TWR
08/02/2012 10:00
ADDRESS
REL: 1000 HRS Tower Limited
ADDRESS: TWR: TOWER Annual Meeting - Chairman's Address
8 February 2012
Market Information
NZX Limited
Level 2, NZX Centre
11 Cable Street
Wellington
New Zealand
Company Announcements Office
Australian Stock Exchange Limited
Exchange Centre
Level 6, 20 Bridge Street
Sydney NSW 2000
AUSTRALIA
TOWER Limited: Chairman's address to Annual Meeting
Attached is a copy of the Chairman's address to the annual meeting of
shareholders.
Bronwyn Walsh
Company Secretary & Compliance Manager
TOWER Limited
ARBN 088 481 234 Incorporated in New Zealand
CHAIRMAN'S ADDRESS TO THE TOWER ANNUAL MEETING
8 FEBRUARY 2012
Ladies and Gentlemen
When we met at this time last year, Christchurch and New Zealand were
adjusting to the September and Boxing Day 2010 earthquakes. Within 3 weeks
Christchurch experienced the extreme catastrophe of 22 February with its huge
loss of life and property. Since then there have been, it is reported,
around 10,000 earthquakes in the Canterbury region.
This has all had an impact on TOWER as an insurer - not just as to
profitability, but also on our staff, who have served beyond the call of duty
throughout this period, and on the way in which we manage the business as we
focused our relatively small resources on support for those affected by the
catastrophe who were insured with us.
I am pleased to report that TOWER came through these events with a profit for
the year ending 30 September 2011 of $33.4 million , compared with $58.1
million in the previous year, or earnings per share of 12.5 cents. While
this interrupted the annual growth in earnings the company has recorded since
the separation from Tower Australia in 2006, your directors nonetheless took
the view that the underlying strength of the company remained, and that a
dividend for the year of 6 cents a share should be declared. The final
payment of 2 cents per share was distributed on 1 February 2012.
We move forward in an environment of some uncertainty. In order to recover
the increased costs, including reinsurance in particular, experienced in the
wake of the Canterbury disasters, like other insurers, we have had to make
some judicious premium increases, and further increases may be in prospect.
But insurance cannot be priced off the market, and we need to maintain a
careful balance between the needs of our customers and our shareholders.
Timing is a critical ingredient in this balance, but we have confidence that
we can re-instate the pattern of profit growth achieved in previous years.
TOWER is New Zealand's oldest insurer but in the various moves which have
occurred since demutualisation it has forfeited scale and become an operator
across all the major insurance categories, whereas the competition tend to be
larger specialist insurers, as TOWER used to be. Addressing these issues is
a primary task of the board, and we would not rule out the disposition of
assets as well as acquisitions in the interests of improving the positioning
of the company in the market, and securing optimal returns for shareholders
on their capital. I am conscious that we raised capital from shareholders
two years ago to enable us to pursue value creating opportunities which would
provide scale for TOWER. With nothing immediately on the horizon a capital
repatriation will be addressed as part of this work.
However, we shall have to take into account the Government's prudential
regulations for insurance companies, now being introduced, which, together
with increased provisioning for catastrophe insurance reinstatement, will
require us over time to build capital reserves above the levels we have
customarily held.
Throughout we will continue to pursue the goal of building the company
through operational excellence in product development and pricing and in
customer service, and I am pleased to say that with the baptism of fire
provided by the Canterbury earthquakes, TOWER's management team has proved
that it is up to the task.
Board Appointments
Tony Gibbs resigned as Chairman in September. GPG nominated Mike Allen as
his replacement, and he was appointed by the Board to fill the casual vacancy
created by Tony's departure, and presents himself for election by
shareholders today.
May I say that Tony made a singular contribution to the Board from his
appointment in 2003, and particularly during his Chairmanship of the Board
from the company's establishment as a New Zealand entity in 2006. The record
of profit growth to which I referred earlier, and our successful bond issue
and capital raising are due in no small measure to his untiring commitment to
the company, and Tony can reflect well on his achievements.
Mike Jefferies and Denis Wood retire by rotation at this meeting, and
resolutions are before you for their re-election. Denis has decided that he
no longer wishes to seek re-election, and that motion is therefore withdrawn.
Denis remains a Director until the conclusion of this meeting, and he will
be explaining his decision at the conclusion of the elections agenda item.
Denis was appointed to the Board in 2005 and he too was a valued and
enthusiastic contributor. He was Chairman of the Investment Committee from
its inception, a member of the Audit Committee for a period, and brought
extensive financial and business experience to our deliberations.
Late last year the Board brought forward a programme aimed at ensuring a
steady introduction of new experience to the board, by capping the number of
terms for which a director may serve at 3. Obviously it will take a while
for a pattern of retirements and new appointments to settle in, and special
considerations will need to be accommodated. Immediately however, we will be
using our head room to appoint another director, and the search for a
replacement for Denis Wood will be undertaken as part of the same process. I
expect appointments to be made by the Board within the next 2 months. The
appointees would then come before shareholders for election at the General
Meeting in 2013.
Conclusion
May I conclude by saying that the year under review has been an eventful one,
whose repercussions are not yet over. The year has tested the insurance
industry, and I am pleased to say that TOWER has come through well. I want
to thank Rob Flannagan, the senior management team and our staff for making
that so. I would also like to thank my fellow directors for being constantly
available and for the constructive governance of the company they have
provided. May I now hand over to Rob Flannagan to brief you in detail on the
year past and the company's outlook.
Managing Director's Address
Thank you Mr Chairman. Good morning Ladies and Gentlemen
It goes without saying that this has been a very difficult year for the
insurance industry and for New Zealand as a whole. But despite this, TOWER
has come through these turbulent times, is profitable and maintains a strong
balance sheet.
We are going through a major global economic adjustment with long term
interest rates at an all time low. As an example, our investment income for
shareholders is down significantly when compared to the same period last
year.
The New Zealand economy is slow with discretionary income for New Zealanders
being squeezed.
The insurance industry, especially in the Asia Pacific region has had major
events over the past 18 months: Australia - floods and hail storms,
earthquakes of a magnitude never experienced before in Christchurch and
Japan, and floods in Thailand. All of these events affect the reinsurance
market and, as a result, large increases have been incurred for reinsurance,
which of course will flow through to premiums.
The earthquakes in New Zealand have had a large impact on resources within
TOWER handling and managing the events that have occurred in 2011.
TOWER is profitable, when many other insurers have booked losses, many of
them significant losses.
The diversified business of TOWER has protected the shareholder. As an
example, the Health, Life and Investment businesses have carried the General
Insurance business through these times. It should be remembered we are in the
risk business. This year we have had claims on over 8,000 houses and have
lost 16 customer lives as a result of the Christchurch earthquakes. TOWER can
be very proud that we are there for these families.
Our profit after tax, before earthquakes and the discount rate impact, was
$54.6m down 6% on last year. If we include the discount rate and the costs of
Christchurch, the Group's net profit after tax for the year to 30 September
2011 is $33.4 million.
We believe this is still a strong result for the Group and are especially
pleased that every one of our businesses were profitable, despite the events
we have experienced.
TOWER remains in a strong financial position. The Board decided to pay a
final dividend to shareholders, bringing the total to 6 cents per share for
the year.
I will now ask Michael Boggs, TOWER's Chief Operating Officer, to provide
further detail.
Chief Operating Officer's Address
Thank you Rob and good morning.
I'd like to take you through the results in more detail, beginning with the
General Insurance business. Despite a very difficult year, the General
Insurance business has still made a profit of $2.5 milion. Profit overall
has reduced from $21.9 million in 2010 to $2.5 million in 2011. The reduction
in the 2011 result reflects $22.2 million after tax in direct costs relating
to the Christchurch earthquakes.
The Life business profit, excluding the discount rate movement for the year,
is $18.8 million, a decrease of $8.6 million compared to the same period last
year. This result has been impacted by the lower investment returns on
shareholders' funds of approx $10 million after tax. This result also
includes $1.1 million of direct expenditure relating to the Christchurch
earthquakes. As Rob noted, TOWER provided life insurance cover for the
families of 16 of the lives that were lost in Christchurch.
The Health business recorded a profit of $9.7 million compared to $7.5
million last year - a pleasing result.
The Investments business profit for the past year is $6.8 million, which
represents a growth of $4 million from the same period last year. This
increase in profit is a direct result of the restructuring carried out last
year.
Finance and corporate expenses have increased by $1 million compared to the
same period last year. These costs include $300,000 in relation to
Christchurch.
The discount rate effect is highlighted as we have done in previous years. So
after the impact of Christchurch and the discount rate affect, our Net Profit
after Tax is $33.4 million.
We wish to pay a dividend each year. However, as part of our capital
management, we believe it should come out of the Net Profits earned. The bars
on this chart show our Dividend payments over the past few years. The dark
line represents the Net Profits after Tax.
This year, because of the adverse events impacting on our profit, we have
paid a lower overall dividend.
It is important to note that our current capital structure enables us to
exceed the required solvency standards. These are set out by the Reserve
Bank, as part of the new Insurance Prudential Supervision Regulations that
are coming into force and have been defined over the last year. We are
operating to targets above the minimum to ensure adequate solvency at all
times.
Claims associated with Christchurch are anticipated to require payments of
over $450 million over the coming periods. Tight working capital management
is in place to ensure that we are able to match the payments to customers,
with timely reimbursements that will come from our reinsurers. In addition,
reinsurance structures are changing. These are necessitating the need for
TOWER to hold increased capital against potential losses and future cover
requirements.
External debt is $81.3 million and consists of the unsecured bonds which
mature in April 2014. Even after meeting the solvency and capital needs that
I have just spoken to, TOWER has capital available of $30 million, the
utilisation of which is currently being reviewed by the Board.
With the reduction in profitability and lower dividend payments to
shareholders in the last year, the focus is on returning to previous
profitability levels.
In the General Insurance market, all insurers have been impacted by large
reinsurance cost increases. TOWER was able to anticipate these prior to its
October 2011 reinsurance renewal date and has been increasing customer
premiums over the last year. These premium increases are expected to fully
recover the increased reinsurance costs during the year to September 2012,
protecting the profitability impact of this significant cost increase.
Policy growth is a focus across each of the insurance businesses. Policy
growth is clearly evident in the General Insurance and Life businesses.
Health remains problematic. While TOWER manages to maintain its market share
in the health market, increased health claims costs are driving increased
premiums. This is making health protection less affordable and accordingly,
there is an overall decline in the number of lives covered by the industry.
Investment markets continue to be volatile.
The continuation of Christchurch earthquakes and aftershocks are costly to
the business. Costs of the earthquakes just prior to Christmas last year, on
23 December, have already resulted in claims approximating $2 million. These
will have a direct impact on our results again this year.
In summary, the focus remains on growing the profitability of the business
through increased revenues and improved efficiency levels across the
business.
I'll now hand back to Rob to give a brief overview on looking forward.
Group Managing Director's Address cont
As an insurance company, TOWER's focus is to ensure its businesses generate
long term sustainable profits. The introduction into the New Zealand
regulatory regime of prudential supervision of insurance companies supports
our focus on long term sustainable growth - prudential supervision is
intended to protect policyholder's interests. Like our shareholders, our
customers want to know we will be here in the long term.
We are continuing to focus on organic growth. It is slow, but it's beginning
to deliver. Our new core administration system, although late in delivery,
has gone live. Full transition will be complete over the coming months.
We have been out bid by bigger balance sheets in our attempt at acquisition.
Any acquisition opportunities that emerge will be evaluated to see if they
will enable a step up in growth that the company wants to pursue, but that is
not the strategy on which we are focused day to day. We will continue to look
at acquisitions and divestments if this adds to shareholder value.
The challenge for TOWER, and the industry, is to change - to meet the needs
of our customers through affordable and easily understood products.
This has been a year when our customers have relied on us to be true to our
purpose. We are in the business of protecting people in their time of need
and this has been clearly demonstrated with the Christchurch events where we
will pay in excess of $450 million.
We have also delivered value to our shareholders in turbulent times and our
focus is on continuing to do so.
End CA:00219298 For:TWR Type:ADDRESS Time:2012-02-08 10:00:10
