TOWER LIMITED — Investor Presentation 2014

Nov 26, 2014

Leading light

Full year results to 30 September 2014

27 November 2014

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Leading light

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 30 September 2014, 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

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. Solvency estimates contained herein are yet to be reviewed by the Reserve Bank of New Zealand.

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.

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Michael Stiassny Chairman

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“Deliver attractive shareholder returns by being the leading light in New Zealand and Pacific general insurance.”

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Delivering shareholder returns

Underlying General Insurance full year net profit after tax up strongly

Further progress on Canterbury claims and RBNZ annual review allows for $30 million solvency release

Sale of TOWER Life (N.Z.) Limited completed, releasing capital

Additional reinsurance programme to reduce earnings volatility

Capital returned via buy back, small shareholder buyback and further capital return announced

Full year dividend 14.5cps, up 31.8%

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David Hancock CEO

What we are covering today

• Performance and financial highlights + Strategy update + Group and general insurance performance + Management of risk and capital + Outlook

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Performance highlights

Solid result and lead indicators up

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Financial highlights

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1. General Insurance Reported NPAT, excluding the TOWER Life (N.Z) Limited business and the loss of sale in 2014.

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delivering
financial
performance
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• Premium growth from rate increases driven by industry reinsurance costs

• General Insurance underwriting profit was impacted by increase in large claim events (2014: $14.4m, 2013: $9.6m). New reinsurance cover now in place to reduce earnings volatility

• General insurance underlying NPAT up 32.3% to $25.1m

• Claims ratio maintained at 50.8%, despite large claim events

• Full year dividend 14.5cps, up 31.8%

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1. General Insurance Underlying NPAT excludes impact of the Canterbury earthquakes and the discontinuation of the Australia business.

2. Includes profit attributable to shareholders from continuing operations only, including the impact of Canterbury earthquakes.

Performance indicators

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revenue
improving
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• GWP and NEP growing strongly

• Reinsurance cost pressures moderating

• Despite adverse weather, claims ratio maintained at 50.8% for full year, an excellent result

• Underlying combined ratio and claims impacted by weather events

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A New Zealand and Pacific insurer

1. Excludes impact of the Canterbury earthquakes and the discontinuation of the Australian business. 2. One customer can be comprised of multiple clients 3. Movement since September 2013

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Platform for
growth
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Strategic Priorities

execution on priorities

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Customer retention and growth

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customer
focus
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• Customer focus – service, value, retention

• Net promoter score (NPS) is a benchmark for customer loyalty

• "Promoters" will generally:

• hold more policies with us

• hold higher value policies

• stay with us longer

• Significant improvement in last 12 months

• Voice of the Customer survey to better meet customer needs

• Aligned customer and staff promise

• “Customer Service Incubator” – a new end-to-end efficient customer service model

• Lapse rates for FY2014 13.4%, down from 13.5% in FY2013[1 ]

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1. Premium lapse rate excludes FinTel

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brand
awareness
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Customer focus to unlock brand potential

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• Campaign to position TOWER as trusted New Zealand based insurance.

• Also positioning as leader in customer benefit innovation:

• launch of SmartDriver in April 2014

• launch of “Full replacement for fire” house insurance in Oct 2014

• winner of “Innovation of the year” at NZ Insurance Industry Awards

• Focus on technology to improve connections with customers

• significant opportunity in improving online presence and offer

• Customer segmentation and proactive engagement using data insights

• Market share has held steady over the last 12 months

• increased in personal House market

• declined slightly in Contents and Motor which remain highly competitive. Policy growth in Motor is encouraging

TOWER’S SHARE IN PERSONAL LINES House 10.8% Contents 9.8% Motor 6.3%

• further headroom to realise from segmentation, communicating proposition and bringing innovation to market

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Market share data from ICNZ estimates to 30 Sept 2014. Source: ICNZ September 2014 – yearly statistics

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Customer
focused
staff culture
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Staff engagement and efficiency

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Staff engagement metric – the AON Hewitt Survey

Engaged staff build a high performance culture and employee efficiency

• Increasing 22.4% from 49 to 60 in FY14

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• Working hard to reach our next milestone of 65

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•
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•
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Focus on

• Significant improvements in productivity and service delivery over the next 2 years

Customer focused culture

Employee efficiency

leadership and staff development

• Customer service incubator – enabling staff to manage a

• Succession planning and investment in our people

• Aligned staff and customer promise

• Quality people, employer of choice

• customer query from start to finish

• Lean Six Sigma to optimise business processes

• Remuneration linked to strategic objectives

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Leadership in Pacific markets

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Strong
growth
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• Pacific markets offer attractive margins and growth opportunities

• GWP 18.1% and underlying NPAT 32.6% of General Insurance

• GWP increased across the region in local currency, decreased 1.3% in NZ$ to $53.9m

• Policy growth of 6.6% highlights attractive fundamentals of the region

• Claims decreased in 2014 following large claims of Cyclone Evan in 2013

• Underlying NPAT up 79.1% to $8.2m

• NPS improved to 48 as at September 2014 with staff highly engaged in our business

• We continue to invest in technology and brand to consolidate and leverage growth in major established markets

• We are looking at new opportunities to expand our presence in the Pacific

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Industry consolidation opportunity

Alliance opportunities progressing

Recent merger and industry consolidation highlights the value of our general insurance business

• Competitor distraction – The merging of businesses can be a complex and difficult process that can distract competitors, creating opportunities for our business.

• Product innovation – We see the opportunity to strongly differentiate our offer through innovation and the use of technology and managing risk more effectively.

• Alliances – Increased consolidation may force some distributors to diversify their underwriters. Progress is being made with potential alliance partners.

• Staff – the restructuring of large insurance companies has allowed us to tap into a pool of world class talent and leadership. This is allowing TOWER to strengthen its talent pool.

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Michael Boggs CFO

• Financial Performance + Management of risk and capital

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TOWER Group Profit summary

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A compelling
path for
general
insurance
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• General insurance underlying profit up strongly

• FY14 remains a transition year - transformation of TOWER to a pure general insurance company

• Reduction in financing costs and corporate expenses

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1. Life includes profits from significant part of life business sold in FY13, and the remaining TLNZ sold in FY14

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1. A number of items are classified as discontinued operations in the Group financial statements

Underlying performance General Insurance

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Strong
underlying
results
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• Reinsurance costs stabilised allowing for net premium growth

Higher claims expenses due to a increase in large claim events

Group overheads allocated to General Insurance rather than historical business units

We continue to invest for future growth, particularly in IT, people and performance

Investment revenue increased due to higher average cash and investment assets and higher interest rates on long term deposits

1. Large claim events are those greater than $1m. 2013 large claim events included $2.8m claims due to Cyclone Evan in the Pacific. 2014 large claim events were due to the storms within New Zealand.

2. In the Group financial statements the impacts of the Canterbury earthquakes are accounted for as part of Claims expense and the tax impact thereon, and include both an increase in the provision for claims and actual claims expense, plus an amount associated with reinsurance.

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1. In the Group financial statements the revaluation and FX impact of Australia liabilities are accounted for as part of (loss)/profit from discontinued operations.

Weather events impact on claims

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Increased protection going forward

• Total claims expense increased 8.6% to $120.5 million in 2014, impacted by severe weather conditions

• Large claims of $14.4 million in 2014, $9.6 million in 2013

• The Insurance Council of New Zealand noted that “2014 is heading to be one of the most expensive years for insured loses”

• Despite the increase in large claim events, claims ratio held steady at 50.8% for the full year (2013: 50.6%)

• Underlying claims ratio (excluding the impact of large claim events) improved from 46.2% to 44.8%

• New reinsurance protection in place from 1 October 2014:

• covers large events (excluding NZ earthquakes) from $1 million and up to $5 million per event

• Once such large events reach a total of $5 million, we have reinsurance recovery of $10 million above the $5 million excess

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Strong Balance sheet

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Debt
free
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• Significant movements represent sale of TOWER Life (N.Z.) Limited during the year

• Simplification of corporate structure to realise value for shareholders and focus on general insurance

• Debt free with strong cash balances

• Provides ability to manage risk, invest for growth and maximise returns to shareholders

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1. A number of assets or liabilities of disposed groups classified as held for sale in the financial statements.

Canterbury update

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On track for
2015
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• TOWER continues to be an industry leader in the settlement of Canterbury earthquake claims, with 88% by number and 78% by value, of all claims settled and closed (as at September 2014)

• RBNZ annual review allowed for the release of $30 million of minimum solvency margin (MSM), reducing this to $50m

• On track to achieve 95% settlement and closure of all earthquake claims by the end of 2015

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1. Some properties have multiple claims. 88% of all claims settled, representing 85% of all properties

Reinsurance – Capital and earnings protection

Reduced earnings volatility

• Reinsurance ratio improved from 17.2% to 16.2% in 2014 (full year) as GWP growth exceeded growth in reinsurance costs

• Maximum retention per individual risk is NZ$1m[2 ]

• TOWER purchased an additional catastrophe cover, now $682m, with $10 million excess for FY2015

Plus new aggregate cover for large claim events (excluding NZ earthquakes) in place from 1 Oct 2014

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1. Excludes impact of Canterbury earthquakes

2. US$1m for American Samoa

Capital and solvency – General Insurance

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Strong
solvency
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TOWER has a long term policy of retaining within its licensed General Insurance entity 175% of the minimum solvency capital (MSC) required under the Insurance (Prudential Supervision) Act 2010.

In August 2014, as part of its annual review, the RBNZ lowered TOWER’s Minimum Solvency Margin (MSM) to $50 million, releasing $30M. TOWER continues to hold significant capital above the current solvency minimums required by the Reserve Bank of New Zealand and those required under its long term policy.

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• Before on-market buy back of up to $34 million and dividend payout of $14.1 million

Capital management for greater shareholder returns

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Greater
Shareholder
returns
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Achievements in FY14

Moving forward

• Total Shareholder Return of 18.1% for FY2014

• $56.7 million of capital returned to shareholders in FY2014

• Remaining Life business sale completed for $36 million

• Minimum Solvency Margin requirement reduced to $50 million as a result of RBNZ annual review

• 2014 Final Dividend 8.0cps, bringing full year dividend to 14.5cps, up 31.8%

• Capital management remains a priority and shareholder returns a key strategic outcome

• New on-market share buyback to return further capital to shareholders. Intention to purchase up to 10% of issued capital (or $34.0 million, whichever is lower) over the next 12 months

• New reinsurance aggregate cover to reduce earnings volatility

• TOWER is highly solvent with capital above minimum requirements at the business and corporate level

• Dividend pay-out ratio maintained at 90-100% of NPAT

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David Hancock CEO

• Our strategy going forward + Outlook

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improved
Scorecard
Strategic returns
$56.7m capital
Staff engagement
up 22.4% to 60 returns FY14
TSR 18.1%
Pacific NPAT General Insurance
up 79.1% Underlying NPAT
up 32.3%
NPS up to 29
New alliance
opportunities
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Outlook

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Driving
Shareholder
returns
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Strategic theme

Forward actions

Staff engagement and efficiency

Improve AON Hewitt score to 65 by September 2015 Improved cost ratios over the medium term

Lift NPS to 35 by September 2015 Customer focus to unlock brand potential Product innovation

Shareholder capital return - up to $34m Management of risk and capital Dividends 90-100% of NPAT Canterbury rebuild 95% complete by end of 2015 Strong solvency maintained

Grow New Zealand GWP, focus on cost control Financial performance Reinsurance cover to protect earnings volatility Enter new regions Leadership in Pacific markets Campaigns to grow market share in established Pacific markets

Staffing opportunities to strengthen leadership talent Industry consolidation opportunity Alliance opportunities progressing in NZ and Pacific Differentiate our offer through innovation

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Thank you + Questions

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Appendix

+ NZ Performance + General insurance + Balance Sheet detail + TOWER history

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New Zealand performance

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• New Zealand GWP grew 8.5% to $243.7 million

• New Zealand General Insurance Underlying Net Profit After Tax grew 17.5% to $16.9 million

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Underlying performance General Insurance

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1. Net incurred claims includes $1.8m of suspected arson fires in Cook Islands in the March 2014 period. 2. Claims events > $1m

2. The impacts of the Canterbury earthquakes and the discontinuation of the Australian business are classified differently in the Group financial statements 4. Excludes profit for the part year and loss on sale of TLNZ

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Reported profit General Insurance

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1. Net incurred claims includes $1.8m of suspected arson fires in Cook Islands in the March 2014 period. 2. Claims events > $1m

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1. Management and sales expenses includes $1.9 million of foreign exchange losses relating to release of Australian liabilities in the March 2014 period. 4. Excludes profit for the part year and loss on sale of TLNZ

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Group Balance Sheet

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1. A number of assets or liabilities of disposed groups classified as held for sale in the financial statements.

New operating model Implemented over two years

company transformed

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November 2012 April 2013 August 2013 August 2014 Sale of TOWER Medical Sale of TOWER Managed funds Sale of majority of Life business Sale of remaining Life Insurance Limited to nib limited to Fisher to Fidelity Life business to Foundation NZ Limited Funds Management Limited Assurance Company Limited Life (NZ) Holdings Limited

Renewed General Insurance focus

• Divestment of Health, Investments and Life insurances businesses

• Sell down by major shareholder enhanced presence of major NZ institutions on register

• Now a focused New Zealand and Pacific general insurer with a strong local brand

• Significant returns of capital and increased dividends in line with policy of 90-100% payout

• Small shareholder buy back to enhance register efficiency

• Smaller board; new CEO and growth strategy; reduced corporate costs

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