contracted terms.
Impact of accounting policy change
In the year ended 30 September 2021 the Group revised its accounting policy in relation to the
configuration and customisation costs incurred in implementing 'Software as a Service' (SaaS) or 'cloud
computing' arrangements. These are arrangements in which, as a Group, application software is accessed
over the internet or via a dedicated portal as required. The change in accounting policy resulted from the
IFRS Interpretations Committee pronouncements as to how current accounting standards apply to these
types of arrangements in principle, primarily in relation to the recognition and measurement criteria of IAS
38 Intangible Assets with specific respect to Software and IT related projects in progress.
The Group has no other contingent liabilities.
The Group is occasionally subject to claims and disputes as a commercial outcome of conducting insurance
business. Provisions are recorded for these claims or disputes when it is probable that an outflow of
resources will be required to settle any obligations. Best estimates are included within claims reserves for
any litigation that has arisen in the usual course of business.
On 26 May 2022, the Board approved an interim dividend of 2.5 cents per share, with the dividend being
payable on 30 June 2022. The anticipated cash impact of the interim dividend is approximately $9.5m.
There were no other subsequent events.
As at 31 March 2022, Tower has nil capital commitments (30 September 2021: nil).
As a result of this change in accounting policy, the Group has determined certain costs that have been
capitalised relating to SaaS arrangements should have been expensed when they were incurred.
The changes are required to be applied retrospectively. Costs capitalised prior to 1 October 2020 that
should have been expensed have been adjusted against opening accumulated losses at 1 October 2020.
Costs capitalised in the half year ended 31 March 2021 that should have been expensed have been
reclassified to the consolidated statement of comprehensive income. The impact on the financial
statements for the half year ended 31 March 2021 is summarised below:
Consolidated statement of comprehensive income
- an increase in underwriting expenses for the half year ended 31 March 2021 of $1.2m.
- a decrease in tax expense for the half year ended 31 March 2021 of $0.4m.
- an overall decrease in net profit after tax for the half year ended 31 March 2021 of $0.9m.
15March balances unaudited, September audited
Tower Limited
7.5Change in comparatives (continued)
Consolidated balance sheet - presentation changes to 30 September 2021
7.6Impact of new accounting standards
Issued and not yet effective
Consolidated statement of cash flows
NZ IFRS 17 Insurance Contracts is effective for periods beginning on or after 1 January 2023. Tower will apply the
standard for the year ending 30 September 2024, with the comparative period for the year ending 30 September
2023.
The standard replaces the current guidance in NZ IFRS 4 Insurance Contracts, and establishes principles for the
recognition, measurement, presentation and disclosure of insurance contracts. The standard introduces
substantial changes in the presentation of financial statements and disclosures, introducing new balance sheet
and income statement line items and increased disclosure requirements compared with existing reporting.
Tower has a programme with dedicated resource to assess the impact of adopting NZ IFRS 17 and to project
manage the transition to the new standard including system development. Tower has completed an initial draft
of accounting policies under NZ IFRS 17, and systems development work is underway. An initial assessment has
been completed on Tower's contracts, and it is expected that the majority of Tower's insurance contracts will
meet the requirements of the simplified approach available under NZ IFRS 17. Due to the complexity of the
requirements within the standard and the availability of accounting policy choices as to how the standard is
implemented which have not yet been finalised a full assessment of the financial impact has not yet been
completed.
- a decrease in earnings per share for the half year ended 31 March 2021 of 0.19 cents.
- the reduction in opening accumulated losses at 1 October 2020 relating to costs capitalised pre 1 October 2020
is $5.1m.
- an increase in employee and supplier payments for the half year ended 31 March 2021 of $1.6m.
- a decrease in payments for purchase of intangible assets for the half year ended 31 March 2021 of $1.6m.
Earnings per share
Adjustment relating to periods before 1 October 2020
Tower has reclassified a portion of its deferred tax liability balance from the 30 September 2021 balance sheet to
conform to the current year's presentation basis. Tower has reclassified $1.8m of deferred tax liabilities to offset
with deferred tax assets. This reflects Tower’s intention and ability to use tax assets of one group entity to offset
the tax liabilities of another group entity in future periods. The impact on the financial statements for the year
ended 30 September 2021 is summarised below:
- a decrease in deferred tax asset for the year ended 30 September 2021 of $1.8m.
- a decrease in deferred tax liability for the year ended 30 September 2021 of $1.8m.
Consolidated balance sheet
16March balances unaudited, September audited
PricewaterhouseCoopers, PwC Tower, 15 Customs Street West, Private Bag 92162, Auckland 1142 New Zealand
T: +64 9 355 8000, www.pwc.co.nz
Independent auditor’s review report
To the shareholders of Tower Limited
Report on the consolidated interim financial statements
Our conclusion
We have reviewed the consolidated interim financial statements of Tower Limited (the Company) and
its subsidiaries (the Group), which comprise the consolidated balance sheet as at 31 March 2022, and
the consolidated statement of comprehensive income, the consolidated statement of changes in equity
and the consolidated statement of cash flows for the half year ended on that date, and selected
explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the
accompanying consolidated interim financial statements of the Group do not present fairly, in all
material respects, the financial position of the Group as at 31 March 2022, and its financial
performance and cash flows for the half year then ended, 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).
Basis for conclusion
We conducted our review in accordance with the New Zealand Standard on Review Engagements
2410 (Revised) Review of Financial Statements Performed by the Independent Auditor of the Entity
(NZ SRE 2410 (Revised)). Our responsibility is further described in the Auditor’s responsibility for the
review of the financial statementssection of our report.
We are independent of the Group in accordance with the relevant ethical requirements in New
Zealand relating to the audit of the annual financial statements, and we have fulfilled our other ethical
responsibilities in accordance with these ethical requirements. Other than in our capacity as auditor
and providers of assurance services over solvency and regulatory returns we have no relationship
with, or interests in, the Group. 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 services and this
matter have not impaired our independence as auditor of the Group.
Directors’ responsibility for the financial statements
The Directors are responsible on behalf of the Company for the preparation and fair presentation of
these consolidated interim financial statements in accordance with IAS 34 and NZ IAS 34 and for such
internal control as the Directors determine is necessary to enable the preparation and fair presentation
of the consolidated interim financial statements that are free from material misstatement, whether due
to fraud or error.
Auditor’s responsibility for the review of the financial statements
Our responsibility is to express a conclusion on the consolidated interim financial statements based on
our review. NZ SRE 2410 (Revised) requires us to conclude whether anything has come to our
attention that causes us to believe that the consolidated interim financial statements, taken as a whole,
are not prepared in all material respects, in accordance with IAS 34 and NZ IAS 34.
A review of consolidated interim financial statements in accordance with NZ SRE 2410 (Revised) is a
limited assurance engagement. We perform procedures, primarily consisting of making enquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other
review procedures.
eeeeeeeeeee
PwC
2
The procedures performed in a review are substantially less than those performed in an audit
conducted in accordance with International Standards on Auditing and International Standards on
Auditing (New Zealand) and consequently does not enable us to obtain assurance that we might
identify in an audit. Accordingly, we do not express an audit opinion on these consolidated interim
financial statements.
Who we report to
This report is made solely to the Company’s Shareholders, as a body. Our review work has been
undertaken so that we might state to the Company’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.
The engagement partner on the review resulting in this independent auditor’s review report is Karen
Shires.
For and on behalf of:
Chartered Accountants
Auckland, New Zealand
26 May 2022
---
Tower
2022 Half
Year Results
1 October,2021 to 31 March,2022
26 May,2022
2
Chairman’s update
Michael Stiassny, Chairman
Business update
Blair Turnbull, Chief Executive Officer
HY22 financial performance
Paul Johnston, Chief Financial Officer
Looking forward
Blair Turnbull, Chief Executive Officer
Agenda
3
Chairman’s update
Sound business performance and delivering dividends
TACKLING THE
CHALLENGES
•Proactively managing
climate change risks
•Robust reinsurance
programmeproviding
protection from large events
•Rating and underwriting
actionsaddressinginflation
STRONG CAPITAL
POSITION
•Guidance affirmed and 2.5¢
dividend announced
•AM Best reaffirmed A-
financial strength rating
•$30.4m capitalreturned to
shareholders
•Prudent use of capital in
value accretive acquisitions
CONTINUED
LONG-TERM GROWTH
•Solid performance
continuing on core business
platform
•Flagship Tower Direct
digitalbusiness growing
•Leveraging unique
partnership distribution
capability
•Digitising Pacific business
improving efficiency &
growth
4
Business
Update
Blair Turnbull
Chief Executive Officer
48.6%
vs 48.2% in HY21
Our performance
Good business performance, achieved through growth and efficiencies
GWP growth
(Gross written premium)
11% | $216m
vs $194m in HY21
BAU claims ratio
MER
(Management expense ratio)
35.8%
vs 37.1% in HY21
Customer growth
312,000
vs 294,000 in HY21
$18.2m
vs $17.1m in HY21
Underlying profit
excl. large events
Large events
$17.9m
vs $9.3m in HY21
Reported profit
$3m
vs $11.1m in HY21
94.8%
vs 90.9% in HY21
COR
(Combined operating ratio)
5
$20m aggregate cover
$862m catastrophe cover
Climate change and large events
Managing increasinglarge event frequency and severity
Reinsurance
Flood & earthquake
Coastal risks planned for HY23
Risk-based pricing
6
R O L L I N G 1 2 M O N T H S L A R G E E V E N T S
( U L T I M A T E E S T I M A T E )
1424282247
$21m -$25m
Underlying NPAT
5.5¢total dividend for the
full year expected
Outlook for second half
Expecting continued business performance, large events impacts mitigated
Guidance confirmed
Sound business performance
•Expecting continued growth in premium revenue
•Controlling inflationary pressure on claims expenses
•Management expenses benefitting from increased scale
Reinsurance programmewill reduce volatility in second half
•Tower pays first $20m of large events in the year (currently at
$17.9m)
•Reinsurance covers aggregate event costs in excess of $20m up
to a limit of $40m
•$20m of total large events costs is planned for within the FY22
guidance range
2.5¢
HY dividend announced
7
1
Note 1: Tower’s ordinary dividend policy is to pay out 60-80% of the full year cash earnings, where prudent to do so, with cash earningsdefined as full year Reported Net Profit After Tax adjusted for acquisition
amortisationand unusual items
8
Strong core business performance
v s $ 1 6 . 7 mHY21
U N D E RLY I N G N P A T
e xc l . l a r g e e ve nt s & N I I
$18.9m
94.8%
C O M B I N E D O P E RA T I N G
RA T I O
v s 9 0 . 9 % H Y 2 1
U N D E R L Y I N G N P A T
( E X C L . L A R G E E V E N T S & N E T I N V E S T M E N T I N C O M E )
•Improved business
performance
•Strong growth
•Managing inflation &
claims costs
•Platform delivering scale
& efficiencies, reducing
MER
C O M B I N E D O P E R A T I N G R A T I O
9
Consistent growth in customers and premium
u p 6 % o n H Y 2 1
C U S T O M E RS
312,000
G W P G RO W T H
11%
C O S T T O A C Q U I RE
11%
o f n e t e a r n e d p r e m i u m
v s 1 2 % H Y 2 1
t o $ 2 1 6 m i n H Y 2 2
v s 3 4 % i n H Y 2 1
N E T P RO M O T E R S C O RE
( N P S )
40%
1 2 M O N T H R O L L I N G
G W P B Y B U S I N E S S U N I T
CUSTOMER NUMBERS (‘000s)
10
Digitisationdriving customer engagement and growth
o f N Z s a l e s a r e t o
e x i s t i n g c u s t o m e r s
C RO S S S E LL
42%
D I G I T A L S A LE S
63%
O N LI N E Q U O T E S
41%
o f T o w e r D i r e c t s a l e s
a r e d i g i t a l . U p f r o m
5 8 % H Y 2 1
U p f r o m 4 7 % H Y 2 1
M Y T O W E R C U S T O M E RS
W I T H M U LT I P LE
P RO D U C T S
55%
% O F D I G I T A L N E W B U S I N E S S
S A L E S -T O W E R D I R E C T
MY TOWER REGISTRATIONS (‘000s)
i n c r e a s e f r o m H Y 2 1
55%
11
Expanding partnerships, driving scalable growth
r i s k s u p 3 5 % v s H Y 2 1
F L A G S H I P T R A D E M E
P A R T N E R S H I P
A C C E L E R A T I N G G R O W T H
40,000
A C C E L E R A T E D A D V I S O R
G R O W T H
1,400
2 1 % i n c r e a s e s i n c e
N o v ‘ 2 1
O n e o f N Z ’ s l a r g e s t
i m p o r t e r s o f u s e d
c a r s
B U I L D I N G P A R T N E R S H I P
E C O S Y S T E M S
NZ Automotive
Investments Ltd
ANZ, Westpac
P U R C H A S E O F L E G A C Y
B O O K S
W e s t p a c i n F e b ' 2 2
1 2 M O N T H R O L L I N G
P A R T N E R S H I P G W P ( E X C L A N Z )
C O M M I S S I O N ( % t o G E P )
12
Pacific digitisationdelivering enhanced efficiencies
D I G I T A L P L A T F O R M
E N A B L I N G N E W
B U S I N E S S
88%
S T R E A M L I N I N G N Z &
P A C I F I C O P E R A T I O N S
One Tower
brand
i n F Y 2 2 f o l l o w i n g
N P I a c q u i s i t i o n
o f a l l F i j i n e w
b u s i n e s s v i a E I S i n
M a r ‘ 2 2 v s 2 3 % i n M a r
‘ 2 1
•Tower technology platform
launched in Fiji, Tonga, Vanuatu and
Samoa, plan to complete rollout in
2022
•Pacific industry-first online
payments capability
•Domestic product suite rationalised
from 33 to 13, aligned with NZ
•Resilient to challenges –Solomon
Islands riots, Tonga volcanic
eruption & tsunami, Covid
13
Disciplined, data-driven underwriting improving risk accuracy
o f N Z c u s t o m e r s
u p d a t e d v i a C P I o r
C o r d e l l v s 5 7 % H Y 2 1
A U T O M A T E D H O U S E S U M
I N S U RE D
99.8%
RI S K B A S E D P RI C I N G
70,000
A G I LE RA T I N G C A P A B I LI T Y
70+
pr i c i n g a n d
u n d e r w r i t i n g
a d j u s t m e n t s a n n u a l l y
N Z c u s t o m e r s
t r a n s i t i o n e d t o f l o o d
r i s k p r i c i n g
N Z r i s k s s o l d w i t h o u t
u n d e r w r i t i n g
i n t e r v e n t i o n
S T RA I G H T T H RO U G H
U N D E RW RI T I N G
95%
% S T R A I G H T T H R O U G H
U N D E R W R I T I N G N Z
14
Decisive actions to address claims inflation are delivering
A U T O M A T I O N T O E N H A N C E
E F F I C I E N C I E S
AI
S U P P LY C H A I N
O P T I M I S A T I O N
76%
B A U C LA I M S RA T I O
48.6%
F a s t e r , m o r e
a c c u r a t es c r e e n i n g t o
i d e n t i f y f r a u d u l e n t
c l a i m s . L a u n c h e d M a y ‘ 2 2
o f N Z m o t o r r e p a i r s b y
p r e f e r r e ds u p p l i e r s
o f N Z c l a i m s l o d g e d
o n l i n e i n M a r ‘ 2 2
D I G I T A L C LA I M S
LO D G E M E N T
48%
B A U C L A I M S R A T I O
v s 4 8 . 2 % H Y 2 1
C L A I M S L O D G E D D I G I T A L L Y
15
Improving MER through platform efficiency
r e m a i n i n g b y e n d o f
2 0 2 2
D E C O M M I S S I O N I N G LE G A C Y
S Y S T E M S
2
M Y T O W E R W E E KLY
LO G-I N S
11,000
D I G I T A L T RA N S A C T I O N S
52%
M E R
u p 1 0 % o n H Y 2 1
8 0 % i n c r e a s e o n H Y 2 1
v s 3 7 . 1 % i n H Y 2 1
35.8%
M A N A G E M E N T E X P E N S E R A T I O ( % N E P )
T A S K S C O M P L E T E D D I G I T A L L Y
16
Strong capital & solvency, delivering shareholder returns
a f t e r 2 . 5 ¢ d i v i d e n d
A-
$72.2m
C A P I T A L R E T U R N
$30.4m
r e t u r n e d t o
s h a r e h o l d e r s i n
M a r c h 2 0 2 2
A M B E S T
F I N A N C I A L S T R E N G T H
R A T I N G
S U R P L U S C A P I T A L A B O V E
M I N I M U M S O L V E N C Y
C A P I T A L
a f f i r m e d i n
A p r i l 2 0 2 2
Tower’s ordinary dividend policy is to pay out 60-80% of the full year cash earnings, where prudent to do so, with cash earningsdefined as full year Reported Net Profit After Tax adjusted for
acquisition amortisationand unusual items
2.5¢half year
dividend
2.5¢half year
dividend
210%
T O W E R P A R E N T
S O L V E N C Y
a f t e r c a p i t a l r e t u r n
a n d h a l f y e a r
d i v i d e n d
Financial
performance
Paul Johnston
Chief Financial Officer
18
Group underlying financial performance
•Strong GWP growth of 11% to $216.1m
•Management expense ratio improved 1.3%, reflecting
scale platform efficiencies and release of Liability
Adequacy Test provision
•Lower commission expense through ANZ portfolio
acquisition andprovision for HY proportional
reinsurance profitshare
•Underlying NPAT before large events of $17.9m
increased 6.4% on HY21
•Reported profit impacted by CEQ valuation increase of
$2.3m after tax
Note: 1: Management expenses and tax have been restated in the comparative period for the IFRIC accounting treatment decisiononsoftware-as-a-service costs previously capitalised now expensed
Note 2: There has been a minor reclassification between management expenses and “other income and expenses” in the comparative period
Note 3: Refer to reconciliation between Underlying NPAT and Reported profit on page 34
19
Underlying NPAT impacted by large events
M O V E M E N T I N U N D E R L Y I N G N P A T
•Underlying NPAT of $5.4m is $5m below HY21
•Additional large events of $8.6m ($6.2m after
tax) and reduction in net investment income
of $1.4m ($1m after tax) were significant
drivers of decrease in earnings
•Increase in expenses includes ANZ purchase
amortisationand increase in staffing levels
•Business growth underpinned by 11% GWP
growth
•Reduction in commission of $2.5m after tax
reflects the purchase of ANZ back book
20
Steady BAU claims ratio in a challenging environment
N Z M O T O R F R E Q U E N C Y & S E V E R I T Y
•High inflation period impacting cost of claims (severity)
however reduction in BAU claims ratio highlights
appropriate rating changes made to manage profit
challenges
•NZ motor claims frequency down due to lighter traffic
duringCovid lockdown
•New anti-fraud tool live in FY22 H2
Note 1: Severity is defined as the cost of closed claims (excluding large events, large house, windscreen, zero value or negative incurred claims) divided by the count of claims
Note 2: Frequency is defined as the number of claims (same exclusions as above) divided by risks in force
N Z H O U S E F R E Q U E N C Y & S E V E R I T Y
T O T A L C L A I M S R A T I O
21
Continued focus on management expenses
M O V E M E N T I N M A N A G E M E N T E X P E N S E R A T I O
•Management expense ratio (MER) reduced 1.3% to
35.8%
•GWP growth contributes a 1.4% reduction in MER
•Staff costs increased MER by 0.9% over HY21
•Net commission expenses decreased due to the
purchase of the ANZ portfolio, and an increase in
reinsurance profit share income in HY22
•Liability adequacy test (LAT) at 30 September 2021
resulted in an additional $2.1m of acquisition costs
that were unable to be capitalized now released
22
Robust reinsurance programmesupports resilience
R E I N S U R A N C E P R O G R A M M E O V E R V I E W
FY22 large events
•$17.9m large events incurred in HY22; Tonga volcanic
eruption ($7.6m), Cyclone Dovi($3.6m), and North Island
Rainstorms ($6.7m)
•Further large events are met by aggregate reinsurance
cover once they reach $20m, up to $40m
•FY22 guidance assumes the full use of $20m large event
excess
FY22 reinsurance cover
•Catastrophe cover: $873m limit with retention of $11.25m
•Aggregate cover:$20m with excess of $20m and event
range of $2m to $10m, excluding NZ earthquake
23
Investment strategy limits impact of market volatility
Note 1: Core investment portfolio refers to Tower’s fixed income investment portfolio in NZ. It excludes cash held for operational purposes in NZ, and cash and short-term deposits held in Tower’s
Pacific subsidiaries.
Subsidiaries of banking groups with a credit rating have been grouped under their parent bank’s credit rating, even if unrated themselves
C O R E P O R T F O L I O Y I E L D
•Increases in interest rates have resulted in losses of $0.9m as the portfolio is revalued to market values -these losses are expected
to be recovered through higher yields as the portfolio matures
•Tower maintains a conservative investment strategy, with a focus on liquidity and high credit quality, and a target duration forthe
core investment portfolio of six months
•Our strategy has minimisedprofit impact from macroeconomic factors and market movements
•The running yield on the core investment portfolio has increased to 2.45% at 31 March 2022 (from 1.32% at 30 September 2021)
A S S E T P R O F I L E –A L L C A S H & I N V E S T M E N T S
1
24
Canterbury earthquake claims a continuing challenge
Note 1: IBNR = Incurred but not reported; IBNER = Incurred but not enough reported.
O P E N C E Q C L A I M S
•Continuing to settle open claims with 22
closed over the half
•Reduction in open claims slows as Tower
continues to receive new and re-opened
claims
•Several complex open claims have had
significantstrengthening, driven by both
inflation and more costly rectification
approaches
•Remaining Gross Outstanding Claims
provision is $22.3m
•HY22 has seen an adverse P&L charge of
$2.3m after tax in non-underlying items
C E Q R E S E R V I N G
25
66.3 66.3
65.7 65.7
25.0 25.0
25.0 25.0
31.5 31.5
31.4 31.4
18.9 18.9
18.8
15.8
48.2
7.3
6.4
30-Sep-21 pre
dividend and
capital return
30-Sep-21
post dividend
and capital
return
31-Mar-22 pre
dividend
31-Mar-22
post dividend
Surplus to operating range
Operating range
Target solvency margin
License condition
Minimum solvency capital
SR =287%
SR =225%
SR =224%
SR =210%
Strong capital and solvency position
Note 1: Tower’s ordinary dividend policy is to pay out 60-80% of the full year cash earnings, where prudent to do so, with cash earningsdefined as full year Reported Net Profit After Tax adjusted
for acquisition amortisationand unusual items
Note: 2: SR = Solvency ratio –the ratio of actual solvency capital to minimum solvency capital
T O W E R S O L V E N C Y -N Z P A R E N T ( $ m )
•In the last 12 months Tower has returned to
shareholders dividends of $21.1m and a capital return
of $30.4m
•Strong solvency ratio of 210% as at 31 March 2022
allowing for a 2.5c dividend to be paid on 30 June 2022
•Solvency margin is $72.2m above minimum solvency
capital, after declaration of a half-year dividend
•Strong capital position will enable continued
investments in partnerships, legacy customer base
buy-backs and IT investment while maintaining a
dividend stream
26
Full year guidance unchanged
FY21 ActualFY22 Guidance
Underlying NPAT
excluding large events
$29.3m$35.4m to $39.4m
Large events after tax (before tax)$10m($13.9m)$14.4m($20m)
Underlying NPAT$19.4m$21m to $25m
Dividend5 cents per share5.5 cents per share
FY22 guidance has assumed Tower utilisesthe full $20m excess on its aggregate reinsurance cover. Additional large events
will not impact NPAT unless the $20m aggregate reinsurance cover is exhausted.
Note 1: FY21 Underlying NPAT has been restated for the IFRIC accounting treatment decision on software-as-a-service costs previously treated as a non-underlying item in the full year results
Note 2: Tower’s ordinary dividend policy is to pay out 60-80% of the full year cash earnings, where prudent to do so, with cash earningsdefined as full year Reported Net Profit After Tax adjusted for
acquisition amortisationand unusual items
2
1
Looking
forward
Blair Turnbull
Chief Executive Officer
28
Committed to fair and transparent insurance services
C U S T O M E RS V A LU E
T RA N S P A RE N C Y W H E N
S E LE C T I N G I N S U RA N C E
I N S U RA N C E I S N O T E A S Y
T O U N D E RS T A N D
Only 1/4 Kiwis
T RA N S P A RE N C Y O F
P RI C I N G C H A N G E S
EQC cap
T o w e r w i l l p r e s e n t
t h e c h a n g e t o
c u s t o m e r s v i s u a l l y
s t a k e h o l d e r s e n g a g e d
i n f l o o d r i s k c h a n g e s
T RA N S P A RE N T O N
C LI M A T E C H A N G E RI S KS
200+
a r e c o n f i d e n t t h e y
h a v e t h e r i g h t c o v e r
f o r a l l t h e i r r i s k s *
74%
o f K i w i s s a y
t r a n s p a r e n c y i s t h e
m o s t i m p o r t a n t f a c t o r *
*From Tower research commissioned in September 2021 which surveyed 1,000 New Zealanders
29
Tacklinglabourmarket challenges via our unique
footprint and positive culture
Leveraging unique footprint
•Digital platform enables workflow across multiple countries
•Leveraging access to talent in the Pacific and Rotorua,
offering high quality roles
•Operational diversification enables us to manage workflow
spikes and business interruption
Positive culture and engagement
•Refreshed Tower values
•Enhanced flexible working, staff recognition programmeand
benefits
•Transparency around gender pay gap –pay equity gap -1.4%
•Employee engagement up 6% on HY21 to 79%
30
Supporting communities through climate change
R E D U C T I O N I N T O W E R
A N N U A L C A R B O N
E M I S S I O N S
E N A B L I N G H E A L T H Y ,
S U S T A I N A B L E H O M E S
Sustainable
rebuild benefit
f r o m 5 5 1 t C O 2 e t o 3 7 8
t C O 2 ei n F Y 2 1 . 2 1 %
r e d u c t i o n t a r g e t b y 2 0 2 5 .
31%
S U P P O R T I N G E L E C T R I C
T R A N S P O R T A T I O N
p i l o t p l a n n e d f o r 2 0 2 2
P R O D U C T S T O S U P P O R T
P A C I F I C R E S I L I E N C E
Parametric
cover
60%
gr o w t hi n E V p o l i c i e s s o l d v s
H Y 2 1 . E-b i k e s & e-s c o o t e r s
c o v e r e d i n c o n t e n t s p o l i c i e s
Supporting climate
change education
A d d i t i o n a l $ 1 5 K a v a i l a b l e
f o r s u s t a i n a b l e p r o d u c t s
31
Investing in efficiency and growth
I N V E S T I N G I N A U T O M A T E D
M A RKE T I N G
p e r s o n a l i s e dm e s s a g e s
s e n t p o s t l a u n c h i n
HY22
1.5m
I N I T I A T I V E I N V E S T M E N T
H Y 2 2 t e c h n o l o g y
r e l e a s e s , v s 9 6 p r i o r
s i x m o n t h s
A G I LE T E C H N O LO G Y
D E L I V E R Y
134
I N V E S T I N G I N
A C Q U I S I T I O N S
ANZ, Youi,
Westpac
portfolios
I N V E S T I N G I N
T E C H N O LO G Y
Pacific EIS,
Oracle, FRISS
Well positioned to continue delivering dividends
and growth
•Strong underlying operating performance
•Achieving positive customer outcomes and growththrough:
•deeper customer relationships through digitisation
•innovative partnership model
•modernisingour Pacific business
•Continued focus on claims inflation and process enhancements
•Driving efficiencies through scalable platform and focus on expenses
•Deliveringpositive shareholder returns: dividends and accelerating growth
32
34
Reconciliation between underlying profit after tax and reported profit after tax
•
•
•
•
•
35
Disclaimer
This presentation has been prepared by Tower Limited to provide shareholders with information on Tower’s business. This
document is part of, and should be read in conjunction with an oral briefing to be given by Tower. A copy of this webcast of the
briefing is available at http://www.tower.co.nz/investor-centre/It contains summary information about Tower as at 31 March
2022 which is general in nature, and does not purport to contain all information a prospective investor should consider when
evaluating an investment. It is not an offer or invitation to buy Tower shares. Investors must rely on their own enquiries and
seek appropriate professional advice in relation to the information and statements in relation to the proposed prospects,
business and operations 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 information in this presentation does not
constitute financial advice.
Forward looking statements
This document contains certain forward-looking statements. Such
statements relate to events and depend on circumstances that will occur
in the future and are subject to risks, uncertainties and assumptions.
There are a number of factors 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 restrict
activities; the re-negotiation of contracts; fluctuations in demand and
pricing in the industry; fluctuations in exchange controls; changes in
government policy and taxation; industrial disputes; and war and
terrorism. These forward-looking statements speak only as at the date of
this document.
Disclaimer
Neither Tower nor any of its advisers or any of their respective
affiliates, related bodies corporate, directors, officers, partners,
employees and agents (other persons) makes any representation or
warranty as to the currency, accuracy, reliability or completeness of
information in this presentation. To the 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 subject to
change without notice.
---
1
Tower HY22 Investor Presentation Script
Slide 1 – 2022 Half Year Results
Michael Stiassny
Mōrena, good morning and thank you for making the time to join us for this
investor call and presentation of our 2022 half year results.
Slide 2 - Agenda
With me in Auckland is our Chief Executive Officer, Blair Turnbull and our Chief
Financial Officer, Paul Johnston who will take you through the results and
answer your questions.
Slide 3 – Chairman’s update
This half year for Tower is characterised by a strong business performance
which is delivering returns to shareholders. The actions we’ve taken to address
the inflation challenges of 2021 are working; the underlying business is strong;
Tower remains well capitalised and well positioned for long term growth.
Tackling the challenges
The insurance industry is not alone in facing a number of pandemic-induced
challenges including, inflationary pressures and supply chain issues. However,
those issues are likely to be temporary; the biggest challenge we collectively
face is how we help protect our world in the face of climate change.
At Tower, managing risks is what we do. We are committed to protecting both
the things our customers love, and the interests of our shareholders for the
long term.
2
We are acutely aware of the ways climate change is affecting our communities.
Our data clearly shows the frequency of large events and the severity of the
damage they cause increasing over time.
Large event costs over this half year were substantial. However, Tower’s
reinsurance programme provides protection from this volatility. The reality of
climate change is that we continue to plan for increased large events both
operationally and in our guidance.
Importantly, we have taken – and will continue to take – actions to future
proof our underwriting capability.
Last year this included the introduction of risk-based pricing for inland
flooding. A transparent and considered approach to communicating this
change ensured it was well received by customers.
These substantial actions will continue to have an impact throughout FY22 and
beyond.
Strong and well capitalised
Tower remains a resilient, strong and well capitalised business. We are
mitigating risks from large event costs and inflation, and we are growing well.
Therefore, we affirm our full year guidance of between $21m and $25m
underlying Net Profit After Tax (NPAT) and I am pleased to announce that
based on Tower’s ordinary dividend policy of paying 60-80% of cash earnings
where it is prudent to do so, the Board has declared an interim dividend of 2.5
cents per share, to be paid on the 30
th
of June.
Tower’s financial strength was reaffirmed at A-, excellent, last month by rating
agency AM Best.
3
And in the last 12 months Tower has returned $51m to shareholders through
dividends and a capital return.
We continue to look for value accretive investments that will deliver strong
shareholder value. To that end, over the half we have purchased the minority
interests in National Pacific Insurance and entered into an agreement to
purchase a back book from Westpac.
Positioned for long term growth
Our unique technology and distribution footprint have positioned Tower well
to continue delivering GWP growth.
It is clear that Tower is delivering on its strategy of innovation and growth. Our
flagship Tower Direct business and unique partnership distribution capability
continue to go from strength to strength.
The Pacific business has proven remarkably resilient through Covid and
digitisation will lead to further improvements in efficiency and
competitiveness.
Before I hand over to Blair, I’d like to acknowledge the Tower team. As we all
recognise, it’s been a particularly difficult period on many fronts. However,
despite this, Tower is paying a dividend, we remain strong and well capitalised,
and we have achieved sustained premium growth. This is a credit to Tower’s
solid strategy and the dedication of the people that implement it.
I’ll now hand over to Blair and Paul, who will take you through the results and
outlook before we take questions.
4
Blair Turnbull
Slide 4 – Business update
Kia ora, thank you Michael and good morning, everyone.
I am delighted to be here sharing our half year results for 2022 which see
Tower in a positive position.
Today’s results demonstrate the resilience of our customer and digitally led
strategy. We are continuing to grow; to drive down expenses; and to respond
quickly to the changing external environment.
Our technology and distribution advantage sets us apart from our competitors
and affords strong long-term customer and premium growth prospects.
Slide 5 – Our performance - good business performance, achieved through
growth and efficiencies
Tower has seen good business performance for the half year which has been
achieved through strong growth and efficiencies.
Offering customers a simple and rewarding experience through our leading
technology platform has helped grow Tower’s Gross Written Premium for the
half year to 31 March to $216 million, up 11% on the same period last year.
Contributing to this was good customer growth, with Tower welcoming 18,000
new customers in the past 12 months.
As the Chair referenced, the decisive actions taken last year to address claims
inflation are delivering results with Tower’s BAU loss ratio being brought back
to a more normal level of 48.6%, after reaching 52.1% in the second half of the
2021 financial year.
5
Disciplined cost control and further efficiencies have seen Tower’s overall
management expense ratio further improve by 1.3%, to 35.8%. This has been
achieved in what is still a highly inflationary environment.
Reflecting our positive business performance, underlying NPAT excluding large
events was $18.2 million, up 6.4% from $17.1m at the half year 2021.
Another half-year of unprecedented large events has seen a $17.9m impact,
which Tower has planned for within our guidance and has actions in place to
mitigate the effects on profitability at the full year. I will take you through
these actions shortly.
These large event costs have contributed to our combined operating ratio
increasing to 94.8% and a reported profit including large events of $3 million,
down from $11.1 million in HY21.
Slide 6 – Climate change – managing increasing large event frequency and
severity
Tower is proactively managing the increasing frequency and severity of large
events that are linked to a changing climate.
As you can see in this graph the five-year rolling average of large event costs
for Tower has increased by around $5m a year, compared to the ten year
average.
We are continuously monitoring these trends and have important mitigations
in place to help manage these risks – primarily through our risk-based pricing
approach and our robust reinsurance programme which provides $20m of
aggregate cover and up to $862m of catastrophe cover.
6
Slide 7 – Outlook for second half – expecting continued business
performance, large events impacts mitigated
For the second half we are expecting our sound business performance to
continue.
We are growing both in customer and premium; we are controlling inflationary
pressures on claims expenses well; and our increasing scale is continuing to
deliver efficiencies.
We have also ensured Tower remains in the strongest possible position to
continue protecting both our customers’ and shareholders’ interests via robust
reinsurance.
Tower’s reinsurance programme has been designed to reduce the volatility of
large event costs. Under these arrangements, Tower pays the first $20m of
large event costs in the year (which totalled $17.9m at the end of the first half)
and reinsurance covers large event costs between $20m and $40m.
Tower’s catastrophe cover is triggered by a single event of over $11.25m and
covers us for up to $862m.
Large event costs of $20m have been planned for within the FY22 guidance
range. This means that additional large events will not impact our full year
guidance underlying NPAT unless the $20m aggregate reinsurance cover is
exhausted.
Therefore we affirm our guidance of between $21m and $25m underlying
NPAT including large events and as the Chairman mentioned, we are pleased
to confirm an interim dividend of 2.5 cents per share.
7
Based on our full year profit guidance and subject to Tower’s ordinary dividend
policy of paying 60-80% of full year cash earnings where it is prudent to do so
and all legal requirements being met, we anticipate a total dividend of 5.5
cents per share for the full year.
I will now get into the details of our performance this half.
Slide 8 – Good core business performance
Our business fundamentals continue to improve as we continue to grow, and
our investments in our core technology platform and actions to control
inflationary pressures continue to deliver efficiencies.
When taking into account the external factors of large events and net
investment income, our core business performance has improved
substantially, with underlying NPAT excluding large events and net investment
income increasing 13% year on year to $18.9m.
Similarly, despite our combined operating ratio being impacted by large events
this half, we continue to improve our operational performance with our
combined operating ratio excluding large events reverting back to levels we
have seen in prior years, before record inflation.
Slide 9 – Consistent growth in customers and premium
Offering customers a simple and rewarding experience through our leading
technology platform and distribution model is delivering consistent growth in
both customers and premium.
This has helped to grow Tower’s Gross Written Premium to $216 million, up
11% on the same period last year.
8
This was achieved through a balanced mix of market premium ratings and
attracting new customers to Tower, particularly in our Direct business which
has seen 11% underlying GWP growth year on year.
Our total customer base grew 6% to 312,000 in the year reflecting
improvements in customer satisfaction as evidenced by our Net Promoter
Score increasing to 40% versus 34% in the prior year.
These new customers have been brought on board at a lower cost to acquire,
at 11% of net earned premium, versus 12% in HY21.
Slide 10 – Digitisation driving customer engagement and growth
Our digitisation strategy is driving deeper customer engagement and growth as
our platform continues to go from strength to strength recording 165,000 My
Tower registrations in HY22, compared with 99,000 last year.
In the year the number of online quotes issued by the Tower Direct business
grew by 41% versus HY21. This was helped in part by optimising our customer
quote-to-buy journey last year to deliver the quickest insurance quote in the
market.
The proportion of sales through our digital channels also showed year on year
increases with 63% of Tower Direct’s sales now digital, up 5% on this time last
year.
This means customers are more engaged and buying more products from us
online with 42% of our New Zealand sales going to existing customers and the
proportion of My Tower customers holding multiple products increasing 8%
year on year to 55%.
Slide 11 – Expanding partnerships, driving scalable growth
9
Our Partnership business is continuing to deliver positive growth as we
transform from a more traditional, higher commission portfolio to a new
generation of partnerships.
Partnerships GWP has increased by 13% year on year, largely driven by Trade
Me and our advisory network.
Our renewed agreement with our cornerstone partner Trade Me is helping to
scale our business faster than ever before with the partnership reaching a new
milestone of 40,000 risks in force, an increase of 35%, thanks to the addition of
new products like boat online.
And advisors are increasingly seeing the customer benefits in working with
Tower - we have seen the growth of our network accelerate by 21% to 1,400
active advisors in this half alone.
We continue to attract new Partnerships and were pleased to welcome one of
New Zealand’s largest sellers of used car imports, NZ Automotive Investments
Ltd, as a preferred insurance referrer.
We remain focused on solid growth opportunities with our partners such as
the purchase of the ANZ legacy book last year and the acquisition of a book
from Westpac in February 2022.
This time last year I noted that the full benefits of the ANZ buyout would flow
through from the first half of the 2022 financial year. We are certainly seeing
these results now with the migration contributing towards Tower’s
commission payments almost halving to 2.3% of gross earned premium. We
expect further reductions in commission payments as we continue to scale.
10
Slide 12 – Pacific digitisation delivering enhanced efficiencies
We continue to focus on investing in Pacific digitisation to align our Pacific
business more closely with our New Zealand operations and deliver enhanced
efficiencies.
Our goal for 2022 is for Tower to offer a world class digital experience on one
core leading platform for all our personal lines customers across New Zealand
and the Pacific. We have taken several important steps towards this aim in the
past year with the launch of our cloud-based technology platform in Fiji,
Tonga, Vanuatu and Samoa. The full rollout is due to complete by the end of
2022.
This is already delivering benefits, whereby now in Fiji, some 88% of all new
business is handled via our digital platform versus 23% in the prior year. And
we have launched industry leading offerings like the ability to pay premiums
online, an industry first in the Pacific.
Thanks to the technology and digital investments we have made in the past
two years we are also achieving efficiencies. Our Pacific management expense
ratio has dropped by 5% to 41% in the past year alone.
And following our acquisition of National Pacific Insurance we have begun
rebranding NPI to Tower which will see us operating under one Tower brand
across New Zealand and the Pacific by the year end.
We are also continuing to streamline our business: our domestic products in
the Pacific are now aligned with our New Zealand suite and have been further
rationalised from 33 products down to 13.
11
Our Pacific business remains resilient to the challenges posed by the riots in
the Solomon Islands, the volcanic eruption and subsequent tsunami in Tonga
and of course Covid, which has significantly impacted Pacific economies.
Slide 13 – Disciplined, data-driven underwriting improving risk accuracy
Core to our strategy is leading with a quality, innovative, balanced product
range which enables us to deepen our relationships with customers, improve
revenue and increase retention.
Underpinning this is our disciplined and agile approach to underwriting,
enhanced through our use of data analytics.
This dynamic pricing and underwriting capability enabled us to quickly
implement risk-based pricing for flooding in November last year, as we have
already done with earthquake risks.
Tower is not only sharing flood risk ratings with all New Zealanders but using
this data to align premium pricing more accurately with risk, which supports
Tower’s ability to manage our loss ratio.
To date we have transitioned around 70,000 customers to this new pricing
model as their house insurance policies have come up for renewal. We plan to
add other climate-related risks to our ratings tool in the coming year, including
coastal inundation and erosion, and windstorm.
We are staying ahead of inflationary pressures by ensuring accurate sum
insured amounts for our customers’ homes. Now almost 100% of our house
customers’ policies are updated automatically either by the consumer price
index or the Cordell calculator, compared to only 57% a year ago.
12
Our underwriting capability is becoming increasingly automated with 95% of
risks in New Zealand now sold without requiring a manual underwriting
review.
And we are continuously monitoring our pricing to ensure we stay both
competitive and profitable. Our agility and data-driven capabilities have
enabled us to make more than 70 pricing and underwriting adjustments in the
year.
Slide 14 – Decisive actions to address claims inflation are delivering
In 2021 we identified emerging challenges related to supply chain issues and
inflation and quickly took a number of decisive actions.
As evidenced through our BAU claims ratio now returning to more normalised
levels, these actions are delivering improvements.
Our digital capability to streamline the claims lodgement process has seen the
number of New Zealand claims lodged online increase 16% to 48%.
By working with suppliers to optimise our supply chain we are seeing
efficiencies with 76% of New Zealand motor repairs now being completed by
our preferred supplier network.
A new feature launched this month will allow us to further automate the
process of detecting genuine and suspicious claims in real time, to allow for a
faster process for customers and more accurate screening.
Slide 15 – Improving MER through platform efficiency
With My Tower weekly log-ins growing by 80% year on year and more than
half of all tasks and transactions in New Zealand now completed digitally, the
13
customer and efficiency benefits from our leading digital and data technology
platform are being realised.
We remain focused on decommissioning legacy systems and anticipate just
two remaining by the end of 2022.
This focus on platform efficiency has seen our management expenses
continuing to trend downwards with our MER improving a further 1.3% to
35.8% over the year.
Slide 16 – Strong capital & solvency, delivering shareholder returns
Our strong capital and solvency position saw us return $30.4m of excess capital
to shareholders in the half.
We were pleased to see this strength acknowledged last month by rating
agency AM Best which reaffirmed Tower’s financial strength rating at A-,
excellent.
Our New Zealand parent solvency ratio is 210%, which is $72.2m above our
minimum solvency capital after the 2.5 cent dividend is paid.
I will now hand over to our chief financial officer, Paul Johnston who will take
you through the details of the financials.
Slide 17 – FY21 financial performance title slide – Paul Johnston
Thank you, Blair and good morning, everyone.
Slide 18 – Group underlying financial performance
Looking at the consolidated results, we can see that growth in GWP continued
to be a highlight, up $22.2m, or 11%, on HY21. Reinsurance expense increased
14
$5.2m following adjustment to aggregate sums insured and higher aggregate
reinsurance. The net of these two resulted in a pleasing increase in Net Earned
Premium of $6.6m on HY21.
Encouragingly, management expenses as a percentage of NEP were down 1.3%
from 37.1% in HY21 to 35.8% as benefits of the EIS platform and our increasing
scale continue to be realised. In addition, we released the Liability Adequacy
Test provision implemented in September 2021 as expectations about future
policy administration expenses have reduced.
Net commission expenses also decreased by $3.4m, driven by both the
acquisition of the ANZ portfolio and an increase in proportional reinsurance
profit share.
Investment income continued to be a detractor, down $1.4m.
Underlying NPAT before large events increased 6.4% to $18.2m, demonstrating
strong business performance.
The timing of large event costs saw a $17.9m pre-tax impact on the half year
resulting in Underlying NPAT of $5.4m, down $5m, or 48% on HY21.
After adjusting for non-underlying items, reported NPAT was $3m, down 73%
on HY21. Contributing to this was a Canterbury Earthquake valuation increase
of $2.3m after tax.
Slide 19 - Underlying NPAT impacted by large events
As previously noted, Underlying NPAT of $5.4m is $5m below HY2021.
The main driver of this reduction was timing of large event costs of $17.9m in
H1 2022 as I have just mentioned. This was an increase on H1 2021 of
additional large event costs of $8.6m ($6.2m after tax).
15
Reduction in net investment income of $1.4m ($1m after tax) also contributed
to the decrease in earnings.
A $2.6m increase in expenses includes the ANZ purchase amortisation and an
increase in staffing costs due to wage inflation and an increase in growth and
regulatory compliance initiatives.
Positive business growth underpinned by 11% increase in GWP along with a
$2.5m after tax reduction in commissions from the ANZ back book purchase
helped to offset these impacts.
Slide 20 – Steady BAU claims ratio in a challenging environment
As Blair has said, we have taken positive actions to address the rapidly
accelerating inflationary pressures we identified last year.
While inflationary pressures continue to pressure the cost of fulfilling claims,
our BAU loss ratio highlights that we have taken appropriate rating actions to
prevent profit erosion.
Frequency and severity are the two key components of total claims costs.
The severity charts show both average motor and house claims have continued
to increase since the 2021 half year and are up 12% and 7% respectively.
Frequency of motor claims is slightly down due to the lockdown we saw at the
start of the half and house claims frequency is relatively flat year on year.
Tower has applied premium increases across motor and home to offset
inflation and continues to work closely with supply chain partners to moderate
the impact on customers as much as possible.
Our new artificial intelligence-based anti-fraud tool is expected to further
improve our claims ratio. By identifying and separating claims with a high risk
16
of fraud, it will standardise and further speed up claims screening at greater
accuracy.
Slide 21 - Continued focus on management expenses
We are pleased to see our management expense ratio continue to reduce with
an improvement over the year of 1.3% to 35.8%.
While management expenses increased in absolute terms by $3.6m before tax
to $57.6m from $53.9m in HY21, this was due to increased investment in
marketing and projects aimed at driving GWP; increased staff costs, and
increased amortisation due to the acquisition of the ANZ portfolio.
The increase was offset by positive growth in GWP, a decrease in net
commission expenses due to the purchase of the ANZ portfolio, and an
increase in reinsurance profit share income in HY22.
In addition, the liability adequacy test provision made at 30 September 2021
resulted in the release of an additional $2.1m this half as we reduced our
expectations of future policy administration costs.
Slide 22 - Robust reinsurance programme supports resilience
The timing of several large events has challenged reported profit in the first
half with $17.9m of large event costs incurred so far during the year. This
includes $7.6m from the volcanic eruption and tsunami in Tonga, $3.6m from
Cyclone Dovi, and $6.7m from the North Island Rainstorms.
Our robust reinsurance programme provides protection from volatility caused
by large events.
17
Under our aggregate reinsurance cover, Tower pays the first $20m of large
event costs as an excess, and reinsurance pays the next $20m, up to $40m
total. The cost range for a large event is between $2m and $10m.
We planned for the full use of the $20m large event excess in our FY22
guidance. Given we are currently at $17.9m, we expect to incur $2.1m of large
event costs in the second half with reinsurance covering any additional large
event costs up to $40m. It should be noted that the setting of an excess at
$20m implies reinsurers on average expect that level to be exceeded one in
every three years.
Our FY22 reinsurance cover also includes catastrophe cover of $862m, once
Tower has paid the first $11.25m of claims under a catastrophic event.
Slide 23 – Investment strategy limits impact of volatility
Net investment income in HY22 was further reduced with losses of $0.9m
before tax compared with income of $0.4m before tax in HY21.
This was driven by increases in interest rates as Tower’s portfolio was revalued
to market values, however these losses are expected to be recovered through
higher yields as the portfolio matures. As evidenced by the running yield on
the core investment portfolio increasing to 2.45% at the 31
st
of March 2022
(from 1.32% at 30 September 2021).
Tower maintains a conservative investment policy with a focus on high credit
quality and liquidity bonds, and a target duration for the core investment
portfolio of six months.
Our strategy has mitigated the impact on our profit from macroeconomic
factors and market movements.
18
Slide 24 - Canterbury earthquake claims a continuing challenge
We continue to settle open CEQ claims with 22 closed over the half.
However we received an additional 24 new overcaps and reopened claims,
bringing the total number of open claims at the 31
st
of March to 35. This was a
net increase of 2 from a total of 33 as at the end of September 2021, but still a
material decrease from a total of 43 as at the end of March 2021.
The number of new overcaps and reopens reflects the complexity of long term
claims as we are now down to the tail of our CEQ Claims. The expected cost for
several of these has increased in HY22, driven by both inflation and more
costly rectification approaches. As a consequence:
1. HY22 has seen an adverse P&L charge of $3.2m before tax in Non-
underlying Items, reflecting these increases in expected claims costs.
2. The remaining Gross Outstanding Claims provision is $22.3m, which
includes a risk margin of $4.9m.
These outstanding claims continue to be closely managed.
Slide 25 - Strong capital and solvency position
In the last 12 months Tower has returned dividends of $21.1m and a capital
return of $30.4m. As a result of these payments to shareholders, Tower’s
surplus capital has decreased.
However, with a solvency ratio of 224% as at 31 March, before any allowance
for future dividends, it is clear that Tower remains in a strong capital and
solvency position and we will be paying an interim dividend of 2.5 cents on 30
June, 2022.
19
This strong capital position also provides Tower with sufficient capital to
continue to invest in opportunities and initiatives that will provide accelerated
growth and increased efficiency.
The Tower Board sets a target solvency margin above minimum solvency
capital that is reviewed quarterly. Above this target solvency margin is a target
operating range.
As at 31 March, 2022, and after allowing for the 2.5c dividend, Tower NZ
Parent’s total Available Solvency Capital was $15.8m above the target solvency
margin, which provides a solvency ratio that is 210% of MSC.
Slide 26 – Full year guidance unchanged
Tower continues to anticipate underlying NPAT of between $21m and $25m
for FY22.
This range is based on the assumed utilisation of the full $20m excess of the
aggregate programme. It represents a $4.4m after tax increase in the impact of
large events when compared to FY21. Additional large events will not impact
NPAT unless the $20m aggregate reinsurance cover is exhausted.
As we have said, Tower will pay a half year dividend of 2.5 cents per share.
Tower’s dividend policy is to pay out between 60-80% of “cash earnings”,
defined as the reported full year Net Profit After Tax plus acquisition
amortisation and unusual items, where prudent to do so. While the proposed
dividend is greater than this range, based on first half cash earnings only,
Tower expects to be able to pay a full year dividend of 5.5 cents a share in total
based on the forecast full year profit, while remaining within the 60-80%
range. Accordingly, the Board considers that a 2.5 cents per share dividend in
the first half is prudent.
20
The record date is the 16
th
of June 2022 with the payment date being the 30th
of June, 2022.
Slide 27 – Looking forward
Thank you. I will now hand back to Blair who will provide an update on our
outlook.
Blair Turnbull
Thank you, Paul.
Slide 28 – Committed to fair and transparent insurance services
Key to our strategy is a relentless focus on our customers, deepening our
relationships with them through rewards, new products and other offerings
that make sense and drive value.
We are acutely aware that we must earn the right to do this by building trust
through fair and transparent insurance services.
We know from our customer research that insurers traditionally do not make
things easy for customers; only a quarter of Kiwis told us that they are
confident they have the right cover for all their risks.
We want to change this.
75% of people surveyed also told us that transparency of information is one of
the most important factors for decision making when selecting an insurance
provider.
Transparency is also important to us.
That’s why, when we changed our approach to pricing for flood risks last year,
we launched a public tool which gives anyone, regardless of whether they’re a
21
customer or not, a simple risk rating for their residential home’s earthquake
and flood risks.
Through My Tower we have also raised the benchmark around open and
transparent pricing for customers. By presenting visual breakdowns of
customer premiums in a simple chart customers can easily compare year on
year changes for the various pricing elements.
When the upcoming change to the EQC cap is implemented in October we will
include this in our pricing breakdowns so customers can see for themselves
how the reshaped government levy will impact their individual pricing.
Slide 29 - Tackling labour market challenges via our unique footprint and
culture
A key challenge for New Zealand businesses today is the tight labour market.
We are in the fortunate position of continuing to attract high calibre talent for
our positions and we were pleased to have welcomed both our CFO Paul
Johnston and Chief Claims Officer Steve Wilson to Tower in January.
However we are not complacent and we are committed to tackling labour
market challenges by leveraging our unique Pacific and New Zealand footprint,
and having a fantastic staff culture with high engagement.
Our investments in digital technology are increasingly enabling us to move
workflows across our Suva, Rotorua and Auckland operations centres, which
also give us access to talent in these markets.
We are offering high quality roles in the Pacific and in Rotorua where our
people appreciate the opportunity to progress their careers into senior roles
while living in their own communities.
22
This operational diversification enables us to manage workflow spikes and
business interruption.
At Tower, we understand that our people are the ultimate drivers of our
success, and we pride ourselves on putting our people first. We believe in
investing in a diverse, inclusive culture where everyone can contribute and feel
valued.
This is reflected in the day-to-day operations at Tower, and it is now at the
very core of our refreshed values which we launched in February.
Alongside our enhanced flexible working practices, we are launching a
refreshed recognition programme and a range of attractive new benefits in
June.
On International Women’s Day, the 8
th
of March, along with other top
corporates, we became a signatory to New Zealand’s first pay gap registry,
Mind the Gap, and we now disclose our gender pay gap on our website.
New Zealand’s gender pay gap has remained at the 9% range for the past few
years, according to Statistics New Zealand.
In 2021, Tower’s New Zealand gender pay equity gap was -1.4%, which shows
that women are paid 1.4% more than men for the same role. Within our senior
leaders, men are paid 1.8% more than women.
This data shows that we’ve achieved near-equality in how women and men are
paid for doing the same work.
However, we are only at the start of this journey and there is still work to be
done.
23
Over the coming months we will be working to further strengthen our gender
pay gap transparency and actions by incorporating data from our teams in the
Pacific. Another important focus will be to understand our pay equity position
for our Māori and Pasifika team members.
We are proud to be a diverse business and are committed to doing more to
support transparency, fairness and equity for all our people.
All of this has contributed to our employee engagement scores continuing
their positive trend upwards in HY22 to 79%, a 6% year on year increase.
Slide 30 – Supporting communities through climate change
Last year we started our sustainability journey with the development of a
strategy that guides how Tower manages its environment, social and
governance issues.
Further to our commitments to offering fair and transparent insurance services
and supporting communities through climate change, we enhanced our home
offering last year with a new sustainability benefit which contributes $15,000
to sustainable products for a total rebuild.
By the end of 2022 we will also launch a pilot of a new parametric insurance
product aimed at supporting Pacific resilience.
We are also keeping pace with our customers’ lifestyles and expectations
around environmental concerns by innovating our products to cover electric
vehicles, e-bikes and e-scooters. This has resulted in sales of policies for EVs
growing by 60% in the past 12 months.
In the coming weeks we will also present our Go Carma customers with
personalised carbon usage data, based on their vehicle type and driving style.
24
And this year we are pleased to award two scholarships to students of the
world-first Bachelor of Climate Change studies degree at the University of
Waikato.
In FY21 our carbon emissions totalled 378 tonnes of CO2 equivalent, having
reduced 31% year on year primarily due to lower emissions from travel from
Covid -19 restrictions. We are committed to taking the lessons from the past
two years of remote working and have set a science-based target to reduce
our scope 1 and 2 emissions by 21% by 2025.
Tower supports mandatory reporting requirements for sustainability and
climate change issues, which will help increase transparency around what
actions are being taken by businesses to prepare for these risks and increase
the resilience of our communities and the economy.
We will present our sustainability reporting in this year’s annual report and are
currently preparing for the introduction of the External Reporting Board’s
Climate-related Disclosures regime which comes into effect from 2023.
Slide 31 – Continuing to invest in efficiency and growth
As we invest in our customers, communities and our people, Tower is
continuing to invest in initiatives that will bring attractive long-term growth
and efficiencies to deliver shareholder value.
Following the completion of our digital transformation, the mix of our spend
has moved from focusing on our technology platform, systems and regulatory
compliance towards customer acquisitions and growth, reflecting the maturity
of our technology transformation.
Our investments in leading technology partnerships like EIS, Oracle and Friss
are enabling the business to be increasingly nimble in responding to challenges
25
and capitalising on opportunities. And we expect these opportunities to
continue to scale as we complete our digital roll out in the Pacific.
Meanwhile as we become more agile and responsive in anticipating customers’
needs new technology releases continue to trend upwards as we delivered 134
releases this half versus 96 in the previous six months
We continue to seek opportunities to invest in further sensible and prudent
investment opportunities such as insurance portfolios that allow us to scale
and reduce commission payments.
And we are investing in our enhanced sales capability with our automated
marketing platform already sending 1.5m personalised cross-sell messages
since its launch this half.
Slide 32 – Well positioned to continue delivering dividends and growth
It’s clear that while the first half of the 2022 financial year has seen increased
large events, Tower’s business performance has been strong. And we have
delivered customer and premium growth while further improving our
management expenses.
Tower is a well-capitalised business with a strong balance sheet and solvency
margins and we are delighted to have returned $51m to shareholders in the
form of dividends and a capital return.
In the coming second half of FY22, our focus is on continuing our solid
underlying operating performance and achieving positive customer outcomes
and growth.
We will do this by deepening our customer relationships through digitisation;
our innovative partnership model; and by modernising our Pacific business.
26
We continue to focus on claims inflation and enhancing claims processes while
driving efficiencies through our scalable digital platform and focus on
expenses.
We remain committed to delivering positive returns to our shareholders
through continued dividends and accelerating growth.
Thank you for your time this morning, I will now hand back to the operator to
ask for questions.
---
Template
Distribution Notice
Updated as at 18 December 2019
Please note: all cash amounts in this form should be provided to 8 decimal places
Section 1: Issuer information
Name of issuer Tower Limited
Financial product name/description Ordinary Shares
NZX ticker code TWR
ISIN (If unknown, check on NZX
website)
NZTWRE0011S2
Type of distribution
(Please mark with an X in the
relevant box/es)
Full Year Quarterly
Half Year x Special
DRP applies
Record date 16/06/2022
Ex-Date (one business day before the
Record Date)
15/06/2022
Payment date (and allotment date for
DRP)
30/06/2022
Total monies associated with the
distribution
1
$9,487,100
Source of distribution (for example,
retained earnings)
Retained earnings
Currency NZD
Section 2: Distribution amounts per financial product
Gross distribution
2
$0.02500000
Gross taxable amount
3
$0.02500000
Total cash distribution
4
$0.02500000
Excluded amount (applicable to listed
PIEs)
N/A
Supplementary distribution amount $0.00000000
Section 3: Imputation credits and Resident Withholding Tax
5
Is the distribution imputed No imputation
1
Continuous issuers should indicate that this is based on the number of units on issue at the date of the form
2
“Gross distribution” is the total cash distribution plus the amount of imputation credits, per financial product, before the deduction of
Resident Withholding Tax (RWT).
3
“Gross taxable amount” is the gross distribution minus any excluded income.
4
“Total cash distribution” is the cash distribution excluding imputation credits, per financial product, before the deduction of RWT.
This should include any excluded amounts, where applicable to listed PIEs.
5
The imputation credits plus the RWT amount is 33% of the gross taxable amount for the purposes of this form. If the distribution is
fully imputed the imputation credits will be 28% of the gross taxable amount with remaining 5% being RWT. This does not constitute
advice as to whether or not RWT needs to be withheld.
If fully or partially imputed, please
state imputation rate as % applied
6
NA
Imputation tax credits per financial
product
NA
Resident Withholding Tax per
financial product
$0.00825000
Section 4: Distribution re-investment plan (if applicable)
DRP % discount (if any)
NA
Start date and end date for
determining market price for DRP
NA
Date strike price to be announced (if
not available at this time)
NA
Specify source of financial products to
be issued under DRP programme
(new issue or to be bought on market)
NA
DRP strike price per financial product
NA
Last date to submit a participation
notice for this distribution in
accordance with DRP participation
terms
NA
Section 5: Authority for this announcement
Name of person
authorised to make
this announcement
Tania Pearson, Company Secretary
Contact person for this
announcement
Emily Davies
Contact phone number +64 21 815 149
Contact email address emily.davies@tower.co.nz
Date of release through MAP
26 May 2022
6
Calculated as (imputation credits/gross taxable amount) x 100. Fully imputed dividends will be 28% as a % rate applied.
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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