Tower Limited
Annual Report 2023

Plain-text annual report

Tower Limited Annual Report 2023 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 1 Contents 2023 IN REVIEW 2023 snapshot Update from Chair Update from CEO LOOKING AFTER OUR CUSTOMERS AND COMMUNITIES A year of unprecedented large events Events snapshot Supporting New Zealand’s recovery DELIVERING ON OUR STRATEGY Our strategy Leading customer experience Operationally efficient and effective High performing culture Resilient ENVIRONMENTAL, SOCIAL AND GOVERNANCE PERFORMANCE MATERIAL IMPACTS BOARD OF DIRECTORS CONSOLIDATED FINANCIAL STATEMENTS Financial statements Notes to the consolidated financial statements INDEPENDENT AUDITOR’S REPORT APPOINTED ACTUARY’S REPORT CORPORATE GOVERNANCE AT TOWER GRI CONTENT INDEX TOWER DIRECTORY REGISTRAR 3 4 6 8 11 12 13 14 17 18 20 28 34 40 47 52 58 61 62 67 106 111 113 125 130 131 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 2 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 3 2023 IN REVIEW ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 4 2023 snapshot 17% $7.6M -$1.2M Underlying GWP growth1 $527m vs. $457m in FY22 Underlying profit2 incl. large events vs. $27.3m in FY22 Reported loss after taxation vs. $18.9m profit in FY22 321K 32.2% 23% Customer growth vs. 310k in FY22 Management expense ratio vs. 36% in FY22 Reduction in emissions 1 Adjusted to exclude Papua New Guinea. 2 Underlying profit includes large events but excludes non-underlying items. A reconciliation to reported loss can be found in the appendix of Tower’s FY23 results presentation via the NZX.. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 5 Countries Years in operation and counting Canstar’s 5-Star Rating for Outstanding Value Home & Contents in 2023 39% 87.5K 390 Senior leaders are women* Reported claims across New Zealand and the Pacific, including large events Staff volunteer hours in our communities 8 154 5 * Band 8 and above. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 6 Update from the Chair In what has proved to be an extremely tough year for the global insurance industry, Tower withstood the immediate challenges of 2023 and remains resilient. In the year to 30 September 2023, Tower’s underlying profit including large events was $7.6m, down 72% from $27.3m for the full-year 2022. Loss after taxation was -$1.2m, versus $18.9m profit at the end of FY22. On the basis of these results, the Board has decided against payment of a full year dividend in accordance with its focus on prudent fiscal management. Consideration will be given to restarting dividends in FY24. Unprecedented weather events worldwide have sheeted home the impact of climate change and signalled that the risk environment in which insurance businesses operate has irrevocably changed. Inevitably, the reinsurance market moved quickly to price accordingly for what now is likely the new normal. Risk-based pricing has been Tower’s best protection to address these issues. Tower was New Zealand’s first insurer to implement risk-based pricing for inland flooding in November 2021. Hazard modelling continues to be expanded to other climate-related risks, with ratings for landslide and coastal risks shortly due to be introduced to customers. Our view remains that risk and pricing transparency not only supports and encourages informed decision- making but is fairer to customers and in the best interests of our shareholders. Importantly, Tower’s ability to proactively manage risks throughout its portfolio via risk-based pricing has been a key factor in securing a comprehensive reinsurance programme for FY24 at competitive rates. This is crucial as reinsurance provides protection from volatility caused by large events, maintains flexibility to enable Tower’s growth and supports strong solvency. However, while risk-based pricing successfully underpins Tower’s competitive pricing, robust underwriting, continued growth, and response to issues arising from climate change, it is not a cure-all or silver bullet for all challenges. In the year ahead, our biggest challenge will be to continue to innovate at pace to meet the market. Over time, a range of options are likely to be offered including parametric cover which has already been successfully trialled in the Pacific. Customers are also likely to be offered the opportunity to choose the risks they want – and can afford – to cover. For example, offering fire only policies in flood-prone areas. This approach is already common in many other parts of the world and, while it will take some getting used to, it will likely replace comprehensive cover for at least some New Zealanders. High inflation and the resultant cost of living crisis is a New Zealand-wide problem, not just a Tower problem, but the upshot is that insurance is increasingly expensive. And, while everyone would like to see insurance affordable and accessible for all, the twin challenges of an inflationary environment and increasing risks from climate change make this unrealistic. The New Zealand market enjoys strong insurance penetration and people will be loath to give up all protection. So, while affordability is currently presenting challenges, the desire and need for insurance will not dissipate. Fortune will favour those insurers who can pivot and adapt, something that Tower has the digital capability and proven ability to do. The unpalatable truth is that not everyone is – or will be – able to afford to insure their home in the way they do now. For Tower to remain a sustainable, resilient business, we must not only be more selective about the risks we take on, but also develop cost-effective alternatives to traditional, comprehensive insurance cover. From Tower’s perspective it is about developing responsible alternatives to ensure insurance remains accessible. Quite simply, if New Zealand Inc is unable or unwilling to reduce risks by improving infrastructure to protect at-risk land and assets, then these insurance options become an absolute necessity. The good news is that Tower is well-placed to tackle these issues given its digital expertise and experience in Pacific markets where affordability and low insurance penetration are significant challenges. Tower has the technical capability, expertise, and agility to price for risk on a granular level and quickly get new options to market as the insurance landscape changes. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 7 In an ideal world, Tower would continue offering affordable, comprehensive cover to all, but in today’s complex environment, that approach will not support a sustainable, resilient business. Tower’s continued resilience will be fostered through innovation and meeting the market where it is at, not where we would like it to be. In closing, the Board acknowledges and thanks management and the Tower team for the resilience and determination they have shown in supporting our business, customers and communities in what has been a tough year. Michael Stiassny Chair ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 8 Update from the CEO At Tower, our purpose is to inspire, shape and protect the future for the good of our customers and communities. After a challenging year navigating the impacts of catastrophic weather events in New Zealand and across the Pacific, widespread inflation and increasing crime, our purpose is more important than ever. While the business has rightly had a strong focus on responding rapidly to the weather events and resolving customers’ claims; we have continued to deliver on our strategy - to be the best direct insurer in our chosen markets, enabled through our investments in people, technology and data. This has positioned Tower well to grow and deliver sustainable value. We remain resolutely focused on providing leading customer experiences, increasing efficiencies across the business, enhancing our culture and ensuring we remain financially resilient. Some key highlights include expanding our leading risk- based pricing model, developing our parametric solution in partnership with the United Nations, and reducing our management expense ratio (MER) while growing our customer numbers and premiums. Tower is a resilient business with a strong purpose and robust strategy, and we are pleased to report on the progress we have made in FY23. * Adjusted to exclude Papua New Guinea. Business performance Navigating catastrophic events For the year to 30 September 2023, our underlying profit including large events was $7.6m, down 72% from $27.3m for the full-year 2022. Loss after taxation was -$1.2m, versus $18.9m at the end of FY22. The difference between FY22 and FY23 is largely a result of the catastrophic events and inflation pressures resulting in higher claims costs. Our focus on simple and rewarding customer experiences combined with consistent rating actions has contributed to strong growth in both customers and premium. Underlying gross written premiums (GWP) increased 17%* year on year, up to $527m. During the financial year we have grown customer numbers to 321,000, up 4% on FY22. Our 17% growth in premium reflects a mix of rating and organic growth, with 80% of our New Zealand premium growth driven by decisive rating actions. Improving efficiencies as our investments in digitisation continue to drive down Tower’s costs to acquire and serve customers along with continued focus on cost control, has seen our overall MER improve again to 32.2% versus 36% in FY22. Tower’s solvency margin was reduced during the year, primarily due to the catastrophic weather events. The solvency margin is improving as event claims are settled. As at 30 September 2023, Tower’s New Zealand parent solvency ratio was 159% and the company was holding $53.8m above the minimum solvency capital required by RBNZ. In the financial year to 30 September 2023, three catastrophic weather events took place in the space of three months across Aotearoa and the Pacific: significant weather events in Auckland and the upper North Island, Cyclone Gabrielle, and Cyclones Judy and Kevin in Vanuatu. For 154 years, Tower has been helping people protect the things they love, and we are committed to helping our customers and communities get back on their feet, as quickly as possible. As at 20 November 2023 we had completed approximately 84% of claims for the New Zealand weather events and 88% of claims for the Vanuatu cyclones. We are working hard to close the remainder. We continue to work closely with the Government’s Recovery Taskforce, Auckland Council’s Recovery Programme, and the wider insurance industry to support both a cohesive response to these events and New Zealand’s resilience for the future. Continuing to enhance risk-based pricing Tower has long urged New Zealand to stop building in risky areas. In November 2021 we were New Zealand’s first insurer to launch a leading inland flooding risk- based tool in conjunction with RMS, a global leader in risk modelling. The flood tool leverages five million data points and 50,000 years of continuous simulation of the entire precipitation cycle. We share earthquake and flood risk profiles with customers through My Tower. We also shared data insights with central and local government with an aim to better inform and protect and customers and communities today, and in the future. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 9 Risk-based pricing supports competitive pricing and robust underwriting, and can inform action on issues arising from our changing climate. Earlier this year, we expanded our risk tool to include landslide and coastal risks. In FY24 we will launch customer-facing ratings for these risks, and we will continue to develop fair, transparent and competitive products that meet the needs of our customers today and in the future. Customer experience Tower continues to innovate and invest significantly in digital and data capabilities to deliver our direct customer experience, driving deeper customer engagement and growth. In FY23, we completed the rollout of our flagship, digital self-service platform, My Tower, across our Pacific operations. We are now bringing the same digital customer experience to all markets where we operate. We’re also proud to have launched our parametric Cyclone Response Cover pilot in Tonga, following a successful trial in Fiji during the 2022/2023 cyclone season. Streamlining our operations We made positive progress in streamlining our business in FY23, with the sale of our Papua New Guinea subsidiary and the announcement of the sale of our Solomon Islands business. We also continued to develop our Suva hub this year. With our core platform live across all territories we operate in, we can now seamlessly flex resource up and down across Fiji and New Zealand – our two biggest markets. Sustainability is at the heart of our business Summary FY23 marks the second year of our sustainability reporting, with the aim of being more transparent about the impacts of our business activities. We have continued important initiatives to manage our most material sustainability impacts and we’ve remained focused on reducing our operational emissions. Our efforts this year have helped reduce emissions by 23% compared to FY22. We are on track to meet our five-year emissions reduction target of 21% in 2025. We continue to work towards B Corp accreditation and are aiming to achieve this in the coming year. We look forward to making our first Climate-related Financial Disclosure in 2024. Our people I would like to thank our people who have worked incredibly hard to support our customers and communities – particularly those who were impacted by the weather events. We’re grateful to everyone, including those who pivoted in their roles to rapidly respond and help support those who needed it most when the catastrophic weather events were unfolding. We’re extremely proud of the empathy, selflessness and strong commitment to helping others that our people have shown. Our ability to scale up our support to the most impacted areas is not only a reflection of our people’s willingness, but further reinforces our ‘one team’ culture that operates across New Zealand and our Pacific markets. In keeping with our strategy, we’re pleased to have announced some significant initiatives this year aimed at empowering our people to give our customers their best. We acknowledge how incredibly challenging this year has been for our customers, our communities, our industry and our business. Our Tower strategy is very clear; we want to be the best direct insurer in our selected markets. We are ruthlessly driven to achieve this through a simple and rewarding customer experience, enabled through digital, data and our culture. We are focused on delivering solid underlying operating performance through robust risk management and continued rating actions to mitigate inflation, the effects of motor crime and weather events. We also continue to focus on targeted customer and premium growth while enhancing our margins through efficiency and organisational improvements. Tower is committed to mitigating the volatility caused by large events through risk-based pricing and our robust reinsurance arrangements. And while we manage the effects of the changing climate now, we will continue to invest in future business resilience and sustainability. Ultimately, this leads to attractive and sustainable earnings and dividends for shareholders over the medium to longer term. Blair Turnbull, CEO ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 10 A community hub in Auckland, following January 27 weather event ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 11 LOOKING AFTER OUR CUSTOMERS AND COMMUNITIES ANNUAL REPORT 2023ANNUAL REPORT 2023 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 12 A year of unprecedented large events JAN 23 FEB 23 MAR 23 MAY 23 Auckland and upper North Island weather event 5,688 claims $174m Cyclone Gabrielle Vanuatu cyclones Auckland rain event 3,636 claims $52m 295 claims $11m 438 claims $4m Event costs are gross estimates as at 30 September 2023. $38M Net large event claims expense for Tower in FY23, after reinsurance ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 13 Events snapshot Auckland and upper North Island weather event and Cyclone Gabrielle 5,711 House claims 1,045 Motor claims 2,330 Contents claims 84% Event claims settled* 367 Families supported with temporary accommodation costs $200K In food spoilage claims paid to customers in the aftermath of both events 975K Emails with claims, safety and cleanup advice sent to customers in the month following events 317K Texts sent within two hours of January 27 weather event beginning 6 Attended all six community hubs immediately after events in Hawke’s Bay and Auckland 5 Years’ worth of large loss house claims in just over a fortnight * As at 20 November 2023. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 14 Supporting New Zealand’s recovery This financial year Aotearoa faced two catastrophic events, the Auckland and the upper North Island weather event and Cyclone Gabrielle. The scale of these weather events was unprecedented for both our country and industry. Tower is committed to helping our customers and communities get back on their feet, as quickly as possible. Tower’s rapid response The speed of our initial response on January 27 meant customers in impacted areas were sent texts within hours of the event beginning, with advice on how to claim. Our Chief Claims Officer activated Tower’s event response team that night and by morning, additional resource was on the way to help with the high volume of claims. This included flying assessors into Auckland from around New Zealand. Our large event motor claims process was triggered immediately, and two hours after the event began our towing network was transporting customers’ vehicles to a central assessment yard. This meant we were able to start settling motor claims for our customers within one business day. A couple of weeks later, we followed this model for customers impacted by Cyclone Gabrielle too. Our teams were on the ground within a day of each event, assisting customers at community hubs in Auckland and Hawke’s Bay. We scaled up, using our suppliers, hiring additional staff and redeploying our people in Fiji and Rotorua to our phone lines and online claims lodgement. Flooding in Auckland during the January 27 weather event ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 15 83% 84% Auckland & upper North Island event claims settled* Cyclone Gabrielle event claims settled* Tower’s central motor assessment yard following January 27 weather event Tower staff at an Auckland community hub following January 27 weather event There for our customers The volume of claims and the range of external parties required to resolve claims related to these events presented challenges for everyone. We know the time it has taken to resolve some claims and contact Tower at times has been frustrating for people. With every event, we take the opportunity to learn and improve so we can provide a better service for our customers. This year we have made improvements to our claims processes, to ensure that our customers receive timely communications and action from us, throughout the entire claims journey. By 20 November, Tower had settled 84% of claims from the Auckland and Upper North Island event and Cyclone Gabrielle. A few weeks after Cyclone Gabrielle, Cyclones Judy and Kevin made landfall in Vanuatu. These events were devastating for the people of Vanuatu and we are proud of the support we provided our Vanuatu customers. As at 20 November, Tower had settled 88% of claims for these events. These events are a reminder of the role insurance plays in our economic resilience. We continue to look for ways to improve how we help our customers and communities recover after large events. * As at 20 November 2023. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 16 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 17 DELIVERING ON OUR STRATEGY ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 18 Our strategy Our values To be the best direct insurer in our selected markets differentiated through digital and data, fairness and transparency, and by caring for our customers in everything we do. Our strategic pillars WE DO WHAT’S RIGHT OUR PEOPLE COME FIRST LEADING CUSTOMER EXPERIENCE OPERATIONALLY EFFICIENT & EFFECTIVE HIGH PERFORMING CULTURE RESILIENT OUR CUSTOMERS ARE OUR COMPASS Simple and rewarding customer experiences across the life cycle. Digitise and automate core processes and leverage geographical footprint. An inclusive, diverse and risk aware culture. Empower our people to achieve great things. Manage volatility and deliver sustainable outcomes for all stakeholders. PROGRESS BOLDLY ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 19 Our purpose Our vision To inspire, shape and protect the future for the good of our customers and communities. Ta tātou kaupapa To deliver beautifully simple and rewarding experiences that our people and our customers rave about. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 20 Leading customer experience ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 21 Innovating for our customers In line with our strategy to create leading customer experiences, Tower continued to develop our innovative products and digital offerings over the financial year. These efforts have contributed to record growth in GWP. My Tower In FY23, our flagship, digital self-service platform, My Tower continued to enhance the insurance experience for our customers, allowing them to purchase insurance, update and keep track of policies and view their property’s risk profile for flooding and earthquakes. All this, via one simple online platform. In New Zealand, My Tower assisted our customers to lodge and check the progress of their claims online. This financial year, we completed the rollout of My Tower across our Pacific operations - the first platform in the Pacific that allows people to get a quote and purchase insurance online. It’s a remarkable step- forward in our plan to increase insurance accessibility in the Pacific, where roughly 10% of homes have insurance, compared to 90% in New Zealand. $391M Tower Direct GWP1 up 22% from FY22 $53M 264K Customers now registered for My Tower $82M 1 Legacy partnership portfolios have been transferred from the Partnerships business unit to Tower Direct after purchase. 2 Excluding Papua New Guinea which was sold in FY23. Pacific GWP2 up 4% from FY22 Partnerships GWP up 26% from FY22 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 22 Forward thinking products for modern customers Our focus on innovation and investment in large- scale digital transformation over the last four years continues to enable Tower to evolve rapidly, in line with the latest in technology and customer expectations. The result is customer-focused, digital-first insurance solutions that allow us to create products to suit the modern lifestyles of our customers. In FY23, we celebrated the one-year anniversary of Contract Works – Renovation Cover, ensuring we are there to support our customers as they renovate their homes. It’s the newest addition to our personal lines offering, which includes products for motor, contents, boat, travel, pet and landlords, as well as insurance for renters, lifestyle block, EVs, e-scooters and e-bikes. 77% 18% 50% NZ direct sales online vs. 66% in FY22 Increase in Tower Direct online quotes vs. FY22 Customers hold multiple policies with us ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 23 Partnering for success Our partners continued to drive more customers to Tower in FY23, with an uptick in referrals and subsequent growth through the New Zealand Financial Services Group, Kiwi Adviser Network, Allianz Partners, Ray White, Coastguard, TSB, Aon Fiji and the Fiji Development Bank, among others. New partnerships with New Zealand Home Loans, MTF Finance and Squirrel Mortgages, also helped to support our customers and business growth. Wherever possible we also partner to deliver products in better ways and to do existing tasks more efficiently. In the year, work continued with the likes of Risk Management Solutions, Redbook, FRISS and Sentro to enhance our different business processes. 35% Increase in new risks sold from referral partners vs. FY22 GOLD AWARD: Outbound Business to Business Calling 2,500 Active advisers up 67% from FY22 SILVER AWARD: Outbound Business to Consumer – Sales ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 24 Sustainable and innovative growth Growth is key to our strategy but in order to be there for our customers and deliver good returns for shareholders long-term, this growth must be sustainable. We are focused on growth in the right areas, with the right risks. 2 Parametric insurance now available in two countries, Fiji and Tonga 600 Parametric policies in place for the FY24 cyclone season Parametric insurance for the Pacific In August 2023, Tower launched its parametric Cyclone Response Cover pilot in Tonga. Cyclone Response Cover was first trialled in Fiji for the 2022/2023 cyclone season in collaboration with the United Nations Capital Development Fund, under its flagship Pacific Insurance and Climate Adaptation Programme. Following the pilot’s success, Cyclone Response Cover is now available to all Fijians. Under Tonga’s Cyclone Response Cover trial, the product is available to Tonga Development Bank customers and Pacific Disability Forum members for the 2023/2024 cyclone season. Following this, our goal is to launch the product to the wider Tongan market. Cyclone Response Cover provides a rapid cash pay-out to customers based on proximity to a high wind speed cyclone event, regardless of damage and without the need for an insurance assessor’s signoff. Parametric insurance products are a lower-cost alternative that provide a level of cover for communities that may not benefit from traditional insurance. Cyclone Response Cover will help increase insurance accessibility, particularly as climate change impacts increase over time. In the coming years Tower plans to expand parametric insurance into more of our Pacific territories. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 25 In FY24, Tower will fully automate underwriting for landslide and sea surge risks, and these will be added to the customer view in My Tower alongside a transparent premium breakdown. 87% 79% 72% Kiwis think risk-based pricing is a fair way to price insurance* Kiwis agree that landslip risk should be factored in when assessing a property’s risks* Kiwis agree that storm surge risk should be factored in when assessing a property’s risks* Risk-based pricing, a fair way to price insurance With our award-winning and market-leading approach to earthquake and flood risk-based pricing, we’re proud to share information with customers about their properties, empowering them to better understand their insurance needs and premiums. We believe risk-based pricing is a fairer way to price insurance as customers only pay for the risks that apply to their properties. Launched in 2021, the response to our risk tool has been positive. Since then, we’ve tested our model against the impacts of actual flood events and these have matched closely every time. This continues to give us confidence in the accuracy of our pricing and underwriting. Following accurate modelling of this year’s large events, we used our risk-based pricing model to implement three key changes to ensure we price fairly, grow sustainably and further protect the business from the volatility of weather events: 1. Increased the weighting of the flood-risk portion of our premiums to better reflect changing risk profiles. 2. Implemented new risk selection criteria for landslide risks, immediately following the January 2023 weather event. 3. Added automated risk-selection for sea surge for new business and underwriting risk reviews for existing customers. * Independent research conducted by the Octopus Group in April 2023, with a sample size of 1,000 representative of New Zealand’s population. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 26 Fair and transparent insurance At Tower, fairness and transparency are a core part of our customer experience. We aim to make insurance simple and easy so that our customers understand their insurance and have the right cover in place to suit their needs. Most importantly and in line with our values, we do what’s right. Committed to supporting our customers A new Financial Advice Provider (FAP) regime was introduced to the industry in FY23. Tower is committed to understanding and supporting the needs of our customers so we applied for and were issued a full FAP Licence. Tower supports the intent of the regime – which is to make good financial advice accessible to Kiwis. 194 175K Tower team members trained to provide financial advice to Kiwis Inbound calls answered by our trained representatives since the regime went live in March 2023 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 27 Putting things right for our customers Tower is focused on putting things right for customers who have received incorrect discounts or benefits. We sincerely apologise to those who have been affected by these errors. The most significant part of our remediation programme in FY23 has been refunding customers who have not received correct multi policy discounts. We have made substantial progress with $6.2m excluding GST paid to these customers as of 31 October 2023. Tower has provisioned $11.2m for this customer remediation which allows for amounts to be paid to around 65,000 customers and potential regulatory action. After we identified the issue, we proactively advised the Financial Markets Authority (FMA) and we have been assisting FMA with its investigation in relation to the overcharge. Other remediations we have in progress are for premium overcharges in connection with the application of promotions and policy discounts. We have provisioned around $500K for these. We are working to identify all impacted customers so we can refund any overpayments. As well as reviewing our processes, we are also redesigning and simplifying our multi-policy offering and expect to share more about this change in FY24. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 28 Operationally efficient and effective ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 29 Our digital and data capabilities 55% Service tasks and transactions completed digitally in NZ vs. 50% in FY22 55% Combined NZ net promoter score for online experiences As a forward thinking insurer, the customer and efficiency benefits from our digital platform continue to be realised. Our digital platform is driving down the costs to acquire new business and serve as Kiwi and Pacific communities increasingly adopt our online sales and service channels. Customers are also seeing the benefits as evidenced by our New Zealand online net promoter score. For our business, our core platform agility has enabled rapid deployment of technology releases, which take us just 25 minutes a day. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 30 Our vision for the future of claims Tower’s vision for the future is of a digitised end-to- end customer experience, where our customers can manage every aspect of their claim via My Tower, supported by automated internal systems and supplier networks. We’re on a journey to achieve this by FY26 with the goal of improving transparency for customers, reducing operating costs, increasing efficiency and productivity, and continuing to deliver good, simple customer experiences. In FY23, thanks to our new Repair Partner Network’s straight-through-repair model for simple repairs, we removed the need for 40% of our customers to wait for an insurance assessment. Similarly, 40% of our My Tower motor claims are now lodged through claims automation. 59% Claims now lodged online in NZ vs. 49% in FY22 69% Claims from the Auckland and upper North Island weather event and Cyclone Gabrielle were lodged online ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 31 Simplifying our business to deliver sustainable growth and efficiencies Over the last four years Tower has invested heavily in digitisation to increase scale and simplify our business. In FY23, this investment led to a further reduction in our management expense ratio (MER) and improvements in our customer experience. 81% New Pacific business purchased via new platform up from 45% in FY22 32.2% MER down from 36% in FY22 One core platform With our core personal lines platform now live across all countries, we have simplified our organisational alignment around our three customer journeys: new business, service and claims – rather than across geographical locations. This is aimed at delivering consistent and repeatable processes across our business, simultaneously reducing complexity, duplication and risk. Streamlining our operations In FY23, Tower completed the sale of our Papua New Guinea subsidiary and announced the sale of our Solomon Islands business, which we expect to complete in the first half of FY24. These sales allow Tower to focus on developing and delivering our personal lines and small-medium enterprise customer experience in the Pacific. Growth in our Pacific business will be enabled through Tower’s digital and data offering, while we streamline our operations and tighten our risk appetite. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 32 The cornerstone of our Pacific operation With our core platform and My Tower now live across the entire Tower Group, our Suva Hub began to realise its full potential this financial year, delivering significant value and organisational efficiencies. Supporting our large event response Our strategic advantage Following the Auckland and upper North Island weather event and Cyclone Gabrielle escalating claims volumes impacted our customer wait times. Our Suva team was able to support via our phonelines, email communications and online claims lodgment processes. Online support for our New Zealand customers via Suva was a milestone moment for Tower - with our core platform, we’re not only operating as one team we’re operating on the same, innovative, digital system too, regardless of location. Tower has operated in the Pacific Islands for almost 150 years. As the cornerstone of our Pacific operation, Fiji represents a differentiator and strategic advantage for Tower. Our two biggest markets, New Zealand and Fiji, sit in the same time zone, or within an hour’s difference during daylight saving months. Because we’ve expanded our operations in Fiji to include all core business functions our BAU operations can now operate seamlessly across both countries, as well as the wider Tower group. Instead of outsourcing, we are investing in local economies which offers great strategic value to Tower. This value goes hand-in-hand with the expansion of our Suva team, which has grown from 62 FTE in FY21 to 88 in FY22 and now 233 in FY23. Staff attrition in the Pacific is lower than in New Zealand, where the labour market is tight compared to Fiji. Fiji’s cultural similarities means our access to talent in-country presents a unique opportunity to provide a better experience for all Tower customers, while bolstering resilience and reducing MER. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 33 New Zealand Fiji Business Council breakfast with Fiji Prime Minister Sitiveni Rabuka Future growth enabled To support this growth, at the beginning of FY24, our Suva team will move into a new, larger office, marking the next chapter in our Suva Hub journey. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 34 High performing culture ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 35 Our culture Our people are at the heart of everything we do. We know that by looking after our teams, we empower them to show up in the best way possible for our customers. Diverse and inclusive At Tower, our values are; ‘we do what’s right’, ‘our customers are our compass’, ‘progress, boldy’ and ‘our people come first’. We truly live by these values and our staff engagement surveys, run in March and September each year, reflect this. We’re particularly proud of our diversity and inclusion score and contributors, which are consistently high. In our latest survey, our overall ‘diversity and inclusion’ score was 8.6, with contributors like ‘freedom of opinion’ and ‘feeling valued’ scoring at 8.1. This is important to us because for our people to feel comfortable to express their opinions at work, there needs to be a high level of trust across the entire Tower group. When people feel valued and respect each other’s individual differences, this creates an environment for people to thrive and collaborate freely. We know that this is crucial for a business to flourish, stay competitive and remain ahead of the curve. 7.8 81% Employee engagement score* 100% Employees earn a living wage in NZ or a living wage equivalent in the Pacific Emerging Talent programme employees progressed in their careers at Tower in FY23 59% Employees are non-European, based on the 96% of staff who chose to disclose their ethnicity in FY23 * As at 22 September 2023, based on Tower’s latest staff engagement survey. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 36 Committed to our people ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 37 8.3 Employees rated Tower’s commitment to health and wellbeing at 8.3, in the top 25% of the global finance sector* Putting our people first Enhanced wellbeing New benefits launched this year include gender affirmation leave and increased paid parental leave. These are in addition to our existing benefits such as our refreshed volunteer leave framework, birthday leave, domestic violence leave, the ability to purchase up to eight extra days leave, flexible working, free financial wellbeing seminars, discounts for group insurances and with a range of suppliers across New Zealand and the Pacific. To make it easier to access these benefits in FY23, we launched the Tower Beam app, which consolidates all our staff discounts into one easy platform for our people to take advantage of, no matter where they are. Our people’s wellbeing was top of mind during our response to weather events this year. In addition to hiring more people to handle the sharp increase in workloads we delivered 15 sessions on managing stress through compassion, connection and mindfulness to more than 200 staff. This included a tailored session for our event response team. Changing sick leave to wellbeing leave in FY22 has also helped enhance our teams’ wellbeing in FY23, while opening up broader conversations about mental health and managing stress. Wellbeing leave replaces sick leave and can also be used for rest or activities that proactively manage personal wellbeing. As an insurer, our work environment is unique. Spread across eight countries, from offices to assessing damages out in our communities - we’re proud that in FY23, we reported zero workplace injuries and zero harm. * As at 22 September 2023, based on Tower’s latest staff engagement survey. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 38 20.2% Gender pay gap, improved by 5.7% vs. FY22 When we take the total salary for all women and divide that by the number of women, and the total salary of all men and divide that by the number of men, we have a gap of 20.2%. For the most part, this is because we have a larger proportion of women in some of our New Zealand frontline roles, and a greater proportion of men in senior roles. -0.2% Gender pay equity gap When we compare like-for-like roles for women and men at Tower in New Zealand, our pay equity gap is –0.2% (women are paid 0.2% more than men for the same role). 2.7% Leadership gender pay gap Comparing our senior leadership population and the average pay gap between men and women, our leadership pay gap is 2.7% (men are paid 2.7% more than women). 3 Tower leaders named on Insurance Business New Zealand’s Elite Women List; Head of Pricing, Amy You; Head of Corporate Affairs and Sustainability, Emily Davies; and Head of Platform Delivery, Johannah Benton ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 39 Looking after our people at work and at home In FY23 Tower increased parental leave entitlements from 12 to 16 weeks paid leave for primary carers and, two to four paid weeks leave for partners. An especially exciting development was the rollout of these same benefits across our Pacific operations. This was part of a wider project to align staff benefits across the Tower group. Parental leave legislation varies greatly in the Pacific compared to New Zealand, options are limited and in some countries even unpaid leave for partners is not required by law. Now, our teams in the Cook Islands, Solomon Islands, Vanuatu, Tonga, Fiji, Samoa and American Samoa enjoy the same updated benefits as our teams in New Zealand, including parental leave – typically above and beyond what is available in each country. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 40 Resilient ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 41 Here to do good, for good 2023 was challenging for the local and global insurance industry. Our ability to stay agile, driven by digital and data capabilities, backed by robust reinsurance, allows us to remain financially resilient and adapt to market challenges. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 42 Protecting Tower and our customers with real-time, automated underwriting In FY23, we continued automating our underwriting processes underpinned by our risk-based pricing model and digital agility. In New Zealand, for the second year running, nearly 100% of our existing house customers’ sums insured were updated automatically, mainly using data from the Cordell calculator. This helps customers choose a suitable level of cover. This financial year, Tower proactively managed inflationary pressures through targeted rating and underwriting actions. Monthly rating changes allowed us to mitigate reinsurance and weather-related cost increases as well as keep pace with inflation. Similarly, with increased motor crime, Tower identified vehicles subject to higher rates of theft and made appropriate changes to rates and excess charges. Our ability to take swift and decisive action to address emerging issues on a granular level is at the heart of the digital transformation Tower has undergone in recent years. It’s this flexibility and agility that helps us to successfully mitigate external challenges beyond our control and remain resilient. 94% NZ risks are now sold without requiring a manual underwriting review and pricing adjustments 100+ Pricing and underwriting adjustments made across FY23 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 43 Robust reinsurance In May, following large weather events and aligned with our comprehensive approach to reinsurance, Tower placed additional reinsurance reinstatement cover for the remainder of FY23. The purchase of additional cover ensured protection remained in place for additional events up to a limit of $889m. Reinsurers are attracted to our robust underwriting and risk-based pricing approach and Tower is pleased to receive ongoing support from some of the world’s largest reinsurers as well as backing from reinsurers looking to start new relationships with us. In a challenging reinsurance market following significant global weather events, Tower was pleased to secure a comprehensive FY24 reinsurance programme, at competitive rates for home, motor, boat and commercial portfolio cover, across New Zealand and the Pacific. Last year’s Toka Tū Ake EQC cap increase from $150,000 to $300,000 reduced the amount of catastrophe coverage needed. To support our prudent risk appetite, Tower purchased cover for two catastrophe losses up to $750m. Cover is inclusive of an automatic reinstatement. Tower also purchased cover for a third catastrophe event up to $75m. This cover, combined with Tower’s existing multi-year placements, results in a reinsurance excess increase to $16.9m for the first two events in FY24, up from $11.9m in FY23. An excess of $20m applies for a third event. The market experienced significant increases in reinsurance prices and excesses throughout FY23 so we were very pleased to achieve moderate pricing and excess increases for FY24. $750M Cover in place for first two catastrophe losses in FY24 $75M Cover in place for a third event in FY24 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 44 Protecting the everyday As an insurer it’s our job to be there when the worst happens. Large events in New Zealand and the Pacific this year have brought this role to the fore for our communities. But we’re also here to help when everyday things go wrong, reporting 76,597 everyday claims in FY23. From holidays to vehicles and homes, we helped protect more of the things our customers love this year too. 4K 67% 319 Travel insurance policies for trips to Australia, our most popular destination 14 Rugby ball related claims in NZ, mostly for kids kicking rugby balls into TVs Increase in travel policies sold 405 Claims for wedding and engagement rings in NZ Claims for Pacific homes 31% 63 Boat claims happened out on the water in NZ Boat claims caused by mishaps at boat ramps around NZ 1,600 Pacific motor claims ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 45 12.7K 530 26% 60% Claims for Kiwi homes Claims for hot water cylinders Increase in NZ motor theft claims Growth in electric vehicles (EVs) covered ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 46 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 47 ENVIRONMENTAL, SOCIAL AND GOVERNANCE PERFORMANCE ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 48 Moving all aspects of our business towards zero- carbon and zero waste, and ensuring we have a positive impact on Aotearoa and the Pacific, now and in the future. A diverse and inclusive workplace that builds people’s physical and emotional wellbeing. Sustainability at the heart of what we do Our sustainability strategy guides how we manage relevant environmental, social and governance issues and provides a framework for managing our most material impacts. It was developed to enable us to deliver on our company purpose: “To inspire, shape and protect the future for our customers and communities.” Providing no- surprises, easy to understand insurance that is accessible and affordable. Championing informed dialogue about climate change and pursuing win- win outcomes that tackle sustainability issues. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 49 ESG Governance Tower’s Board provides the highest level of ESG governance at Tower. The Board approves and monitors our ESG governance and reporting, with performance monitored through periodic updates from management. ESG governance is formalised through an executive level steering committee which has responsibility for overseeing progress on our initiatives and monitors environmental and social risks. Our ESG performance is coordinated by the Head of Corporate Affairs and Sustainability, reporting to the CEO. As we progress our response to Climate-related Financial Disclosures and our B Corp aspirations, the Board and management will continue their focus on ESG governance and climate risks and opportunities, by developing new policies and continuing to enhance our governance framework in FY24. This annual report is Tower’s second step into sustainability reporting with the aim of being more transparent about our broader business activities. This report has been prepared in accordance with the Global Reporting Initiative (GRI) 2021 standards. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 50 Reducing our emissions Tower has set a science-based reduction target of 21% over five years from our 2020 base year (551 tCo2e). Our carbon footprint is calculated in accordance with the requirements of the Greenhouse Gas Protocol and ISO 14064-1:2018. Our actions to curb emissions in FY23 following a post-Covid spike in FY22 has resulted in a 23% reduction over the year to 477 TCo2e. This year’s progress sees us on track to achieving our current FY25 target with calculated emissions now 13% below our FY20 baseline year. Emissions reductions in the year have largely been achieved through progressively replacing our New Zealand and Pacific fleet with hybrid vehicles and changing driving behaviours in both regions. All our New Zealand fleet vehicles are now hybrids and we will continue to transition the remainder of our Pacific vehicle fleet in FY24. Virtual meetings technology has now been fully embraced in our Pacific operations and we are increasingly conducting claims assessments virtually in New Zealand, reducing the need to travel. Emissions from powering our premises are now 25% below our baseline year, largely due to the move to our Six Green Star Rated premises in Auckland. An increase in stationery energy emissions of 18% in FY23 is predominantly due to the inclusion of additional data sources. This was partially offset by emissions reductions from New Zealand’s continued transition to renewable energy and the sale of our Papua New Guinea subsidiary. Our preparation for Climate-related Financial Disclosures includes expanding our measurement and reporting of Scope 3 emissions. As more data is captured over time, we expect the inclusion of previously unreported Scope 3 emissions including from our underwriting portfolios and supply chain to increase Tower’s total carbon emissions profile. As part of this work we will review our emissions targets in FY24. Tower has elected not to offset our FY23 emissions as our preferred approach is to invest in initiatives that reduce gross emissions as much as possible such as transitioning our fleet and investigating renewable energy sources for our Pacific premises. SCOPE SCOPE 1 SCOPE 2 SCOPE 3 FY20 (TCO2E) FY21 (TCO2E) FY22 (TCO2E) FY23 (TCO2E) 169 180 202 115 165 98 300 126 191 165 135 177 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 51 Climate-related Financial Disclosures Identifying material impacts In FY23 Tower made positive progress towards addressing our climate change risks and opportunities with our first mandatory Climate-related Financial Disclosure required for the FY24 reporting year. Due to internal resources being diverted to managing this year’s catastrophic events, we have elected not to make an early voluntary disclosure for FY23 as originally intended. In the year, Tower adapted the New Zealand insurance industry climate change scenarios for Tower’s strategy and business model in New Zealand and the Pacific Islands. Tower’s climate change scenarios explore three possible and plausible futures over a timeframe out to 2050. These scenarios have allowed us to develop a comprehensive set of climate change risks (including both physical and transition risks) and opportunities which will ultimately enable us to model the potential future financial impacts of climate change and further develop our strategic responses. B Corp As we’ve indicated previously, Tower would like to achieve B Corp accreditation in the coming year. B Corp measures a company’s entire social and environmental impact. Attaining this certification would confirm that Tower is demonstrating high verified standards of social and environmental performance, public transparency, and accountability as we progress towards our sustainability goals. In 2021, we identified a range of topics and impacts through research and engagement, which included interviewing a range of stakeholder representatives and relevant experts. We spoke to our Board, shareholders and partners, representatives from the wider insurance industry and financial markets, as well as experts in sustainable finance and climate change. We undertook employee workshops involving senior management and a diverse range of people and roles from across the business. In 2022, we assessed and prioritised the full range of Tower’s sustainability impacts using the GRI 3: 2021 methodology. Members of our executive steering committee reviewed our material impacts in 2023 and validated that our 12 material topics largely remain consistent with the FY22 assessment. Increases in significance were identified for three topics: climate change increased, due to the increasing frequency and severity of extreme weather; affordable and accessible insurance was rated higher, reflecting the current cost of living challenges in New Zealand and the Pacific; and product development also increased in importance due to the potential for product innovations like parametric insurance to bring positive benefits to Pacific people. Our impacts are detailed in the table on pages 52-57 along with relevant impacts identified and addressed both in the table and throughout this report. The impacts reflect Tower’s business operations in both New Zealand and the Pacific Islands and have been reviewed and approved by our leadership. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 52 Material impacts Material impacts STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 Diverse and Inclusive to the core Diversity and inclusion We recognise that a lack of diversity excludes minority groups which limits diverse thinking and impacts mental health and emotional wellbeing. Diversity is also an important part of customer innovation. We are committed to having a diverse and inclusive workplace that builds people’s physical and emotional wellbeing. Investing in a positive business culture that prioritises the personal growth of our people impacts our attractiveness as an employer and retention of talented employees. • We have policies and processes in place to ensure equal opportunities for roles at Tower • Our recruitment policy incorporates cultural considerations for conducting interviews and outlines a process to ensure all interview panels are balanced culturally and by gender • We offer unconscious bias training to all staff • Our emerging talent programme has a focus on identifying diverse future leaders. FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND • Target to be developed. • Target to be developed. FY23 targets Drive practices and outcomes that will result in Tower’s leadership reflecting the diversity (gender and ethnicity) of our customers and communities: • 100% of hiring panels, candidate shortlists and succession plans consist of one woman candidate and one ethnically diverse candidate • Attrition of diverse talent is kept below the level of gender and ethnic representation. Delivered in FY23 • Target not met largely due to challenges with collecting ethnicity data from candidates during the recruitment process. However, gender diversity was achieved for candidate shortlists in 100% of roles and hiring panels for bands 7 and above. 75% of succession plans included gender diverse candidates. • Attrition of diverse talent was less than total attrition • Increased Parental Leave Benefit • Introduced Gender Affirmation Leave • Added more options for our people to choose from or select for their personal gender, ethnicity, and national origin, to better reflect our workforce. This resulted in an increase in gender and ethnicity disclosure rates to 96% in FY23 compared to 85% in FY22 • 239 staff completed unconscious bias training • In FY23 our gender pay gap improved to 20.2% from 25.9% in FY22. Our gender pay equity gap in FY23 was -0.2% and our leadership pay gap was 2.7%. See pages 34-39 and 114-115 for more information. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 53 Material impacts (continued) STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 Diverse and Inclusive to the core (continued) Employee wellbeing We believe that caring for our people’s wellbeing is fundamental to a healthy culture. Reduced wellbeing can lead to physical or emotional harm and right now financial wellbeing is a key concern for many Kiwis and Pacific people. We can make a difference by having opportunities and initiatives in place to support our people’s physical, mental and emotional wellbeing and build their capability for the future. Supporting our people’s wellbeing • Tower is committed to creating a culture where incidents, near misses, hazards and discomfort are reported • We offer a range of contemporary benefits plus, flexible working, wellbeing leave for proactively managing personal or family wellness, the ability to purchase extra annual leave, and an additional paid day off for our people on their birthday • We provide training and development opportunities for our people that includes training for their role, personal goals and leadership capability • We have 15 Mental Health First Aiders, trained by St John to support our people through challenging times. FY23 target • Zero harm Delivered in FY23 • Zero harm achieved • Improved employee leave benefits • Delivered 15 managing stress sessions to more than 200 staff • Delivered eight financial wellbeing seminars • Provided domestic violence responder training to 12 employees, bringing our responders up to 20 across Tower • Launched the Tower Beam benefits app • Achieved Living Wage accreditation • Renewal of DV Free Tick accreditation • Launched new recognition programme. See pages 34-39 for more information. FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND • Zero harm • Zero harm Go-to trusted insurance partner Affordable and accessible insurance • We continuously monitor our pricing FY23 targets • 20% of • 40% of Low rates of insurance in the Pacific are due to a range of issues, including the insurability of many Pacific homes, the unique ownership structures of properties within families, affordability and a lack of insurance products to suit their needs, or a lack of available internet or transportation to access insurance products. We know that not having the right cover makes people, communities, and economies reliant on aid, which creates unnecessary uncertainty and can mean it takes more time to recover when the worst happens. We have a responsibility to ensure insurance remains accessible and affordable. This is a challenge given the current inflationary environment and increasing risks from large events and climate change. and benefits to ensure we are competitive and offer value for money • Our affordability focus group ensures our team has the necessary skills to assist customers with affordability issues. • Our parametric insurance product, Cyclone Response Cover offers a lower-cost alternative level of cover for customers in Fiji and Tonga. transactions in the Pacific are completed via digital platform • 1,000 parametric policies in place across three countries by the end of FY24. transactions in the Pacific are completed via digital platform • 10,000 parametric policies in place across five countries by the end of FY25. • Consistent digital offerings are in place across New Zealand and our Pacific markets • 1,000 parametric policies in place in the Pacific by the end of FY23. Delivered in FY23 • Achieved consistent digital offerings • Launched parametric insurance pilot in Fiji and Tonga • Did not achieve our target of 1,000 parametric policies in place due to the timing of the Fiji pilot launch and subsequent roadshow, which took place in the December 2022, half-way through cyclone season. In FY23, 600 parametric policies have been purchased for the FY24 cyclone season. With the product now live across all of Fiji and a pilot programme live in Tonga, we expect to reach this target in FY24. See pages 21, 22 and 24 for more information. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 54 Material impacts (continued) STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND Go-to trusted insurance partner (continued) Transparent and fair insurance We know that customers don’t always understand their insurance and, transparency of information is one of the most important factors they take into account when deciding on an insurance provider. We recognise the need for clearly worded and simple descriptions of insurance products that help customers understand what they’re covered for. • We are working to ensure our policies achieve the WriteMark plain English standard • Continually simplifying and improving our customer self-service offering through digitisation • Digital platform provides transparency of customers’ risks and pricing • Tower is focused on putting things right for customers who have received incorrect discounts or benefits. FY23 target 80% of all products are WriteMark certified by end of FY23. Delivered in FY23 • WriteMark target was achieved in New Zealand. Work continues in the Pacific with 70% of products now WriteMark certified in Fiji • Embedded ways to save built into My Tower. This gives customers practical and immediate options to save on their premiums • $6.2m excluding GST has been paid to customers affected by multi-policy discount errors as at 31 October 2023. See page 27 for more information. • Continue to align Pacific policy documents with the WriteMark standard • Embed sea-surge and landslip risk profiles in quote- to-buy journey and in My Tower. • Target to be developed. Product development and innovation Innovating our products: Tower is committed to helping New Zealand and the Pacific’s transition to a more sustainable future. Our greatest opportunity to support this aim is by positively influencing and supporting our customers through the services and products we provide. We are working to ensure our product development and innovation supports climate change resilience and action. We know traditional insurance products fail to adequately support many Pacific people who either do not have insurance or are underinsured. • Our parametric insurance product, Cyclone Response Cover offers a level of cover for those in the Pacific who are excluded from traditional insurance products • Offering cover for electric and hybrid vehicles, e-bikes and e-scooters helps support the transition to more sustainable forms of transport. • Cyclone response cover product launched to wider Fiji market and pilot launched in Tonga • Target to be developed. • Target to be developed. • Launched new personal lines house, motor and contents products in all Pacific countries in which we operate • 60% growth in electric vehicles (EVs) covered • 34% growth in hybrid electric vehicles covered See pages 21-25 for more information. Data protection • Our data governance framework • Updated data risk governance framework • Update The collection and use of personal and non-personal data enables us to offer more tailored insurance products and services, including more personalised risk assessments. We know that any misuse or loss of customer data is likely to erode trust in the insurance industry. Tower is committed to protecting our customers’ and people’s data by having safe data governance and practices in place. ensures we are able to take advantage of opportunities to use data when they arise, and this data is used appropriately and effectively • We have robust policies, processes and technology in place to ensure data is protected • Tower is continuing to decommission legacy systems which will reduce the number of systems where customer data is stored. • Updated data retention policy and retention schedules • Updated third party data access register. Information Management Policy • Target to be developed. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 55 Material impacts (continued) STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND • We are continuing to expand our risk- based pricing strategy to include more climate-related hazards • Further expanded risk-based pricing by implementing heightened risk selection criteria for landslide risks • We manage financial impacts by • Awarded two scholarships. See page 25 for more information on risk-based pricing. • Target to be developed. Expand our hazard model to include landslide and coastal hazards, automated pricing and underwriting implemented for these risks, including transparency around risk ratings for customers. Helping communities manage climate change Managing the impacts of climate change Tower is focused on managing the impacts of climate change, both within our business and for the communities we serve. We can make a positive contribution to mitigating climate change risks both through our own operations, and by helping others to manage their risks through our influence as a Kiwi and Pacific business. Corporate community citizenship Our approach to employee wellbeing extends to our people’s connection with communities and the environment. By encouraging our people to support projects that align with their values and help the community we can help foster a community mindset within the organisation. budgeting for increasing large events in our planning and via our robust reinsurance programme. See page 43 for more information. • Participating in public dialogue on climate change impacts and responses • Sharing useful data about hazards and risks • Supporting climate change education via our Waikato University Bachelor of Climate Change Studies scholarship. • We provide every employee with a day of volunteering leave every year, to contribute to initiatives that restore the environment or have positive social outcomes • With current staff levels Tower has 7,200 volunteer hours available across New Zealand and the Pacific per year to make an impact. • In late FY23 we refreshed and relaunched our volunteering programme. While early days we were pleased to have delivered 390 hours of volunteering by Tower staff. See page 37 for more information. 1,000 hours of volunteering by Tower staff. • Target to be developed. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 56 Material impacts (continued) STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND Thinking ahead for our planet Carbon emissions • Tower has set a science-based • 23% reduction in overall emissions. See page 50 for more information. We take measuring and reducing our emissions seriously as we recognise that every effort to reduce emissions helps to mitigate global warming. Our carbon impacts reach well beyond the boundaries of our own operational activities and include the activities of our whole value chain, including the suppliers we work with. Corporate governance We know that the decisions we make have wide reaching implications for the financial stability of New Zealand and Pacific economies in terms of the risks we cover and the suppliers we work with. That’s why Tower is committed to achieving the highest standards of corporate governance, ethical behaviour, and accountability. We are working to ensure the right culture is in place to embed sustainability throughout our business so we can have a positive influence more broadly. reduction target of 21% over five years from our 2020 base year. • We are transitioning our fleet to electric and hybrid vehicles • We are exploring renewable energy options for our Pacific premises • Our Auckland head office is a six Green Star rated building with advanced carbon reduction technology in place including solar • We are encouraging different driving patterns and behaviours in the Pacific that reduce emissions • We have incorporated the remote working lessons from Covid and reduced air travel substantially from pre-Covid. • Changes to vehicle fleet, driving habits and an updated travel policy have seen a reduction in fuel usage across all locations despite the increased headcount. Tower is committed to achieving the highest standards of corporate governance, ethical behaviour and accountability. Where developments arise in corporate governance, the Board reviews Tower’s practices and incorporates changes where appropriate. Tower’s relevant governance documents and policies can be found on this webpage: Policies and Documentation | Tower Insurance NZ • 21% reduction in emissions from our 2020 base year. • Establish a process to measure emissions from our underwriting activities • Establish a process to measure emissions from our supply chain • Establish a process and measure employee commuting emissions • Review and improve process for measuring working from home emissions • Review emissions targets. • Developed climate change scenarios for Tower. • Developed an understanding of our climate change risks and opportunities. See page 51 for more information. Sustainability education to be rolled out for all staff. • Achieve B Corp certification. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 57 Material impacts (continued) STRATEGY ALIGNMENT MATERIAL TOPIC OVERVIEW OF POTENTIAL AND ACTUAL IMPACTS SDG ALIGNMENT MANAGING OUR IMPACTS DELIVERED IN FY23 Thinking ahead for our planet Environmental footprint • Our Auckland head office is a six Green • Tower took a ‘reuse’ first approach to the We recognise that our business operations contribute to waste, pollution and biodiversity loss in addition to carbon emissions. We are committed to understanding and managing our broader environmental impacts. Star rated building with waste and water reduction processes and technology, including recycling composting, low water toilets. decommission of our existing Suva office with almost all of the chattels and furniture either re-used in the new site or where feasible donated to the local community. We are also replacing the existing fluorescent lighting with LED100 laptops and other peripheral hardware repurposed, reducing total hardware asset volumes. FY24 TARGETS AND INITIATIVES TARGET FOR FY25 AND BEYOND • Measure waste across all Tower sites, set reduction target • Measure water use across all sites, set reduction target. • Preparation for Taskforce for Nature Based Financial Disclosures (TNFD) • Work to Responsible investment As an institutional investor Tower can help support the market for responsible investment products. Our ability to invest in products such as green tech is limited due to Tower’s conservative investment policy which is focused on high liquidity bonds, and a short duration to ensure availability of funds for paying claims. We are currently building our understanding of the ESG impacts of our investments. This includes determining the proportion of issuers who have ESG initiatives in place such as: ESG strategies, climate and nature-based reporting, commitments to eliminate modern slavery, science- based emissions targets and Net Zero commitments. The investment community is in the early stages of this data capture and reporting, and we will continue to work with our partners as this capability matures. Began working with investment partners to understand our ESG impacts. Measure and baseline carbon emissions from our investment portfolio. understand our role in measuring and mitigating biodiversity loss through- out our value chain. • Develop a strategy for managing investment portfolio emissions • Establish reporting for other ESG impacts. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 58 Board of Directors Michael Stiassny LLB, BCom, CFInstD Chairman Non-Executive Director Independent Director from: 12 October 2012 Michael holds both a Commerce and Law degree from the University of Auckland and is a Chartered Fellow and past President of the Institute of Directors. Michael has enjoyed a high-profile governance career and is currently Chairman of 2 Cheap Cars Group Limited, and director of Momentum Life Insurance Limited, Tegel Group Holdings Limited, and New Talisman Gold Mines Limited. With a keen interest in fostering successful next generation New Zealand businesses, Michael also dedicates significant time to start ups and championing entrepreneurship through his involvement in Founders Advisory. Michael resides in Auckland — New Zealand. Graham Stuart BCom (Hons), MS, FCA Non-Executive Director Independent Director from: 24 May 2012 Graham is an experienced Director, with over 30 years’ experience in governance roles in New Zealand and internationally. He is currently the Chair of NorthWest Healthcare Property Management Limited and Comhla Vet Limited and, a Director of VinPro Limited. Previous executive roles include Sealord Group CEO, Fonterra Co-operative Group CFO and Director of Strategy and, Lion Nathan International Managing Director. Graham has a Bachelor of Commerce (First Class Hons) from the University of Otago, a Master of Science from Massachusetts Institute of Technology and is a Fellow of Chartered Accountants Australia and New Zealand. He has served on multiple Government bodies including the Food & Beverage Taskforce, Māori Economic Development Panel and as Chair of the Lincoln Hub Establishment Board. Graham resides in Auckland — New Zealand. Geraldine McBride BSc Non-Executive Director Independent Director from: 1 October 2022 Geraldine has extensive governance and technology industry experience, having performed Board and senior leadership roles both in New Zealand and internationally, with Sky Network Television Limited, SAP, Dell, IBM, National Australia Bank and Fisher & Paykel Healthcare. Geraldine is the founder and CEO of MyWave. Geraldine holds a Bachelor of Science from Victoria University and is a Chartered Member of the NZIOD. Geraldine resides in Christchurch — New Zealand. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 59 Marcus Nagel MBA (International Management), MBA (Banking and Finance) Non-Executive Director Non-independent Director from: 14 January 2019 Marcus has significant insurance industry experience. For a decade he has performed senior leadership roles for Zurich in Europe and globally. In his last role at Zurich, he served as the Chief Executive Officer of Zurich Germany managing both life insurance and general insurance businesses. Marcus holds a Master’s Degree in Banking and Finance from Goethe University in Frankfurt, Germany and Master of International Management from the Arizona State University Thunderbird School of Global Management in Arizona, United States of America. Marcus was nominated by Bain Capital Credit LP (Bain Capital) to represent Bain Capital’s stake in Tower (Bain Capital hold 20.00% of Tower’s ordinary shares) and his appointment was supported by the Tower Board. Marcus resides in Schindellegi — Switzerland. Mike Cutter BSc (Hons) GAICD Non Executive Director Blair Turnbull BCom, PGDipCom Executive Director Independent Director from: 17 November 2023 Non-independent Director from: 29 March 2023 Mike has significant experience in a range of financial services businesses in Australia, New Zealand, Asia and Europe. He is the Chair of Arteva Funding, and a Non-Executive Director of both Sezzle and Pepper Money. He is the co-founder of Kadre, a credit risk management consultancy. Mike has recently served as interim Managing Director for Bambora Aus and was previously the Group Managing Director for Equifax ANZ. Before this he held various senior roles with GE, ANZ, Wesfarmers/OAMPS Insurance Brokers, Halifax/BankOne and NAB. Mike is a Senior Fellow of Financial Services Institute of Australia. He has served on the Boards of the Women’s Cancer Foundation, Ovarian Cancer Institute, the Australian Finance Congress, the National Insurance Brokers Association and the Australian Retail Credit Association. Blair Turnbull joined Tower Insurance as CEO in 2020, bringing with him 25 years of insurance and financial services experience from across NZ & Australia, Asia, UK, and Europe. He joined the Board in March 2023 pending the appointment of a new Independent Director. Prior to joining Tower, Blair was Managing Director, Digital & Retail, UK & International at Aviva, Britain’s largest general insurer. Prior to this, he was Executive General Manager, Wealth and Insurance at ASB Bank. Blair’s focus is on continuing to accelerate Tower’s modernisation. He has extensive international experience, with a proven global track record in using data to deliver disruptive customer-focussed models in a proactive way. Blair retired from the Board on 17 November 2023 following the appointment of Mike Cutter as an Independent Director. Mike resides in Melbourne – Australia. Blair resides in Auckland — New Zealand. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 60 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 61 CONSOLIDATED FINANCIAL STATEMENTS ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 62 Financial Statements Consolidated statement of comprehensive income Consolidated balance sheet Consolidated statement of changes in equity Consolidated statement of cash flows Notes to the consolidated financial statements 1 1.1 1.2 1.3 1.4 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Overview About this report Consolidation Critical accounting judgements and estimates Segmental reporting Underwriting activities Underwriting revenue Net claims expense Underwriting expense Net outstanding claims Unearned premium liability Deferred insurance costs Receivables Payables Provisions 2.10 Assets backing insurance liabilities 3 3.1 3.2 3.3 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Investments and other income Investment income Investments Other income Risk management Risk management overview Strategic risk Insurance risk Credit risk Market risk Liquidity risk Capital management risk 4.8 4.9 4.10 4.11 4.12 5 5.1 5.2 5.3 5.4 5.5 6 6.1 6.2 6.3 7 7.1 7.2 7.3 7.4 8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 Operational risk Regulatory and compliance risk Conduct risk Cyber risk Climate change risk Capital structure Contributed equity Reserves Net tangible assets per share Earnings per share Dividends Other balance sheet items Property, plant and equipment Intangible assets Leases Tax Tax expense Current tax Deferred tax Imputation credits Other information Notes to the consolidated statement of cash flows Related party disclosures Auditor's remuneration Assets and liabilities held for sale Tower Long-Term Incentive Plan Contingent liabilities Subsequent events Capital commitments Impact of new accounting standards and changes in interpretation of current standards Independent Auditor's report, and Appointed Actuary's report Independent Auditor's report Appointed Actuary's report 63 64 65 66 67 67 67 69 69 70 70 71 71 72 77 78 79 80 80 80 81 81 81 82 82 82 83 83 84 85 87 87 88 88 88 88 89 89 89 90 90 90 90 91 91 92 94 96 96 97 97 99 99 99 100 101 101 103 104 104 104 104 106 111 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 63 Consolidated statement of comprehensive income FOR THE YEAR ENDED 30 SEPTEMBER 2023 NOTE 2023 $000 RE-PRESENTED 2022 $000 NOTE 2023 $000 RE-PRESENTED 2022 $000 Gross written premium Unearned premium movement Gross earned premium Outward reinsurance premium Movement in deferred reinsurance premium Outward reinsurance premium expense Net earned premium Claims expense Less: Reinsurance and other recoveries revenue Net claims expense Gross commission expense Commission revenue Net commission expense Underwriting expense Underwriting (loss)/profit Investment income Investment expenses Other income Other expenses Financing and other costs Profit before taxation from continuing operations Tax expense Profit after taxation from continuing operations (Loss)/profit after taxation from discontinued operations (Loss)/profit after taxation for the year 2.1 2.1 2.2 2.1 2.3 3.1 3.3 7.1 8.4 511,484 (40,671) 470,813 (82,030) (368) (82,398) 388,415 (492,197) 205,187 (287,010) (12,342) 4,636 (7,706) (105,354) (11,655) 14,627 (298) 5,727 (44) (920) 7,437 (5,085) 2,352 (3,580) (1,228) 436,593 (26,992) 409,601 (62,128) (151) (62,279) 347,322 (238,293) 15,109 (223,184) (13,528) 4,725 (8,803) (91,852) 23,483 1,480 (338) 1,304 (63) (890) 24,976 (7,483) 17,493 1,362 18,855 Items that may be reclassified to profit or loss Currency translation differences Reclassification of the foreign currency translation reserve 8.4 Other comprehensive (loss)/profit net of tax Total comprehensive (loss)/profit for the year Earnings per share: Basic and diluted earnings per share (cents) for continuing operations Basic and diluted earnings per share (cents) (Loss)/profit after taxation attributed to: Shareholders Non-controlling interests 5.4 5.4 Total comprehensive (loss)/profit attributed to: Shareholders Non-controlling interests (1,487) 544 (943) (2,171) 0.6 (0.3) (1,228) – (1,228) (2,171) – (2,171) 3,948 – 3,948 22,803 4.4 4.7 18,803 52 18,855 22,737 66 22,803 The above statement should be read in conjunction with the accompanying notes. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 64 Consolidated balance sheet AS AT 30 SEPTEMBER 2023 Assets Cash and cash equivalents Investments Receivables Current tax asset Assets classified as held for sale Deferred tax asset Deferred insurance costs Right-of-use assets Property, plant and equipment Intangible assets Total assets Liabilities Payables Unearned premiums Outstanding claims Current tax liabilities Liabilities classified as held for sale Provisions Lease liabilities Deferred tax liabilities Total liabilities Net assets NOTE 8.1 3.2 2.7 7.2a 8.4 7.3a 2.6 6.3a(i) 6.1 6.2 2.8 2.5 2.4 7.2b 8.4 2.9 6.3a(ii) 7.3b 2023 $000 2022 $000 64,009 258,798 413,826 12,917 13,697 14,971 39,951 23,204 6,280 98,524 84,502 258,634 242,089 13,069 20,811 23,893 37,819 23,326 5,417 94,653 946,177 804,213 77,032 272,834 240,597 198 9,765 12,823 32,615 48 645,912 300,265 58,911 238,116 124,531 136 9,258 11,873 35,054 8,806 486,685 317,528 Equity Contributed equity Accumulated losses Reserves Total equity NOTE 5.1 5.2 2023 $000 2022 $000 460,315 (55,949) (104,101) 300,265 460,191 (41,212) (101,451) 317,528 The above statement should be read in conjunction with the accompanying notes. The financial statements were approved for issue by the Board on 23 November 2023. Michael P Stiassny Chairman Graham R Stuart Director ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 65 Consolidated statement of changes in equity YEAR ENDED 30 SEPTEMBER 2023 Year Ended 30 September 2023 Balance as at 30 September 2022 Comprehensive loss Loss for the year Currency translation differences Reclassification of foreign currency translation reserve to profit and loss Revaluation surplus transferred to retained earnings Total comprehensive loss Transactions with shareholders Dividend payment Share rights issued under Tower Long-Term Incentive Plan Total transactions with shareholders At the end of the year Year Ended 30 September 2022 Balance as at 30 September 2021 Comprehensive income Profit for the year Currency translation differences Total comprehensive income Transactions with shareholders Capital return to shareholders Purchase of non-controlling interests Dividend payment Other Total transactions with shareholders At the end of the year The above statement should be read in conjunction with the accompanying notes. ATTRIBUTED TO SHAREHOLDERS CONTRIBUTED EQUITY $000 ACCUMULATED LOSSES $000 RESERVES $000 NON-CONTROLLING INTEREST $000 NOTE TOTAL EQUITY $000 8.4 5.2 5.5 8.5 5.1 5.1 5.5 460,191 (41,212) (101,451) – – – – – – 124 124 460,315 (1,228) – – 1,707 479 (15,216) – (15,216) (55,949) – (1,487) 544 (1,707) (2,650) – – – (104,101) – – – – – – – – – – 317,528 (1,228) (1,487) 544 – (2,171) (15,216) 124 (15,092) 300,265 492,424 (39,995) (105,385) 2,676 349,720 – – – (30,634) (1,599) – – (32,233) 460,191 18,803 – 18,803 – – (20,028) 8 (20,020) (41,212) – 3,934 3,934 – – – – – (101,451) 52 14 66 – (2,742) – – (2,742) – 18,855 3,948 22,803 (30,634) (4,341) (20,028) 8 (54,995) 317,528 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 66 Consolidated statement of cash flows FOR THE YEAR ENDED 30 SEPTEMBER 2023 NOTE 2023 $000 RE–PRESENTED 2022 $000 NOTE 2023 $000 RE–PRESENTED 2022 $000 Cash flows from operating activities Premiums received Interest received Fee and other income received Reinsurance and other recoveries received Reinsurance paid Claims paid Employee and supplier payments Income tax paid Operating activities cashflow from discontinued operations Net cash inflow from operating activities 8.1 Cash flows from investing activities Proceeds from sale of interest bearing investments Payments for purchase of interest bearing investments Payments for purchase of intangible assets Payments for purchase of customer relationships Payments for purchase of property, plant & equipment Proceeds from sale of property, plant & equipment Proceeds from sale of discontinued operation (net of cash disposed) Investing activities cashflow from discontinued operations Net cash outflow from investing activities 6.2 8.4 8.4 471,171 11,612 6,322 74,563 (61,595) (380,732) (94,432) (1,802) (15,144) 9,963 256,573 (254,814) (15,298) (5,900) (2,419) 5,746 2,618 1,216 (12,278) Cash flows from financing activities 416,245 Payments for capital return to shareholders Purchase of non-controlling interests Dividends paid Facility fees and interest paid Payments relating to lease liabilities 6.3 Financing activities cashflow from discontinued operations Net cash outflow from financing activities Net decrease in cash and cash equivalents Effect of foreign exchange rate changes Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash from discontinued operations 8.4 Cash and cash equivalents at the end of the year from continuing operations The above statement should be read in conjunction with the accompanying notes. 6,520 3,588 11,968 (51,940) (236,492) (83,906) (1,783) (4,416) 59,784 182,145 (181,578) (14,695) (6,089) (2,100) – – (1,353) (23,670) – – (15,216) (928) (6,845) (190) (23,179) (25,494) (1,493) 92,298 65,311 (1,302) (30,634) (4,341) (20,028) (909) (5,852) (1,946) (63,710) (27,596) 3,765 116,129 92,298 (7,796) 64,009 84,502 ANNUAL REPORT 2023 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 67 Notes to the consolidated financial statements 1 Overview This section provides information that is helpful to an overall understanding of the financial statements and the areas of critical accounting judgements and estimates included in the financial statements. It also includes a summary of Tower’s operating segments. 1.1 About this Report a. Entities reporting The financial statements presented are those of Tower Limited (the Company) and its subsidiaries. The Company and its subsidiaries together are referred to in this financial report as Tower or the Group. The address of the Company’s registered office is 136 Fanshawe Street, Auckland, New Zealand. During the periods presented, the principal activity of the Group was the provision of general insurance. The Group predominantly operates in New Zealand with some of its operations based in the Pacific Islands region. The financial statements were authorised for issue by the Board of Directors on 23 November 2023. The entity’s owners or others do not have the power to amend the financial statements after issue. b. Statutory base Tower Limited 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. c. Basis of preparation d. Re-presentation of comparatives The Group’s Papua New Guinea Operations (disposal group) constitutes a discontinued operation which was disposed in the year ended 30 September 2023. Select operations in Pacific (disposal groups) where Tower has begun the process to divest its operations also constitute discontinued operations and are classified as held for sale as at 30 September 2023. All disposal groups together form the “discontinued operations”. Profit or loss information for the current period is prepared on a continuing basis with net results from discontinued operations presented separately. Profit or loss information for 2022 has been re-presented for comparability. Refer to note 8.4 for further details. Where necessary, comparative information has been reclassified for consistency with the current year presentation. 1.2 Consolidation a. Principles of consolidation The Group financial statements incorporate the assets and liabilities of all subsidiaries of the Company at balance date and the results of all subsidiaries for the year. Subsidiaries are those entities over which the consolidated entity has control, being power over the investee; exposure, or rights to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns. The results of any subsidiaries acquired during the year are consolidated from the date on which control was transferred to the consolidated entity and the results of any subsidiaries disposed of during the year are consolidated up to the date control ceased. The Company is a for-profit entity and the financial statements have been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). They comply with International Financial Reporting Standards (IFRS), New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for Tier 1 for-profit entities. The acquisition of controlled entities from external parties is accounted for using the acquisition method of accounting. Non-controlling interests in the results and equity of subsidiaries are shown separately in the statement of comprehensive income, statement of changes in equity and balance sheet respectively. Acquisition related costs are expensed as incurred. The financial statements of the Group have been prepared in accordance with the requirements of Part 7 of the Financial Markets Conduct Act 2013 and the NZX Main Board Listing Rules. When the Group ceases to have control, any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The Group financial statements are presented in New Zealand dollars and rounded to the nearest thousand dollars. They have been prepared in accordance with the historical cost basis except for certain financial instruments that are stated at their fair value. Intercompany transactions and balances between Group entities are eliminated on consolidation. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 68 Notes to the consolidated financial statements (continued) 1.2 Consolidation (continued) b. Foreign currency (i) Functional and presentation currencies The financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates. The Group financial statements are presented in New Zealand dollars and rounded to the nearest thousand dollars unless stated otherwise. (ii) Transactions and balances In preparing the financial statements of the individual entities, transactions denominated in foreign currencies are translated into the entities’ functional and reporting currency using the exchange rates in effect at the transaction dates. Monetary items receivable or payable in a foreign currency are translated at reporting date at the closing exchange rate. Translation differences on non-monetary items such as financial assets held at fair value through profit or loss are reported as part of their fair value gain or loss. Exchange differences arising on the settlement or retranslation of monetary items at year end exchange rates impact profit after tax in the consolidated statement of comprehensive income unless the items form part of a net investment in a foreign operation. In this case, exchange differences are taken to the foreign currency translation reserve and recognised (as part of comprehensive profit) in the statement of comprehensive income and the statement of changes in equity. (iii) Consolidation For the purpose of preparing consolidated financial statements the assets and liabilities of subsidiaries with a functional currency different to the Company are translated at the closing rate at the balance date. Income and expense items for each subsidiary are translated at a weighted average of exchange rates over the period, as a surrogate for the spot rates at transaction dates. Foreign currency translation differences are taken to the foreign currency translation reserve and recognised in the statement of comprehensive income and the statement of changes in equity. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate with movements recorded through the foreign currency translation reserve in the statement of changes in equity. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the statement of comprehensive income. c. Subsidiaries The table below lists Tower Limited’s principal subsidiary companies and controlled entities. All entities have a balance date of 30 September. HOLDINGS NAME OF COMPANY INCORPORATION 2023 2022 Parent Company New Zealand general insurance operations Tower Limited Subsidiaries NZ Parent Parent Overseas general insurance operations Tower Insurance (Cook Islands) Limited Cook Islands Tower Insurance (Fiji) Limited Tower Insurance (PNG) Limited (refer note 8.4) National Pacific Insurance Limited (NPI) National Pacific Insurance (Tonga) Limited Fiji PNG Samoa Tonga National Pacific Insurance (American Samoa) Limited American Samoa Tower Insurance (Vanuatu) Limited Vanuatu Management service operations Tower Services Limited Tower Group Services (Fiji) Pte Limited* NZ Fiji 100% 100% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% * National Insurance Company (Holdings) Pte Limited has had its name changed to Tower Group Services (Fiji) Pte Limited on 26 May 2023. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 69 1.3 Critical accounting judgements and estimates b. Financial performance of continuing operations In preparing these 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: — Net outstanding claims — Liability adequacy test — Intangible assets note 2.4 note 2.5 note 6.2 — Lease liabilities (incremental borrowing rate) note 6.3a(ii) — Deferred tax — Customer remediation provision note 7.3 note 2.9 1.4 Segmental reporting a. Operating segments 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 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. The financial performance for Pacific Islands operating segment excludes the disposal groups. The prior year comparatives have been re-presented accordingly. Intercompany transactions with the disposal group are eliminated within continuing operations, refer note 8.4. NEW ZEALAND $000 PACIFIC ISLANDS $000 OTHER $000 TOTAL $000 Year Ended 30 September 2023 Gross written premium Gross earned premium Outward reinsurance premium expense Net earned premium Net claims expense Net commission expense Underwriting expense Underwriting (loss)/profit Net investment income Other income and expenses (Loss)/profit before taxation from continuing operations (Loss)/profit after taxation from continuing operations Year Ended 30 September 2022 (Re-presented) Gross written premium Gross earned premium Outward reinsurance premium expense Net earned premium Net claims expense Net commission expense Underwriting expense Underwriting profit Net investment income Other income and expenses Profit before taxation from continuing operations Profit after taxation from continuing operations 468,788 427,907 (70,199) 357,708 (274,538) (6,844) (96,431) (20,105) 13,622 4,204 42,696 42,906 (12,199) 30,707 (12,123) (862) (8,923) 8,799 707 (70) (2,279) 9,436 (4,709) 6,781 395,490 369,871 (51,026) 318,845 (207,184) (8,048) (82,744) 20,869 1,023 192 41,103 39,730 (11,253) 28,477 (16,346) (755) (9,108) 2,268 119 159 – – – – (349) – – (349) – 629 280 280 – – – – 346 – – 346 – – 511,484 470,813 (82,398) 388,415 (287,010) (7,706) (105,354) (11,655) 14,329 4,763 7,437 2,352 436,593 409,601 (62,279) 347,322 (223,184) (8,803) (91,852) 23,483 1,142 351 22,084 2,546 346 24,976 14,989 2,158 346 17,493 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 70 1.4 Segmental reporting (continued) c. Financial position of continuing operations NEW ZEALAND $000 PACIFIC ISLANDS $000 OTHER $000 TOTAL $000 Additions to non-current assets 30 September 2023 Additions to non-current assets 30 September 2022 24,081 6,319 – 30,400 29,547 883 (4,327) 26,103 Total assets 30 September 2023 892,003 65,484 (25,007) 932,480 Total assets 30 September 2022 723,805 74,539 (14,942) 783,402 Total liabilities 30 September 2023 605,797 41,657 (11,307) 636,147 2 Underwriting activities 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 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. Total liabilities 30 September 2022 426,930 51,462 (965) 477,427 2.1 Underwriting Revenue Additions to non-current assets include additions to property, plant and equipment, right-of-use assets, intangible assets and investments in subsidiaries. Composition Total assets and liabilities exclude assets and liabilities held for sale. Definition An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other operating segments. Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (the Chief Executive Officer) who reviews the operating results on a regular basis and makes decisions on resource allocation and assessing performance. Gross written premium Movement in unearned premium liability Gross earned premium 2023 $000 511,484 (40,671) 470,813 2022 $000 436,593 (26,992) 409,601 Reinsurance and other recoveries revenue 205,187 15,109 Reinsurance commission Insurance administration services commission Commission revenue Underwriting revenue 2,853 1,783 4,636 3,590 1,135 4,725 680,636 429,435 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 71 Net claims expense includes the impact of several large events that occurred during the year ended 30 September 2023: January’s Auckland and upper North Island weather event, Cyclone Gabrielle in February, Cyclones Judy and Kevin in Vanuatu in March (included within discontinued operations), and the Auckland floods on 9 May. The net claims expense for large events totals $38m (excluding costs of reinstating reinsurance cover). The cost of reinstating reinsurance coverage after these events is recorded within outward reinsurance premiums. Recognition and measurement Net claims expense is measured as the difference between net outstanding claims liability at the beginning and end of the financial year plus any claims payments made, net of reinsurance and other recoveries received during the financial year. Please refer to note 2.4 for more information. Additional disclosures related to the Canterbury earthquake events in 2010 and 2011 are provided in note 2.4. 2.1 Underwriting Revenue (continued) Recognition and measurement Gross earned premium is recognised in the period in which the premiums are earned during the term of the contract, excluding taxes and levies collected on behalf of third parties. It includes a provision for expected future premium cancellations (which is offset against gross premium receivables, see note 2.7), and customer remediation (see note 2.9). The proportion of premiums not earned in the consolidated statement of comprehensive income at reporting date is recognised in the consolidated balance sheet as unearned premiums. Reinsurance and other recoveries on paid claims, reported claims not yet paid, claims incurred but not reported and claims incurred but not enough reported are recognised as revenue. Recoveries are measured as the expected future receipts and recognised when the claim is incurred. Reinsurance commission revenue includes reimbursements by reinsurers to cover part of Tower’s management and sales expense over the term of the reinsurance agreements. Reinsurance commission income can also include a proportion of expected profitability of business ceded to the reinsurer. The final value of the variable commission is based on the achievement of a hurdle rate over time. This revenue is recognised over the term of the reinsurance agreements dependent on the profitability of proportional arrangement which is reassessed at each reporting date. Insurance administration services commission includes a percentage of levies collected on behalf of third parties and is recognised at the point the levy is collected. 2.2 Net claims expense Composition EXC. CANTERBURY EARTHQUAKE CANTERBURY EARTHQUAKE TOTAL 2023 $000 2022 $000 2023 $000 2022 $000 2023 $000 2022 $000 2.3 Underwriting expense Composition People costs People costs capitalised during the year Technology Amortisation Depreciation* External fees Marketing Communications Miscellaneous Gross claims expense 491,636 229,180 561 9,113 492,197 238,293 Movement in deferred acquisition costs Reinsurance and other recoveries revenue (206,348) (13,479) 1,161 (1,630) (205,187) (15,109) Claims related management expenses reclassified to claims expense Net claims expense 285,288 215,701 1,722 7,483 287,010 223,184 Service fees charged to discontinued operations** Underwriting expenses Includes $4.0m (2022: $2.7m) of depreciation on right-of-use assets. See note 6.3b for further information. * ** Refer note 8.4 for further detail. 2023 $000 85,429 (9,562) 16,372 17,327 5,836 11,766 13,128 3,361 3,814 (4,167) (36,208) (1,742) 105,354 2022 $000 83,615 (7,557) 14,549 14,723 4,762 10,502 11,745 2,894 3,066 (6,310) (36,842) (3,295) 91,852 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 72 2.4 Net outstanding claims a. Composition Central estimate of future cash flows Claims handling expense Risk margin Gross outstanding claims Reinsurance recoveries Net outstanding claims Net claim payments within 12 months Net claim payments after 12 months Net outstanding claims Recognition and measurement EXC. CANTERBURY EARTHQUAKE CANTERBURY EARTHQUAKE 2023 $000 204,552 11,727 5,170 221,449 (116,827) 104,622 89,168 15,454 104,622 2022 $000 89,404 5,564 5,051 100,019 (10,293) 89,726 76,422 13,304 89,726 2023 $000 13,822 699 4,627 19,148 (2,329) 16,819 6,896 9,923 16,819 2022 $000 18,056 772 5,684 24,512 (3,787) 20,725 8,497 12,228 20,725 TOTAL 2023 $000 218,374 12,426 9,797 240,597 (119,156) 121,441 96,064 25,377 121,441 2022 $000 107,460 6,336 10,735 124,531 (14,080) 110,451 84,919 25,532 110,451 Gross outstanding claims liability comprises a central estimate of future cash outflows and a risk margin for uncertainty. The outstanding claims liability is measured at the central estimate of future cash outflows relating to claims incurred prior to the reporting date including direct and indirect claims handling costs. The liability is measured based on the advice of the Appointed Actuary or on valuations which have been peer reviewed by the Appointed Actuary. It is intended to include no deliberate or unconscious bias toward over or under-estimation. Given the uncertainty in establishing the liability, it is likely the final outcome will differ from the original liability established. Changes in the claim estimates are recognised in profit or loss in the reporting period in which the estimates are changed. The gross outstanding claim liabilities also include a risk margin that relates to the inherent uncertainty in the central estimate of the future payments. The risk margin represents the amount by which the liability recognised in the financial statements is greater than the actuarial estimate. Tower currently applies a 75% probability of adequacy to the outstanding claims liability which means there is a 1-in-4 chance all future claim payments will exceed the overall reserve held. In the current and prior years, discounting has been applied to the provision for outstanding claims relating to the Canterbury earthquakes, using spot rates derived from government-issued bonds. In the current year, discounting has also been applied to the provision for other outstanding claims, whereas in the prior year the net impact of discounting on other outstanding claims was considered to be immaterial. Uncertainties surrounding the liability estimation process include those relating to the available data, actuarial models and assumptions, the statistical uncertainty associated with the general insurance run- off process and external risks. Net outstanding claims liability is calculated by deducting reinsurance and other recoveries from gross outstanding claims. Reinsurance and other recoveries on outstanding claims are recognised as income with the corresponding asset being recognised on the balance sheet. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 73 2.4 Net outstanding claims (continued) b. Reconciliation of movements in net outstanding claims liability Balance brought forward Claims expense - current year Claims expense - prior year Incurred claims recognised in profit or loss from continuing operations Incurred claims recognised in profit or loss from discontinued operations ** Claims paid and reinsurance and other recoveries raised from continuing and discontinued operations Foreign exchange Liabilities reclassified as held for sale* Outstanding claims * Refer note 8.4 ** The prior year comparatives have not been represented. 2023 $000 2022 $000 GROSS REINSURANCE NET GROSS REINSURANCE NET 124,531 505,493 7,807 492,197 21,103 (393,968) 759 (4,025) (14,080) (218,959) 2,198 (205,187) (11,574) 108,442 (53) 3,296 110,451 286,534 10,005 287,010 9,529 (285,526) 706 (729) 240,597 (119,156) 121,441 122,338 248,024 (5,970) 240,147 1,907 (239,706) 1,826 (1,981) 124,531 (22,850) (20,429) 4,491 (15,243) (695) 24,604 (347) 451 (14,080) 99,488 227,595 (1,479) 224,904 1,212 (215,102) 1,479 (1,530) 110,451 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 74 2.4 Net outstanding claims (continued) c. Development of claims The following table shows the development of net outstanding claims relative to the current estimate of ultimate claims costs for the five most recent years. ULTIMATE CLAIMS COST ESTIMATE At end of incident year One year later Two years later Three years later Four years later Ultimate claims cost Cumulative payments Undiscounted net central estimate Claims handling expense Risk margin Discount to present value Net outstanding claim liabilities Reinsurance recoveries Gross outstanding claim liabilities All amounts in this note exclude discontinued operations, consistent with other profit or loss disclosures. Prior year numbers have been restated at current year exchange rates to reflect the underlying development of claims. PRIOR $000 2019 $000 2020 $000 2021 $000 2022 $000 2023 $000 TOTAL $000 146,166 143,154 142,405 142,429 142,464 142,464 155,989 152,577 151,261 151,115 – 151,115 (142,393) (149,692) 13,898 71 1,423 182,118 180,651 182,203 – – 182,203 (178,881) 3,322 198,315 204,941 – – – 263,519 – – – – 204,941 263,519 (198,103) (182,495) 6,838 81,024 106,576 12,426 9,797 (7,358) 121,441 119,156 240,597 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 75 2.4 Net outstanding claims (continued) d. Actuarial information The estimation of outstanding claims as at 30 September 2023 has been carried out by: (i) Geoff Atkins, BA (ActuarDc), FIAA, FIAL, FANZIIF, Appointed Actuary - Canterbury earthquake claims; and (ii) John Feyter, B.Sc., FNZSA - all other outstanding claims The New Zealand actuarial assessments are undertaken in accordance with the standards of the New Zealand Society of Actuaries, in particular Professional Standard No. 30 “Valuations of General Insurance Claims”. The Actuaries were satisfied as to the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability. The outstanding claims liability is set by the Actuaries at a level that is appropriate and sustainable to cover the Group’s claims obligations after having regard to the prevailing market environment and prudent industry practice. e. Canterbury earthquakes Cumulative impact of Canterbury earthquakes As at 30 September 2023, Tower has 23 claims remaining to settle (2022: 36) as a result of the earthquakes impacting the Canterbury region during 2010 and 2011. The following table presents the cumulative impact of the four main Canterbury earthquake events on the consolidated statement of comprehensive income. Earthquake claims estimate net of EQC payments Reinsurance recoveries Claim expense net of reinsurance recoveries Reinsurance expense Cumulative impact of Canterbury earthquakes before tax Income tax Cumulative impact of Canterbury earthquakes after tax Canterbury earthquake impact on profit or loss before tax Net claims expense 2023 $000 954,175 (732,643) 221,532 25,045 246,577 (69,042) 177,535 2023 $000 1,722 2022 $000 953,531 (733,720) 219,811 25,045 244,856 (68,560) 176,296 2022 $000 7,483 f. Critical accounting estimates and judgements Outstanding claims liability (excluding Canterbury Earthquakes) The estimation of the outstanding claims liability involves a number of key assumptions. Tower’s estimation uses Company-specific data, relevant industry data and general economic data for each major class of business. The estimation process factors in a number of considerations including the risks to which the business is exposed to at a point in time, claim frequency and severity, historical trends in the development of claims as well as legal, social and economic factors that may affect each class of business. Assumption (before impact of reinsurance) Expected future claims development proportion Claims handling expense ratio Risk margin Discount rate* 2023 36.1% 5.9% 5.2% 5.7% 2022 20.3% 6.6% 6.0% N/A * Discounting has been allowed on all outstanding claims (2022: only on outstanding claims relating to the Canterbury earthquakes). Refer note 2.4a for further details. Expected future claims development proportion This is the proportion of additional claims cost that is expected to be recognised in the future for claims that have already been reported. The assumption is expressed as a proportion of current case estimates for open claims and the resulting amount is recognised in the balance sheet as an outstanding claims liability. Claims handling expense ratio This reflects the expected cost to administer current open and future claims. The ratio is calculated based on historical experience of claims handling costs. Risk margin Risk margins are calculated for outstanding claims in each country separately and a diversification benefit is calculated taking into account the uncorrelated effect of random risk. The total risk margin percentage shown is calculated on a weighted average basis. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 76 2.4 Net outstanding claims (continued) f. Critical accounting estimates and judgements (continued) g. Sensitivity Analysis Canterbury Earthquake outstanding claims liability Assumptions are made for the estimation of outstanding claims related to the Canterbury earthquakes. The key assumptions are estimated ultimate costs (including building costs) for settling open claims, and the numbers of new overcap claims, litigated claims, re-opened claims and their associated costs. Other elements of judgement include the apportionment of claim costs between the four main earthquake events, future claim management expenses and assessment of the risk margin. Assumption 2023 2022 The impact on profit or loss of changes in key assumptions used in the calculation of the outstanding claims liabilities is summarised below. Each change has been calculated in isolation from the other variables and is stated before income tax. Outstanding claims excluding Canterbury earthquake IMPACT ON PROFIT OR (LOSS) Number of future new overcap and new litigated claims 41 46 Expected future claims development Average cost of new overcap or new litigated claim 94,000 114,000 Provision for re-opened claims 790,000 1,070,000 Claims handling expense ratio Additional portfolio-level provision for incurred but not enough reported 1,499,000 2,355,000 New overcap and new litigated claims New overcap claims are typically for properties that have previously been managed by EQC but where damage is now assessed as being more extensive than previously thought and there is now an insurance claim payable. New litigated claims are existing or future new claims that are referred to either the Insurance Tribunal or the High Court for resolution. Costs for new litigated claims are assumed to be substantially higher than costs for other overcap claims. Only a small number of new litigated claims are now expected. Provision for re-opened claims Re-opened claims arise where additional liability arises for additional scope not previously identified or where a repair has failed or where another expense is payable for a claim that is currently closed. Risk margin Discount rate Canterbury earthquake outstanding claims Number of new overcap or new litigated claims Change in average cost of a new overcap or new litigated claim Number of reopened claims Change in average cost of a reopened claim MOVEMENT IN ASSUMPTION + 10% - 10% + 10% - 10% + 10% - 10% + 1.75% - 1.75% MOVEMENT IN ASSUMPTION + 35% - 35% + 20% - 20% + 35% - 35% + 20% - 20% 2023 $000 (2,037) 2,037 (607) 607 (517) 517 609 (631) 2022 $000 (1,419) 1,419 (556) 556 (505) 505 – – IMPACT ON PROFIT OR (LOSS) 2023 $000 (1,351) 1,351 (772) 772 (277) 277 (158) 158 2022 $000 (1,817) 1,817 (1,038) 1,038 (375) 375 (214) 214 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 77 2.5 Unearned premium liability Reconciliation Opening balance Premiums written during the year from continuing operations Premiums earned during the year from continuing operations Unearned premium movement from continuing operations Premiums written during the year from discontinued operations Premiums earned during the year from discontinued operations Unearned premium movement from discontinued operations Foreign exchange movements Liabilities reclassified as held for sale 2023 $000 238,116 511,484 (470,813) 40,671 10,313 (9,969) 344 (990) (5,307) 2022 $000 212,275 436,593 (409,601) 26,992 17,042 (17,405) (363) 3,957 (4,745) 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 before recognising an unexpired risk liability. The unearned premium liability as at 30 September 2023 was sufficient for the New Zealand business (2022: sufficient). The unearned premium liabilities as at 30 September 2023 for each Pacific entity was also sufficient (2022: sufficient). Central estimate net claims as a % of unearned premium liability Risk margin as a % of net claims 2023 52.8% 13.3% 2022 45.5% 11.2% Unearned premium liability from continuing operations 272,834 238,116 All unearned premiums will be earned in the 12 months after 30 September 2023 and therefore are current liabilities. The unearned premium liability is presented net of cancellation provisions. Recognition and measurement Unearned premium liability is the portion of premiums written that are yet to be earned in the consolidated statement of comprehensive income. It is calculated based on the term of the risk and in accordance with the expected pattern of the incidence of risk underwritten using an appropriate pro- rated method. Critical accounting estimates and judgements The LAT is conducted using a central estimate of premium liability adjusted for risk margin and it is carried out on an individual country basis. The test is based on prospective information and so is heavily dependent on assumptions and judgements. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 78 2.6 Deferred insurance costs Reconciliation Balance brought forward Costs deferred Amortisation expense Foreign exchange movements Asset reclassified as held for sale Closing balance Deferred insurance costs are expected to be amortised within 12 months from reporting date. Recognition and measurement Acquisition costs comprises costs incurred in obtaining and recording general insurance contracts such as advertising expenses, sales expenses and other underwriting expenses. These costs are initially capitalised and then expensed in line with the earning pattern of the related premium. Deferred acquisition costs at the reporting date represent the acquisition costs related to unearned premium. Outwards reinsurance expense reflects premiums ceded to reinsurers and is recognised as an expense in accordance with the pattern of reinsurance service received. Deferred outwards reinsurance expense at the reporting date represents outwards reinsurance expenses related to unearned premium. DEFERRED ACQUISITION COSTS DEFERRED OUTWARDS REINSURANCE EXPENSE DEFERRED INSURANCE COSTS 2023 $000 26,542 59,048 (54,617) (105) (819) 30,049 2022 $000 21,116 48,192 (42,765) 247 (248) 26,542 2023 $000 11,277 15,183 (14,790) (316) (1,452) 9,902 2022 $000 10,851 17,283 (17,073) 1,303 (1,087) 11,277 2023 $000 37,819 74,231 (69,407) (421) (2,271) 39,951 2022 $000 31,967 65,475 (59,838) 1,550 (1,335) 37,819 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 79 Finance lease receivables Tower entered into a sub-lease for its previous Auckland premises. The sub-lease is for the remaining non- cancellable term of the head lease and therefore is classified as a finance lease. The profile of the net receipts is illustrated in the table below: Less than one year Between one and five years Total undiscounted finance lease receivable Unearned finance income Net investment in the finance lease 2023 $000 345 – 345 (1) 344 2022 $000 2,074 347 2,421 (46) 2,375 2.7 Receivables Composition Gross premium receivables Provision for expected future premium cancellations Premium receivable Reinsurance recoveries* Canterbury earthquake reinsurance recoveries Other recoveries Reinsurance and other recoveries Finance lease receivables Prepayments Other receivables Receivable from discontinued operations** Receivables Receivable within 12 months Receivable in greater than 12 months Receivables * Refer note 2.2 for further detail. ** Refer note 8.4 for further detail. Recognition and measurement 2023 $000 243,791 (516) 243,275 142,961 2,329 17,865 163,155 344 5,416 1,636 – 2022 $000 200,715 (651) 200,064 15,847 3,787 11,378 31,012 2,375 4,411 2,401 1,826 413,826 242,089 413,826 – 413,826 241,742 347 242,089 Receivables (inclusive of GST) are recognised at fair value and are subsequently measured at cost less any impairment. Tower’s premium receivables and reinsurance and other recoveries arise from insurance contracts. These receivables are impaired if there is objective evidence that Tower will not be able to collect all amounts due according to the original terms of the receivable. The remainder of Tower’s receivables are assessed for impairment based on expected credit losses. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 80 2.8 Payables Composition Trade payables GST payable EQC & Fire and Emergency New Zealand levies payable Reinsurance premium payable Other Payable to discontinued operations* Payables Payable within 12 months Payable in greater than 12 months Payables * Refer note 8.4 for further detail. Recognition and measurement 2023 $000 11,102 27,923 16,782 12,746 5,252 3,227 77,032 77,032 – 77,032 2022 $000 14,672 25,951 11,583 3,696 3,009 – 58,911 58,911 – 58,911 Payables are recognised where goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier. Payables are stated at the fair value of the consideration to be paid in the future inclusive of GST. GST payable represents the net amount payable to the respective tax authorities. 2.9 Provisions Composition Annual leave and other employee benefits Customer remediation* Provisions Payable within 12 months Payable in greater than 12 months Provisions 2023 $000 5,737 7,086 12,823 11,762 1,061 12,823 2022 $000 8,219 3,654 11,873 10,716 1,157 11,873 * A customer remediation provision of $3.7m was first recognised at 30 September 2022. During the current year, the estimated cost of remediation was re-assessed. A range of possible outcomes was considered, and a mid-point of the re-assessment has resulted in an additional $8.1m being recognised in the current period, which has been offset by payments made during the period. The resulting provision allows for amounts to be repaid to customers and costs associated with any potential regulatory action. The remediation activities are likely to be completed during FY24. Recognition and measurement Tower recognises a provision when it has a present obligation as a result of a past event and it is more likely than not that an outflow of resources will be required to settle the obligation. Tower’s provision represents the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. 2.10 Assets backing insurance liabilities Tower has determined that all assets within its insurance companies are held to back insurance liabilities, with the exception of: (i) property, plant and equipment; (ii) right-of-use assets, (iii) intangible assets, (iv) deferred tax; and (v) investments in operating subsidiaries. Assets backing insurance liabilities are managed in accordance with approved investment mandate agreements on a fair value basis and are reported to the Board on that basis. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 81 3 Investments and other income 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 risk tolerance and therefore the majority of its investments are in investment grade supranational and government bonds, and term deposits. 3.1 Investment income Interest income Net realised gain/(loss) Net unrealised gain/(loss) Investment income Recognition and measurement 2023 $000 12,871 1,173 583 14,627 2022 $000 6,815 (2,026) (3,309) 1,480 Tower’s investment income is primarily made up of realised and unrealised interest income on fixed interest investments and fair value gains or losses on its investment assets. Both are recognised in the period that they are earned through profit or loss. 3.2 Investments Tower designates its investments at fair value through profit or loss in accordance with its Treasury policy. It categorises its investments into three levels based on the inputs available to measure fair value: Level 1 Level 2 Fair value is calculated using quoted prices in active markets. Tower currently does not have any Level 1 investments. Investment valuations are based on direct or indirect observable data other than quoted prices included in Level 1. Level 2 inputs include: (1) quoted prices for similar assets or liabilities; (2) quoted prices for assets or liabilities that are not traded in an active market; or (3) other observable market data that can be used for valuation purposes. Tower investments included in this category include government and corporate debt, where the market is considered to be lacking sufficient depth to be considered active, and part ownership of a property that is rented out to staff. Level 3 Investment valuation is based on unobservable market data. Tower currently does not have any Level 3 investments. LEVEL 1 $000 LEVEL 2 $000 LEVEL 3 $000 TOTAL $000 As at 30 September 2023 Fixed interest investments Property investment Investments As at 30 September 2022 Fixed interest investments Property investment Investments – – – – – – 258,764 34 258,798 258,600 34 258,634 – – – – – – 258,764 34 258,798 258,600 34 258,634 There have been no transfers between levels of the fair value hierarchy during the current financial period (2022: nil). ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 82 3.2 Investments (continued) Recognition and measurement Tower’s investment assets are designated at fair value through profit or loss. Investment assets are initially recognised at fair value and are remeasured to fair value through profit or loss at each reporting date. Tower’s approach to measuring the fair value of these assets is covered above. Purchases and sales of investments are recognised at the date which Tower commits to buy or sell the assets (i.e. trade date). Investments are derecognised when the rights to receive future cash flows from the assets have expired, or have been transferred, and substantially all the risks and rewards of ownership have transferred. 3.3 Other income Agency fees* Gain on disposal of property, plant and equipment Other Other income * Agency fees include fees received for managing claims on behalf of EQC. 2023 $000 3,574 1,243 910 5,727 2022 $000 715 16 573 1,304 4 Risk Management 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 day-to-day basis. 4.1 Risk management overview Tower’s approach to achieving effective risk management is to embed a risk-aware culture where everyone across the organisation (including contractors and third parties) is responsible for managing risk. Tower’s Board expresses its appetite for risk in a Risk Appetite Statement, which: (i) Gives clear concise guidance to management of parameters for risk taking. (ii) Embeds risk management into strategic and decision-making processes. (iii) Facilitates risk to be managed at all levels of the organisation through a structured process to identify risk, and the allocation of clear, personal responsibility for management of identified risks by assigned risk owners. The Board then approves and adopts: (i) the Risk Management Framework (RMF) which is the central document that explains how Tower effectively manages risk within the business; and (ii) the Reinsurance Management Strategy (ReMS) which describes the systems, structures, and processes which collectively ensures Tower’s reinsurance arrangements and operations are prudently managed. These documents are reviewed and approved at least annually by the Board. The Board has delegated its responsibility to the Risk Committee to provide oversight of risk management practices and provide advice to the Board and management when required. In addition, the Risk Committee also monitors the effectiveness of Tower’s risk management function which is overseen by the Chief Risk Officer (CRO). The CRO provides regular reports to the Risk Committee on the operation of the RMF. Tower has embedded the RMF with clear accountabilities and risk ownership to ensure that Tower identifies, manages, mitigates and reports on all key risks and controls through the three lines of defence model. (i) First line: Operational management has ownership, responsibility and accountability for directly identifying, assessing, controlling and mitigating key risks which prevent them from achieving business objectives. (ii) Second Line: Tower’s Risk, Compliance and Conduct Function is responsible for developing and implementing effective risk, compliance and conduct management processes; providing advisory support to the first line of defence and constructively challenging operational management and risk and obligation owners to ensure positive assurance. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 83 4.1 Risk management overview (continued) (iii) Third line: Internal Audit is responsible and accountable for providing an independent and objective view of the adequacy and effectiveness of the Group’s risk management, governance and internal control framework. Internal audit, along with other groups such as external audit, report independently to the Board and/or the Audit Committee. The RMF is supported by a suite of policies that address the risks and compliance obligations covered in this section. 4.2 Strategic risk Strategic risk is the risk that internal or external factors compromise Tower’s ability to execute its strategy or achieve its strategic objectives. Strategic risk is managed through: (i) Monitoring and managing performance against Board-approved plan and targets. (ii) Board leading an annual strategy and planning process which considers our performance, competitor positioning and strategic opportunities. (iii) Identifying and managing emerging risks using established governance processes and forums. 4.3 Insurance risk Insurance risk is the risk that for any class of risk insured, the present value of actual claims payable will exceed the present value of actual premium revenues generated (net of reinsurance). This risk is inherent in Tower’s operations and arises and manifests through underwriting, insurance concentration and reserving risk. a. Underwriting risk Underwriting risk refers to the risk that claims arising are higher (or lower) than assumed in pricing due to bad experience including catastrophes, weakness in controls over underwriting or portfolio management, or claims management issues. Tower has established the following key controls to mitigate this risk: (i) Use of comprehensive management information systems and actuarial models to price products based on historical claims frequencies and claims severity averages, adjusted for inflation and modelled catastrophes, trended forward to recognise anticipated changes in claims patterns after making allowance for other costs incurred by the Group. (ii) Passing elements of insurance risk to reinsurers. Tower’s Board determines a maximum level of risk to be retained by the Group as a whole. Tower’s reinsurance programme is structured to adequately protect the solvency and capital positions of the insurance business. The adequacy of reinsurance cover is modelled by assessing Tower’s exposure under a range of scenarios. The plausible scenario that has the most financial significance for Tower is a major Wellington earthquake. Each year, as part of setting the coming year’s reinsurance cover, comprehensive modelling of the event probability and amount of the Group’s exposure is undertaken. (iii) Underwriting limits are in place to enforce appropriate risk selection criteria and pricing with specific underwriting authorities that set clear parameters for the business acceptance. b. Concentration risk Concentration risk refers to the risk of underwriting a number of like risks, where the same or similar loss events have the potential to produce claims from many of Tower’s customers at the same time. Tower is particularly subject to concentration risks in the following variety of forms: (i) Geographic concentration risk - Tower purchases a catastrophe reinsurance programme to protect against a modelled 1-in-1000 years whole of portfolio catastrophe loss. (ii) Product concentration risk - Tower’s business is weighted towards the NZ general insurance market where its risks are concentrated in house insurance (Home & Contents) and motor insurance. Tower limits its exposure through proportional reinsurance arrangements, where Tower transfers its exposure on any single insured asset (for example, a house) above a set amount, in exchange for ceding portion of the premium to reinsurers. The table below illustrates the diversity of Tower’s operations. Gross written premium 2023 2022 Home & Contents Motor Commercial Liability Workers compensation Other Total NZ PACIFIC* TOTAL NZ PACIFIC* TOTAL 51% 38% 1% 0% 0% 1% 91% 3% 3% 3% 0% 0% 0% 9% 54% 41% 4% 0% 0% 1% 100% 52% 35% 1% 1% 0% 1% 90% 3% 3% 4% 0% 0% 0% 55% 38% 5% 1% 0% 1% 10% 100% * The Pacific operating segment excludes the disposal groups and the prior year comparatives have been re-presented accordingly. Tower has limited exposure to long-tail classes (which comprises part of “liability” and “workers compensation”). Long-tail classes have increased uncertainty of the ultimate cost of claims due to the additional period of time to settlement. c. Reserving risk Reserving risk is managed through the actuarial valuation of insurance liabilities and monitoring of the probability of adequacy booked reserves. The valuation of the net central estimate is performed by qualified and experienced actuaries. The central estimate is subject to a comprehensive review at least annually. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued) 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 84 4.4 Credit risk Credit risk is the risk of loss that arises when a counterparty fails to meet their financial obligations to Tower in accordance with the agreed terms. Tower’s exposure to credit risk primarily results from transactions with security issuers, reinsurers and policyholders and is set out below. a. Investment and treasury Tower manages its investment and treasury credit risks in line with limits set by the Board: (i) New Zealand cash deposits that are internally managed are limited to banks with a minimum Standard & Poor’s (S&P) AA- credit rating. (ii) Cash deposits and investments that are managed by external investment managers are limited to counterparties with a minimum credit rating equivalent to S&P A- credit rating. (iii) Tower holds deposits and invests in Pacific regional investment markets through its Pacific Island operations to comply with local statutory requirements and in accordance with Tower investment policies. These deposits and investments generally have low credit ratings representing the majority of the value included in the ‘Below BBB’ and ‘not rated’ categories in the table below. This includes deposits and investments with Australian bank subsidiaries that comprise 45% (2022: 55%) of the ‘not rated’ category. CASH AND CASH EQUIVALENTS FIXED INTEREST INVESTMENTS TOTAL 2023 $000 2022 $000 2023 $000 2022 $000 2023 $000 2022 $000 AAA AA A BBB Below BBB Not rated Total – – 104,646 119,198 104,646 47,992 66,228 – – 11,917 4,100 64,009 – – 1,614 16,660 84,502 113,971 38,137 – 1,322 722 110,957 161,963 24,399 38,137 – 2,009 2,071 – 13,239 4,822 119,198 177,185 24,399 – 3,623 18,731 258,798 258,634 322,807 343,136 b. Reinsurance Tower manages its reinsurance programme in line with the ReMS. Tower seeks to manage the quantum and volatility of insurance risk in order to reduce exposure and overall cost. Tower’s policy is to only deal with reinsurers with a credit rating of S&P A- or better unless local statutory requirements dictate otherwise. Additional requirements of the policy are for no individual reinsurer to have more than 25% share of the overall programme and Tower is prohibited from offering inwards reinsurance to external entities. The following table provides details on Tower’s exposure to reinsurance recoveries: REINSURANCE ON: OUTSTANDING CLAIMS PAID CLAIMS TOTAL 2023 $000 – 61,759 57,295 9 75 18 2022 $000 – 5,830 8,319 9 102 220 2023 $000 – 15,474 10,677 (1) 2 4 2022 $000 – 2,929 2,220 – 3 2 2023 $000 – 77,233 67,972 8 77 22 2022 $000 – 8,759 10,539 9 105 222 119,156 14,480 26,156 5,154 145,312 19,634 AAA AA A BBB Below BBB Not rated Total ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 85 4.4 Credit risk (continued) b. Reinsurance (continued) The following table provides further information regarding the ageing of reinsurance recoveries on paid claims at the balance date. PAST DUE NOT DUE $000 1 MONTH $000 1 TO 2 MONTHS $000 2 TO 3 MONTHS $000 OVER 3 MONTHS $000 TOTAL $000 26,156 – – – – 26,156 5,154 – – – – 5,154 As at 30 September 2023 Reinsurance recoveries on paid claims As at 30 September 2022 Reinsurance recoveries on paid claims c. Premium receivable Tower’s premium receivable balance primarily relates to policies which are paid on either a fortnightly or monthly basis. Payment default or policy cancellation - subject to the terms of the policyholder’s contract - will result in the termination of the insurance contract eliminating both the credit risk and the insurance risk. PAST DUE NOT DUE* $000 1 MONTH $000 1 TO 2 MONTHS $000 2 TO 3 MONTHS $000 OVER 3 MONTHS $000 TOTAL $000 As at 30 September 2023 Net premium receivable 237,736 4,375 270 844 50 243,275 As at 30 September 2022 Net premium receivable 192,464 5,933 1,188 384 95 200,064 * This includes premiums that are less than 30 days outstanding (which are owed but not past due) of $4.3m (2022: $4.0m). 4.5 Market risk Market risk is the risk of adverse impacts on investment earnings resulting from changes in market factors. Tower’s market risk is predominately as a result of changes in the value of the New Zealand dollar (currency risk) and interest rate movements. Tower’s approach to managing market risk is underpinned by its Treasury Policy as approved by the Board. a. Currency risk Tower’s currency exposure arises from the translation of foreign operations into Tower’s functional currency (currency translation risk) or due to transactions denominated in a currency other than the functional currency of a controlled entity (operational currency risk). The currencies giving rise to this risk are primarily the US dollar, Fijian dollar and Papua New Guinea (PNG) kina. Tower’s principal currency risk is currency translation (where currency movements impact equity). Tower generally elects not to hedge this risk as it is difficult given the size and nature of the currency markets in the Pacific. Tower seeks to minimise its net exposure to foreign operational risk by actively seeking to return surplus cash and capital to the parent company. Operational currency risk impacts profit and generally arises from: (i) Procurement of goods and services denominated in foreign currencies. Tower may enter into hedges for future transactions, using authorised instruments, provided that the timing and amount of those future transactions can be estimated with a reasonable degree of certainty. (ii) Investment assets managed by the external investment manager that are denominated in foreign currencies. Tower’s Board set limits for the management of currency risk based on prudent asset management practice. Regular reviews are conducted to ensure that these limits are adhered to. The following table demonstrates the impact of the New Zealand dollar weakening or strengthening against the most significant currencies for which Tower has foreign exchange exposure holding all other variables constant. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 86 4.5 Market risk (continued) a. Currency risk (continued) New Zealand Dollar - USD Currency strengthens by 10% Currency weakens by 10% New Zealand Dollar - Fijian Dollar Currency strengthens by 10% Currency weakens by 10% New Zealand Dollar - PNG Kina Currency strengthens by 10% Currency weakens by 10% DIRECT IMPACT ON EQUITY THROUGH CURRENCY TRANSLATION RESERVE IMPACT ON PROFIT OR (LOSS) 2023 $000 2022 $000 2023 $000 2022 $000 (1,025) 1,253 (887) 1,084 – – (793) 969 (854) 1,044 (629) 769 42 (51) (74) 91 (805) 984 113 (138) (74) 90 44 (54) b. Interest rate risk Tower is exposed to interest rate risk through its holdings in interest-bearing assets. Interest-bearing assets with a floating interest rate expose Tower to cash flow interest rate risk, whereas fixed interest investments expose Tower to fair value interest rate risk. Tower’s interest rate risk primarily arises from fluctuations in the valuation of fixed-interest investments recognised at fair value and from the underwriting of general insurance contracts, which have interest rate exposure due to the use of discount rates in calculating the value of insurance liabilities. Fixed-interest investments are measured at fair value through profit or loss. Movements in interest rates impact the fair value of interest-bearing financial assets and therefore impact profit or loss (there is no direct impact on equity). The impact of a 1% increase or decrease in interest rates on fixed interest investments is shown below (holding everything else constant). Interest rates increase by 1% Interest rates decrease by 1% IMPACT ON PROFIT OR (LOSS) 2023 $000 (1,652) 1,726 2022 $000 (1,617) 1,690 Tower manages its interest rate risk through Board-approved investment management guidelines that give regard to policyholder expectations and risks, and to target surplus for solvency as advised by the Appointed Actuary. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 87 4.6 Liquidity risk a. Regulatory solvency capital Liquidity risk arises where liabilities cannot be met as they fall due as a result of insufficient funds and/or illiquid asset portfolios. Tower mitigates this risk through maintaining sufficient liquid assets to ensure that it can meet all obligations on a timely basis. Tower is primarily exposed to liquidity risk through its obligations to make payment for claims of unknown amounts on unknown dates. Fixed-interest investments can generally be readily sold or exchanged for cash to settle claims and are managed in accordance with the policy of broadly matching the overall maturity profile to the estimated pattern of claim payments. This is illustrated in the table below: NET OUTSTANDING CLAIMS LIABILITY CASH AND INVESTMENTS 2023 $000 – 53,220 22,629 20,214 25,378 121,441 2022 $000 – 45,224 20,726 18,969 25,532 110,451 2023 $000 89,909 28,682 30,231 61,661 112,324 322,807 2022 $000 84,649 28,181 44,940 55,407 129,959 343,136 Floating interest rate (at call) Within 3 months 3 to 6 months 6 to 12 months After 12 months Total 4.7 Capital management risk Capital risk is the risk that capital is insufficient or not of the best form to provide a buffer against losses arising from unanticipated events, while also maximising the efficient use of capital with a view to enhancing growth and returns, and adding long-term value to Tower’s shareholders. Tower has a documented description of its capital management process which sets out Tower’s principles, approaches, and processes in relation to capital management that enables it to operate at an appropriate level of target solvency capital which is within the bounds of Tower’s risk appetite. The capital management process allows the Board, management, rating agencies and the regulator to understand Tower’s approach to capital management, including requirements for formulating capital targets, and monitoring, reporting and remediating capital as required. The operation of the capital management process is reported annually to the Board together with a forward- looking estimate of expected capital utilisation and capital resilience. In addition, Tower carries out stress, reverse stress and scenario testing to ensure the level of capital is appropriate given its risk appetite. The Reserve Bank of New Zealand (RBNZ) is the prudential regulator and supervisor of all insurers carrying on insurance business in New Zealand, and is responsible for administering the Insurance (Prudential Supervision) Act 2010. Tower measures the adequacy of capital against the Solvency Standards for Non-life Insurance Business published by the RBNZ alongside additional capital held to meet RBNZ minimum requirements and any further capital as determined by the Board. Foreign operations are subject to regulatory oversight in the relevant jurisdiction. It is Tower’s policy to ensure that each of the licenced insurers in the Group maintain an adequate capital position within the requirements of the relevant regulator. During the year ended 30 September 2023 the Group complied with all externally imposed capital requirements (2022: complied). Tower Limited’s Group and Parent solvency margin are illustrated in the table below. 2023 $000 2022 $000 PARENT GROUP PARENT GROUP Actual solvency capital Minimum solvency capital Solvency margin* Solvency ratio 145,421 91,634 53,787 159% 174,734 99,729 75,005 175% 136,423 66,530 69,893 205% 171,647 79,018 92,629 217% * Tower is required to maintain a solvency margin of at least $15m (2022: $15m), due to a license condition issued by the RBNZ. . In October 2020, the RBNZ commenced consultation on a review of the Insurance (Prudential Supervision) Act 2010. As part of the overall process, the RBNZ issued an exposure draft on an interim solvency standard (ISS) in July 2021 which anticipated the introduction of NZ IFRS 17 Insurance Contracts (IFRS 17). The ISS was issued in October 2022, amended in June 2023 and RBNZ has been consulting on further changes to the ISS between September and November 2023. Tower will apply the RBNZ’s new ISS from 1 October 2023.  The ISS will impose some changes that will impact solvency margins. Due to the ongoing RBNZ consultation, Tower cannot yet determine the final impacts of the ISS on solvency margins. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 88 4.7 Capital management risk (continued) 4.9 Regulatory and compliance risk b. Capital composition The balance sheet capital mix at reporting date is shown in the table below: Regulatory and compliance risk is defined as the risk of legal, regulatory or reputational impacts arising from failure to manage compliance obligations, or failure to anticipate and prepare for changes in the regulatory environment. 2023 $000 2022 $000 Tower, via its ERMS, has in place an obligations management framework. The framework provides operational and managerial oversight of applicable and relevant regulatory compliance obligations to Tower and supports Tower in discharging its obligations under legislation across NZ & the Pacific. Total equity attributed to shareholders 300,265 317,528 Tower engages with regulators and regularly monitors developments in regulatory requirements to support ongoing compliance. c. Financial strength rating 4.10 Conduct risk Tower Limited has an insurer financial strength rating of “A- (Excellent)” and a long-term issuer credit rating of “a-” as affirmed by international rating agency AM Best Company Inc. in April 2023. 4.8 Operational risk Operational risk is the risk of loss due to inadequate or failed internal processes or systems, human error or from external events. Tower’s approach is to proactively manage our operational risks to mitigate potential customer detriment, regulatory or legal censure, financial and reputational impacts. Tower has in place appropriate operational processes and systems, including prevention and detection measures. These include processes which seek to ensure Tower can absorb and/or adapt to internal or external occurrences that could disrupt business operations. Management and staff are responsible for identifying, assessing, recording and managing operational risks in accordance with their roles and responsibilities. Associated controls for identified risks are recorded and then actively monitored and managed through our enterprise risk management system (ERMS). Incidents are managed by the first line of defence and overseen by the second line of defence, with ongoing reporting to management and the Board Risk Committee. Tower also maintains and regularly updates its Crisis Management, Business Continuity and Disaster Recovery Plans to minimise the impact of material incidents or crisis events and to support continuity of critical systems and processes. Conduct risk is defined as the risk that conduct may contribute to poor outcomes for customers. Tower manages Conduct risk through a number of measures including undertaking ongoing product reviews to ensure products are delivering good customer outcomes, reviewing customer feedback to identify conduct trends or issues, completing quality assurance reviews, managing vulnerable customers, holding workshops with frontline staff to identify potential conduct issues and embedding and monitoring controls across the business to deliver fair customer outcomes. Tower’s approach to managing conduct risk is set out in its Conduct Governance Framework. The framework is a collation of policies, frameworks and processes and ensures there’s robust governance in place to oversee Tower’s conduct risk profile including reporting to the Management and Board Committees. 4.11 Cyber risk Cyber risk is any risk associated with financial loss, disruption or damage to the reputation of Tower resulting from either the failure, or unauthorised or erroneous use of its information systems. Tower’s approach to Cyber risk is to proactively protect against, monitor for and respond to those cyber threats seen to be targeting the organisation. Tower continues to monitor evolving key cyber risks, which are discussed and reviewed on a monthly basis through our Management Risk and Conduct Committee and on a quarterly basis with the Risk Committee. Risk mitigation is achieved through ongoing investment in Tower’s security programme and Tower’s dedicated security function. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 89 4.12 Climate change risk 5 Capital Structure Climate change risk is the risk associated with the unpredictable nature and impacts of weather events which may increase in frequency and severity over time due to changes in climate. Tower’s RMF considers environmental and emerging risks, which are regularly reported to the Board. Tower’s approach to managing climate change risk includes leading the insurance market by continuing to expand our risk-based pricing strategy for climate-related hazards, maintaining a robust reinsurance programme to provide protection from volatility in weather events, planning for increasing large events over time in our budget process to limit financial impacts, and supporting communities through climate change via product development. We note that in the financial year Tower experienced several catastrophe events which may be linked to climate change. January’s Auckland and upper North Island weather event, Cyclone Gabrielle in February, Cyclones Judy and Kevin in Vanuatu in March, and the Auckland floods on 9 May had a net impact to Tower of $38m, excluding reinsurance reinstatement. Tower’s liabilities include provision for outstanding claims arising from these events. Other than the impact on outstanding claims liabilities, Tower considers that climate change risk does not materially impact the valuation of Tower’s assets and liabilities, where these assets or liabilities are expected to be realised in one year or less. For non-current assets, Tower has looked to its short-medium term forecasting, which implicitly includes allowances for the risk of climate change in forecasts of the severity and frequency of future claims, including large events. These forecasts show continued profitability for Tower, which supports the carrying value of non-current assets. Accordingly, Tower does not consider that climate change risk has a material impact on the assets and liabilities recorded in these financial statements, as at 30 September 2023. This section provides information about how Tower finances its operations through equity. Tower’s capital position provides financial security to its customers, employees and other stakeholders whilst operating within the capital requirements set by regulators. 5.1 Contributed equity Opening balance Return of share capital to shareholders* Purchase of non-controlling interests** Share rights issued under Tower Long-Term Incentive Plan *** Total contributed equity Represented by: Opening balance Cancellation of shares on return of capital Total shares on issue 2023 $000 460,191 – – 124 2022 $000 492,424 (30,634) (1,599) – 460,315 460,191 379,483,987 421,647,258 – (42,163,271) 379,483,987 379,483,987 * 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 during the year ended 30 September 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 carried out a process to acquire the remaining 6.12% shareholding which completed on 17 December 2021 for a consideration of $0.9m. *** Refer note 8.5 for further detail. Ordinary shares issued by the Company are classified as equity and are recognised at fair value less direct issue costs. All shares rank equally with one vote attached to each share. There is no par value for each share. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 90 5.2 Reserves 5.3 Net tangible assets per share Opening balance Currency translation differences arising during the year Foreign currency translation reserve Opening balance Revaluation surplus transferred to retained earnings Asset revaluation reserve Capital reserve Separation reserve* Reserves 2023 $000 (2,148) (943) (3,091) 1,707 (1,707) – 11,990 (113,000) (104,101) 2022 $000 (6,082) 3,934 (2,148) 1,707 – 1,707 11,990 (113,000) (101,451) * The separation reserve was created in 2007 at the time of the demerger of the New Zealand and Australian businesses in accordance with a ruling provided by the Australian Tax Office (ATO). It will be carried forward indefinitely as a non-equity reserve to meet the requirements of the ATO. Recognition and measurement The assets and liabilities of entities whose functional currency is not the New Zealand dollar are translated at the exchange rates ruling at balance date. Income and expense items are translated at a weighted average of exchange rates over the period approximating spot rates at the transaction dates. Exchange rate differences are taken to the foreign currency translation reserve. Tower’s land and buildings are valued at fair value less accumulated depreciation. Any surplus on revaluation of these items is transferred directly to the asset revaluation reserve unless it offsets a previous decrease in value recognised in profit or loss in which case it is recognised in the consolidated statement of comprehensive income. Net tangible assets per share 2023 CENTS 2022 CENTS 49 55 Net tangible assets per share have been calculated using the net assets as per the balance sheet adjusted for intangible assets (including goodwill) and deferred tax assets divided by total shares on issue. 5.4 Earnings per share Profit from continuing operations attributable to shareholders ($ thousands) (Loss)/profit from discontinued operations attributable to shareholders ($ thousands) Weighted average number of ordinary shares for basic and diluted earnings per share (number of shares) Basic and diluted earnings per share (cents) for continuing operations Basic and diluted earnings per share (cents) 2023 2022 2,352 17,441 (3,580) 1,362 379,483,987 397,851,001 0.6 (0.3) 4.4 4.7 The basic and diluted average numbers of ordinary shares shown above are used for calculating all earnings per share measures including those for profit after tax from discontinued operations (note 8.4). 5.5 Dividends Tower’s Board has determined that no interim or final dividend will be paid in respect of the 2023 financial year. On 1 February 2023, Tower paid a final dividend in respect of the 2022 financial year of 4.0 cents per share (2022: a final dividend of 2.5 cents per share was paid in respect of the 2021 financial year and an interim dividend was paid in respect of the 2022 financial year of 2.5 cents per share). ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 91 6 Other balance sheet items This section provides information about assets and liabilities not included elsewhere. 6.1 Property, plant and equipment 30 September 2023 Composition: Cost Accumulated depreciation Property, plant and equipment Reconciliation: Opening balance Depreciation Additions Disposals Foreign exchange movements Assets reclassified as held for sale* Closing Balance LAND AND BUILDINGS $000 OFFICE EQUIPMENT & FURNITURE $000 MOTOR VEHICLES $000 COMPUTER EQUIPMENT $000 – – – – – – – – – – 6,052 (1,929) 4,123 2,244 (496) 2,489 (71) 14 (57) 4,123 1,702 (1,094) 608 970 (316) – – (18) (28) 608 3,587 (2,038) 1,549 2,203 (1,102) 480 (16) (10) (6) TOTAL $000 11,341 (5,061) 6,280 5,417 (1,914) 2,969 (87) (14) (91) * Assets reclassified as held for sale include the assets of discontinued operations (2022: the Suva building ($4.5m) and assets of discontinued operations). Refer to note 8.4. 1,549 6,280 30 September 2022 Composition: Cost Accumulated depreciation Property, plant and equipment Reconciliation: Opening balance Depreciation Additions Disposals Foreign exchange movements Assets reclassified as held for sale* Closing Balance LAND AND BUILDINGS $000 OFFICE EQUIPMENT & FURNITURE $000 MOTOR VEHICLES $000 COMPUTER EQUIPMENT $000 – – – 4,102 – – – 456 (4,558) – 4,547 (2,303) 2,244 1,968 (422) 814 (85) (23) (8) 2,244 1,949 (979) 970 769 (288) 500 – 15 (26) 970 5,237 (3,034) 2,203 2,535 (1,577) 1,277 (4) (23) (5) 2,203 TOTAL $000 11,733 (6,316) 5,417 9,374 (2,287) 2,591 (89) 425 (4,597) 5,417 * Assets reclassified as held for sale include the assets of discontinued operations (2022: the Suva building ($4.5m) and assets of discontinued operations). Refer to note 8.4. Recognition and measurement Property, plant and equipment is initially recorded at cost including transaction costs and subsequently measured at cost less any accumulated depreciation and impairment losses. Depreciation is calculated using the straight line method to allocate the asset’s cost or revalued amounts, net of any residual amounts, over their useful lives. The assets’ useful lives are reviewed and adjusted if appropriate at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if it is considered that the carrying amount is greater than its recoverable amount. Furniture & fittings Leasehold property improvements Motor vehicles Computer equipment 5-9 years 3-12 years 5 years 3-5 years Land and buildings are shown at fair value, based on periodic valuations by external independent appraisers less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 92 6.2 Intangible assets a. Amounts recognised in the balance sheet 30 September 2023 GOODWILL $000 SOFTWARE $000 CUSTOMER RELATIONSHIPS $000 Composition: Cost Accumulated amortisation Intangible Assets Reconciliation: Opening balance Amortisation Additions* Disposals Transfers to property, plant and equipment Closing Balance 17,744 – 17,744 17,744 – – – – 17,744 94,215 (36,889) 57,326 53,458 (11,430) 17,526 (256) (1,972) 57,326 40,645 (17,191) 23,454 23,451 (5,897) 5,900 – – 30 September 2022 GOODWILL $000 SOFTWARE $000 CUSTOMER RELATIONSHIPS $000 TOTAL $000 152,604 (54,080) 98,524 94,653 (17,327) 23,426 (256) (1,972) Composition: Cost Accumulated amortisation Intangible Assets Reconciliation: Opening balance Amortisation Additions ** Disposals Transfers to property, plant and equipment 17,744 – 17,744 17,744 – – – – 79,259 (25,801) 53,458 48,527 (9,764) 16,934 (184) (2,055) 53,458 34,745 (11,294) 23,451 22,321 (4,959) 6,089 – – 23,451 TOTAL $000 131,748 (37,095) 94,653 88,592 (14,723) 23,023 (184) (2,055) 94,653 * During the year ended 30 September 2023, additions to software assets primarily related to continued investment in Tower’s core insurance platform, while additions to customer relationships related to the acquisition of Kiwibank’s rights and obligations relating to servicing a portfolio of insurance policies underwritten by Tower. ** In the year ended 30 September 2022, additions to software assets primarily related to continued investment in Tower’s core insurance platform, while additions to customer relationships related to the acquisition of Westpac’s and TSB Bank’s rights and obligations relating to servicing the insurance polices of two further groups of customers already underwritten by Tower. The amounts capitalised includes the price paid and associated acquisition/migration costs. The assets will be amortised over 10 years (for other customer relationships), with the pattern of amortisation being aligned with expected net cashflow benefits over this period. 23,454 98,524 Closing Balance 17,744 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued) 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 93 6.2 Intangible assets (continued) a. Amounts recognised in the balance sheet (continued) Recognition and measurement Intangible assets are assets without physical substance. They are recognised as an asset if they are controlled by Tower and if it is probable that expected future economic benefits attributable to the asset will flow to Tower and that costs can be measured reliably. Application software and customer relationships are recorded at cost less accumulated amortisation and impairment. Application software is amortised on a straight line basis over the estimated useful life of the software. Customer relationships are amortised over the estimated useful life in accordance with the pattern of economic benefit consumption. Internally generated intangible assets are recorded at cost which comprise all directly attributable costs necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Amortisation of internally generated intangible assets begins when the asset is available for use and is amortised on a straight line basis over the estimated useful life. The useful lives for each category of intangible assets with a finite life are as follows: - - capitalised software: 3-5 years for general use computer software and 3-10 years for core operating system software customer relationships: 5-10 years Software-as-a-Service (SaaS) arrangements are service contracts providing Tower 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. Goodwill (i.e. assets with an indefinite useful life) generated as a result of business acquisition is initially measured as the excess of the purchase consideration over the fair value of the net identifiable assets and liabilities acquired. Goodwill is not subject to amortisation but is tested for impairment annually or more frequently where there are indicators of impairment. Critical accounting estimates and judgements The customer relationships asset predominantly consists of customer relationship assets with a useful life equivalent to the customer base’s expected lifespan of ten years with the exception of one asset (acquired in 2021) with an additional non-compete component that has a contracted useful life of five years. Where applicable the estimated capitalised cost related to the customer relationships asset has been apportioned between the two asset components by valuing the non-compete at the differential in net present value of the asset from improved customer retention over the non-compete period, pro-rated over the full asset value. b. Impairment testing An impairment charge is recognised in profit or loss when the carrying value of the asset, or cash-generating unit (CGU), exceeds the calculated recoverable amount. (i) Software and customer relationships Software and customer relationships are reviewed at each reporting date by determining whether there is an indication that the carrying values may be impaired. If an indication exists, the asset is tested for impairment. A loss is recognised for the amount by which the carrying value exceeds the asset’s recoverable value. There were no indications of impairment during the year and therefore these assets were not tested for impairment (2022: no indications). ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 94 6.2 Intangible assets (continued) b. Impairment testing (continued) 6.3 Leases a. Amounts recognised in the balance sheet Critical accounting estimates and judgements The recoverable amount for software and customer relationships is determined by reference to a value in use calculation based on (i) cash flow forecasts that combine past experience with future expectations based on prevailing and anticipated market factors; and (ii) a discount rate that appropriately reflects the time value of money and the specific risks associated with the assets. Value-in-use calculations involve the use of accounting estimates and assumptions to determine the projected net cash flows, which are discounted using an appropriate discount rate to reflect current market assessment of the risks associated with the assets. An impairment charge for capitalised software is incurred where there is evidence that the economic performance of the asset is not as intended by management. Customer relationships represent the present value of future benefits expected to arise from existing customer relationships. The assumptions for the useful life are based on historical information. (i) Right-of-use assets 30 September 2023 Composition: Cost Accumulated depreciation Right-of-use assets Reconciliation: Opening balance Depreciation Additions Disposals Revaluations (ii) Goodwill Goodwill is deemed to have an indefinite useful life and is tested annually for impairment or more frequently where there is an indication that the carrying value may not be recoverable. Net foreign exchange movements Assets reclassified as held for sale Right-of-use assets Goodwill is allocated to cash generating units (CGUs) based on the expected synergies arising from the acquisition giving rise to goodwill. Tower’s goodwill is allocated to the New Zealand general insurance CGU. Tower undertook an annual impairment review and no loss has been recognised in 2023 as a result (2022: nil). Critical accounting estimates and judgements The recoverable amount of the New Zealand general insurance business is assessed by determining its value in use by discounting the future cash flows generated from the continuing use of the CGU . A discount rate of 13.1% was used in the calculation (2022: 14.5%). The cash flows are based on Board- approved management plans and forecasted profits for FY24 - FY26 (2022: FY23 - FY25). The projected cash flows are determined based on past performance and management’s expectations for market developments with a terminal growth rate of 2.5% (2022: 3%). The overall valuation is sensitive to a range of assumptions including management’s forecasted profits, the discount rate and the terminal growth rate. Reasonable changes to these assumptions will not result in an impairment. 30 September 2022 Composition: Cost Accumulated depreciation Right-of-use assets Reconciliation: Opening balance Depreciation Additions Disposals Revaluations Net foreign exchange movements Assets reclassified as held for sale Right-of-use assets OFFICE SPACE $000 MOTOR VEHICLES $000 30,267 (7,063) 23,204 23,326 (4,209) 4,162 – (204) 239 (110) 23,204 26,977 (3,651) 23,326 25,569 (2,702) 438 (37) 968 (347) (563) 23,326 – – – – – – – – – – – – – – 8 (3) – (5) – – – – TOTAL $000 30,267 (7,063) 23,204 23,326 (4,209) 4,162 – (204) 239 (110) 23,204 26,977 (3,651) 23,326 25,577 (2,705) 438 (42) 968 (347) (563) 23,326 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 95 6.3 Leases (continued) a. Amounts recognised in the balance sheet (continued) Recognition and measurement Right-of-use assets are recognised when Tower has the right to use the corresponding assets. Right- of-use assets are measured at cost comprising the initial measurement of the lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received; and indirect costs; and restoration costs. Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight line basis. (ii) Lease liabilities Composition: Current Non-current Lease liabilities Due within 1 year Due within 1 to 2 years Due within 2 to 5 years Due after 5 years Discount Lease liabilities 2023 $000 2022 $000 5,477 27,138 32,615 5,477 5,921 12,483 11,865 (3,131) 32,615 6,237 28,817 35,054 6,237 4,440 11,990 15,876 (3,489) 35,054 Recognition and measurement Lease liabilities are recognised at the date Tower has the right to use the corresponding asset. Lease liabilities are initially measured as the present value of expected lease payments under lease arrangements. Lease liability will include any option to extend where it is reasonably certain that the option will be exercised. The lease payments are discounted using the incremental borrowing rate as the interest rate in the lease cannot be readily determined. The incremental borrowing rate is the rate of interest that Tower would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. Tower’s incremental borrowing rate is based on bonds issued by financial institutions with similar credit rating and maturity profile. Incremental borrowing rates used during the year ranged between 1.9% and 5.9% (2022: between 1.9% and 5.0%). Subsequent repayments are split between principal and interest cost where the finance cost represents the time value of money and is charged to the profit or loss over the lease period. The discount rate applied is unchanged from that applied at the initial recognition of the lease, unless there are material changes to the lease. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 96 6.3 Leases (continued) 7 Tax b. Amounts recognised in the consolidated statement of comprehensive income This section provides information on Tower’s tax expense during the year and its position at balance date. CLASSIFICATION Depreciation and impairment Underwriting expense Interest expense Gain on disposal Lease expense Finance costs Other Income 2023 $000 (4,027) (920) – (4,947) 2022 $000 (2,518) (890) 5 (3,403) All amounts in this note exclude discontinued operations, consistent with other profit or loss disclosures. c. Amounts recognised in the consolidated statement of cash flows 7.1 Tax expense Composition Current tax Deferred tax Adjustments in respect of prior years Tax expense Total cash outflow for lease principal payments for continuing operations (6,845) (5,852) 2023 $000 2022 $000 Tax expense from continuing operations Tax (benefit)/expense from discontinued operations Reconciliation of prima facie tax to income tax expense Profit before tax from continuing operations (Loss)/profit before tax from discontinued operations Profit before taxation Prima facie tax expense at 28% (2022: 28%) Adjustments in respect of prior years Tax effect of non-deductible expenses and non-taxable income Foreign tax credits written off Other Tax expense 2023 $000 1,459 546 1,153 3,158 5,085 (1,927) 2023 $000 7,437 (5,507) 1,930 540 1,153 679 492 294 3,158 2022 $000 1,159 6,593 292 8,044 7,483 561 2022 $000 24,976 1,923 26,899 7,532 293 (732) 371 580 8,044 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 97 7.1 Tax expense (continued) Recognition and measurement Tax expense is calculated on the basis of the applicable tax rates that have been enacted or substantively enacted at the end of the reporting period in the jurisdictions Tower operates in. There have been no tax rate changes during the year in these jurisdictions. Current tax expense relates to tax payable for the current financial reporting period while deferred tax will be payable in future periods. 7.2 Current tax a. Current tax asset Excess tax payments related to prior periods* Excess tax payments related to current period** Current tax assets 2023 $000 12,038 879 12,917 2022 $000 12,038 1,031 13,069 7.3 Deferred tax a. Deferred tax asset Composition Tax losses recognised Software, property, plant and equipment Leases Provisions and accruals Recognised in profit or loss Impact through other comprehensive income Recognised in comprehensive profit or loss Set-off of deferred tax liabilities pursuant to NZ IAS 12 Deferred tax asset Deferred tax asset from continuing operations Deferred tax asset from discontinued operations * Expected to be recovered from 2025 as per the Board-approved operational plan for 2024 to 2026. ** Excess tax payment made in the Pacific Islands during the reporting period. Reconciliation of movements b. Current tax liability The current tax liability balance of $198k (2022: $136k) relates to taxes payable to offshore tax authorities in the Pacific Islands. Opening balance Movements recognised in profit or loss Deferred tax asset pre NZ IAS 12 set off Recognition and measurement Overpayment of tax in the current and prior periods is recognised as a current tax asset. Current tax assets are measured at the amount expected to be recovered from the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. 2023 $000 29,411 181 501 3,206 33,299 – 33,299 (18,276) 15,023 14,971 52 2023 $000 31,315 1,984 33,299 2022 $000 23,716 1,989 352 5,258 31,315 – 31,315 (7,278) 24,037 23,893 144 2022 $000 31,488 (173) 31,315 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 98 7.3 Deferred tax (continued) b. Deferred tax liability Composition Deferred acquisition costs Customer relationships Software, property, plant and equipment Other* Recognised in profit or loss Asset revaluation Recognised in comprehensive profit or loss Set-off of deferred tax liabilities pursuant to NZ IAS 12 Deferred tax liability * Primarily relates to deferred tax items in the Pacific islands. Reconciliation of movements Opening balance Movements recognised in other comprehensive income Movements recognised in profit or loss Deferred tax liability pre NZ IAS 12 set off 2023 $000 (7,829) (5,001) (5,447) (47) (18,324) – (18,324) 18,276 (48) 2023 $000 (16,084) 290 (2,530) (18,324) 2022 $000 (7,016) (4,412) (4,163) (203) (15,794) (290) (16,084) 7,278 (8,806) 2022 $000 (9,813) 148 (6,419) (16,084) Recognition and measurement Deferred tax is income tax which is expected to be payable or recoverable in the future as a result of the unwinding of temporary differences. These arise from differences in the recognition of assets and liabilities for financial reporting and from the filing of income tax returns. Deferred tax is recognised on all temporary differences, other than those arising from (i) goodwill or (ii) from the initial recognition of assets and liabilities in a transaction (other than in a business combination) that affects neither the accounting nor taxable profit or loss. At the reporting date, the Group has recognised a deferred tax asset in respect of its unused tax losses of $105.0m (2022: $84.7m). Deferred tax is calculated at the tax rates that are expected to apply to the year when the liability is settled or the asset realised, based on tax rates and tax laws that have been enacted or substantively enacted at balance date. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Critical accounting estimates and judgements Deferred tax assets are recognised for all unused tax losses to the extent it is probable that taxable profits will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised based on the likely timing and quantum of future taxable profits. Management expects the tax losses to be utilised within the foreseeable future. This assessment is completed on the basis of Board-approved management plans and forecasted profits for Tower Limited and subsidiaries. Tower’s ability to utilise these tax losses depends on the future profitability, shareholder continuity and no major change in Tower’s business. The enactment of the new business continuity test in the Income Tax Act 2007 on 30 March 2021 for carrying forward tax losses means that Tower is able to carry forward its tax losses even if there is a significant shareholding change, as long as the business continuity test is met. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued) 2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 99 7.4 Imputation credits 8 Other information The Group imputation credit account reflects the imputation credits held by the Company as the representative member of the Group. This section includes additional disclosures which are required by financial reporting standards. Imputation credits available for use in subsequent reporting periods 2023 $000 271 2022 $000 271 8.1 Notes to the consolidated statement of cash flow Composition Cash at bank Deposits at call* Cash and cash equivalents 2023 $000 42,068 21,941 64,009 2022 $000 54,422 30,080 84,502 * The average interest rate at 30 September 2023 for deposits at call is 4.65% (2022: 2.89%). Tower operates in countries in the Pacific Islands that are subject to foreign exchange restrictions, which may restrict the ability for immediate use of cash by the parent or other subsidiaries. As at 30 September 2023, this included NZD 8.9m held in Papua New Guinea following the sale of the disposal group (2022: nil). This cash is not currently available for use by the Group. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 100 8.1 Notes to the consolidated statement of cash flow (continued) 8.2 Related party disclosures Reconciliation of profit for the year to cash flows from operating activities Note 2023 $000 2022 $000 Tower considers key management personnel to consist of the Board of Directors, Chief Executive Officer and executive leadership team. Information regarding individual director and executive compensation is provided in the Corporate Governance section of the annual report. (Loss)/profit after taxation Adjusted for non-cash items Depreciation of property, plant and equipment Depreciation and disposals of right-of-use assets Amortisation of intangible assets Financing costs Fair value (gains)/losses on financial assets Change in deferred tax Adjusted for investing activities Gain on disposal of property, plant and equipment Gain on disposal of discontinued operation Impairment loss recognised for disposal group Adjusted for movements in working capital Change in receivables Change in payables Change in taxation 6.1 6.3 6.2 8.4 8.4 Net cash inflow from operating activities Net cash inflow from operating activities from continuing operations Net cash outflow from operating activities from discontinued operations (1,228) 18,855 1,914 4,209 17,327 928 (1,757) 125 (1,243) (2,165) 563 (184,698) 174,860 1,128 9,963 25,107 (15,144) 2,287 2,518 14,723 909 5,337 6,466 (16) – – (30,574) 39,661 (382) 59,784 64,200 (4,416) Salaries and other short term employee benefits Long term benefits Termination benefits Director fees 2023 $000 5,511 536 – 613 2022 $000 4,466 773 748 676 Related party remuneration 6,660 6,663 Tower insurance products are available to all key management personnel on the same terms as available to other employees. In addition, Tower purchases indemnity insurance for all directors both past and present covering liabilities and legal expenses incurred whilst in office. The Board has decided to implement a share-based long-term incentive plan with effect from 7 December 2022. Refer note 8.5. During the year ended 30 September 2022, Tower Limited acquired the minority shareholding of National Pacific Insurance Limited. Refer note 5.1. Definition Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 101 8.3 Auditor’s remuneration 8.4 Assets and liabilities held for sale Audit of financial statements* Other assurance services** Total fees paid to Group's auditors Fees paid to subsidiaries' auditors different to Group auditors: Audit of financial statements*** Auditors remuneration 2023 $000 2022 $000 748 67 815 15 830 612 63 675 16 691 * Audit of financial statements includes fees for both the audit of annual financial statements and the review of the interim financial statements. PwC Fiji performs the audits of all overseas incorporated subsidiaries with the support of PwC New Zealand and other PwC network firms. $125k is paid to other PwC network firms (non New Zealand) for their audit services. ** Other assurance services includes annual solvency return assurance and Pacific Island regulatory return audits. The other assurance services for the year ended 30 September 2022 were completed during the year ended 30 September 2023. *** The audit of Tower Insurance (Vanuatu) Limited was performed by Law Partners (2022: Law Partners). Assets and liabilities held for sale includes the Suva building and discontinued operations. On 28 October 2022 Tower completed the sale of all of its shares in its Papua New Guinea subsidiary to Alpha Insurance Limited for a sale price of PGK 22 million. The activities of the subsidiary have been reported in the current period, and as at 30 September 2022, as a discontinued operation. Financial information on this disposal is set out below. Details of the sale of the subsidiary Cash and cash equivalents Investments Receivables Current tax assets Deferred tax assets Deferred insurance costs Right-of-use assets Property, plant and equipment Total assets at the date of disposal Payables Unearned premiums Outstanding claims Lease liabilities Provisions Total liabilities at the date of disposal Net assets at the date of disposal Cash consideration received net of disposal costs Gain on sale before reclassification of foreign currency translation reserve Reclassification of foreign currency translation reserve Gain on sale 28-OCT-22 $000 7,070 2,120 2,670 379 130 1,290 452 36 14,147 254 4,490 1,878 493 53 7,168 6,979 9,688 2,709 (544) 2,165 ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 102 8.4 Assets and liabilities held for sale (continued) The comparatives presented in the table below include the assets and liabilities of the Papua New Guinea subsidiary and the Suva building. On 31 January 2023, Tower completed the sale of its building in Suva, for FJD 8.2 million plus VAT (gross of costs relating to the sale). Assets and liabilities classified as held for sale Details of the sale of the Suva building (before taxation) Cash consideration received net of disposal costs Net book value at the date of disposal Gain on sale of the Suva building* Revaluation surplus transferred to retained earnings 31-JAN-23 $000 5,746 4,558 1,188 1,707 * Included in Other income within Consolidated statement of comprehensive income. Select operations in Pacific where Tower has begun the process to divest its operations are classified as discontinued operations and are classified as held for sale as at 30 September 2023. On 3 July 2023 Tower announced the conditional sale of its Solomon Islands business to Trans Pacific Assurance Limited for the sale price of around SBD 17m, subject to adjustment at the completion date for the sale. At 30 September 2023, Tower was also committed to a plan to sell its Vanuatu subsidiary and was going through the process of locating a buyer. All transactions are expected to be completed within a year from the reporting date. Assets classified as held for sale Cash and cash equivalents Investments Receivables** Current tax assets Deferred tax assets Deferred insurance costs Right-of-use assets Property, plant and equipment* Total assets classified as held for sale Liabilities classified as held for sale Payables** Unearned premiums Outstanding claims Lease liabilities Provisions Total liabilities classified as held for sale Net assets classified as held for sale 2023 $000 1,302 820 8,945 147 52 2,230 110 91 2022 $000 7,796 3,580 2,565 315 144 1,335 479 4,597 13,697 20,811 160 5,307 4,025 154 119 9,765 3,932 1,965 4,745 1,981 519 48 9,258 11,553 * Property, plant and equipment disclosed above includes the Suva building carrying value of $4.5m. ** As at 30 September 2023, other members of the Tower Group owed disposal groups $3.2m (2022: disposal groups owed other members of the Tower Group $1.8m). The assets and liabilities from discontinued operations disclosed above are stated without adjustment for these intercompany transactions. The currency translation reserve in relation to the discontinued operations as at 30 September 2023 was nil (2022: $2.7m). ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 103 8.4 Assets and liabilities held for sale (continued) Profit from discontinued operations Gross written premium Unearned premium movement Gross earned premium Outward reinsurance premium Movement in deferred reinsurance premium Outward reinsurance premium expense * Net earned premium Claims expense Less: Reinsurance and other recoveries revenue Net claims expense ** Gross commission expense Commission revenue Net commission expense Underwriting expense * Underwriting (loss)/profit Investment income Other income Financing and other costs Gain on sale of the subsidiary Impairment loss recognised for disposal group (Loss)/profit before taxation from discontinued operations Tax benefit/(expense) (Loss)/profit after taxation from discontinued operations 2023 $000 10,313 (344) 9,969 (4,438) (25) (4,463) 5,506 (21,102) 11,573 (9,529) (986) 434 (552) (2,610) (7,185) 20 64 (8) 2,165 (563) (5,507) 1,927 (3,580) 2022 $000 17,042 363 17,405 (7,175) (59) (7,234) 10,171 (3,761) 829 (2,932) (1,172) 668 (504) (4,927) 1,808 68 66 (19) – – 1,923 (561) 1,362 * Disposal groups paid fees to other members of the Tower Group of $2.6m during the financial year ended 30 September 2023 (2022: $4.5m), relating to the provision of reinsurance, management and other services. These amounts are included within the reinsurance premium expense and underwriting expense lines above, and are then eliminated within continuing operations. ** Claims expense includes $7.1m of expense incurred by the parent company under an internal reinsurance treaty with its Vanuatu subsidiary. Earning per share 2023 2022 Basic and diluted earnings per share (cents) for discontinued operations (0.9) 0.3 The currency translation differences recognised in other comprehensive income during the year ended 30 September 2023 in relation to the discontinued operations, including reclassification adjustment, were nil  (2022: $1.8m). 8.5 Tower Long-Term Incentive Plan The Group has introduced a long-term incentive plan during the year, which is intended to align the interests of management and shareholders. Recognition and measurement The Tower Long-Term Incentive Plan is considered to be an equity settled scheme under NZ IFRS 2 Share-based Payments and the vesting conditions for the scheme include both service and performance conditions. The costs associated with this plan are measured at fair value at grant date and are recognised as an expense in profit or loss over the vesting period, with a corresponding entry to a reserve in equity. The estimate of the number of rights for which the service conditions are expected to be satisfied is revised at each reporting date, with any cumulative catch-up adjustment recognised in profit or loss in the period that the change in estimate occurred. Any rights not vested after the expiry date are cancelled. The plan provides selected eligible employees with Restricted Share Rights (RSR’s), which ‘vest’ over a three- year period, during which participants must remain employed by the Group and performance conditions must be met as follows. Share Rights vest if Tower’s Total Shareholder Return (TSR) sits at or above the 50th percentile of the NZX 50 index ranked by TSR over the same period: (i) Where the company TSR equals the 50th percentile TSR of the index companies over the performance period, 50% of the share rights will vest. (ii) Where the company TSR equals or exceeds the 75th percentile TSR of the index companies over the performance period, 100% of the share rights will vest. (iii) Where the company TSR over the performance period exceeds the 50th percentile TSR of the index companies but does not reach the 75th percentile, then between 50% and 100% of the share rights will vest as determined on a straight line progression basis. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 104 8.5 Tower Long-Term Incentive Plan (continued) 8.6 Contingent liabilities During the year the following movements of rights to shares occurred in accordance with the rules of the plan: Claims and disputes 2023 NUMBER OF SHARE RIGHTS (RSR’S) 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. Share Rights outstanding at the beginning of the period Share Rights granted during the period Share Rights forfeited during the period Share Rights vested and settled during the period Share Rights outstanding at the end of the period – 1,946,557 – – 1,946,557 The Group has no other contingent liabilities. 8.7 Subsequent events On 20 November 2023 Tower announced that it will no longer offer insurance for commercial farms, which comprised $8.9m of Gross Written Premiums in FY23. Insurance policies for commercial farms will be progressively lapsed as their terms expire, over a 12 month period from 1 February 2024. The weighted average remaining contractual life for share rights outstanding under the plan is 2.2 years. The assessed fair value of the rights granted during the year was 23 cents. This was calculated using a Monte Carlo share price simulation model by Deloitte Limited. The significant inputs into the model for rights granted during the period are in the table below: 8.8 Capital commitments As at 30 September 2023, Tower has nil capital commitments (2022: nil). Assumptions Share price at grant date (cents) 10 Day VWAP (cents) Exercise Price Option life Risk-free rate Expected volatility 2023 70 70 Nil 3 years 4.36% 23% The expected price volatility is based on annualised price volatility for the four years prior to the grant date. The total share-based payment expense during the year was $124k. There were no liabilities arising from share-based payment transactions at reporting date. The plan allows participants to request a PAYE Election, under which they may ask Tower to make payment to the IRD to settle their PAYE liability subject to Tower being reimbursed by the participant. Tower is not required to accept any participant’s request for a PAYE Election. Tower has not entered into any agreed PAYE Election arrangements during the year. 8.9 Impact of new accounting standards and changes in interpretation of current accounting standards New accounting standards No new accounting standards were implemented during the year with a material effect on Tower. Issued and not yet effective The only new or revised accounting standard that is expected to have a material impact on Tower’s financial statements is IFRS 17.  Other new or revised accounting standards that will be mandatory in future financial years are not expected to have a material impact. IFRS 17 replaces the current guidance in NZ IFRS 4 Insurance Contracts (IFRS 4), 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. IFRS 17 is effective for periods beginning on or after 1 January 2023. Tower will apply the standard for the year ending 30 September 2024, with a restated comparative period for the year ended 30 September 2023.  Tower expects to apply the standard using the full retrospective approach for all groups of insurance and reinsurance contracts. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 105 8.9 Impact of new accounting standards and changes in interpretation of current accounting standards (continued) Measurement model Insurance acquisition cash flows IFRS 17 contains three new measurement models. The general model measures insurance contracts based on the fulfilment cash flows (the present value of estimated future cash flows with an explicit risk adjustment for non-financial risk) and the contractual service margin (the unearned profit that will be recognised as services are provided over the coverage period). A modified version of the general model (the variable fee approach) is applied to insurance contracts with direct participation features, and a simplified measurement model (the premium allocation approach, or PAA) is permitted in certain circumstances. The PAA is similar to the current measurement model used for general insurance. Tower will measure all its current insurance contracts and reinsurance contracts using the PAA measurement model. Under the PAA, insurance and reinsurance contracts will be aggregated together into portfolios based on the contracts having similar risks and being managed together, and then divided into groups based on the expected profitability of contracts and the periods in which the contracts are written. Insurance contracts and reinsurance contracts are measured separately. Under the aggregation requirements, the identification and measurement of contracts that are expected to be loss making will be performed at a lower granularity than the liability adequacy test under current accounting standards, with any loss component recognised on initial recognition. IFRS 17 allows a choice between expensing acquisition costs related to the fulfilment cash flows immediately, or deferring them. Tower will defer acquisition costs and amortise them over the coverage period of the related insurance contracts. Presentation and disclosure IFRS 17 also introduces significant changes to the presentation of insurance contracts. Assets and liabilities related to portfolios of insurance contracts and reinsurance contracts will be shown separately on the balance sheet, replacing current insurance-related lines such as premium receivables, deferred insurance costs and unearned premiums. In the consolidated statement of comprehensive income, Tower will present income and expenses related to insurance contracts gross of reinsurance, which will be disclosed separately. In addition, finance income or expense associated with insurance contracts will not be included in insurance service result, and will be recognised separately as insurance finance income expense. IFRS 17 permits entities to recognise a component of finance expense in either profit or loss or other comprehensive Income. Tower intends to recognise all components of finance income or expense in profit or loss. Discounting Transition IFRS 17 makes changes to the way that discount rates are applied to future cash flows, with discount rates required to reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the insurance contracts. Tower has determined that it will not discount insurance liabilities for remaining coverage (LRC), as the time between the provision of services and when premiums are received is not expected to exceed one year. The coverage period for reinsurance assets for remaining coverage (ARC) are expected to exceed one year, however Tower has determined it will not discount ARC as there is no significant financing component. Insurance and reinsurance assets and liabilities for incurred claims will be discounted to reflect the time value of money. Tower expects to apply the bottom-up approach in determining the discount rate, whereby a risk-free yield curve is adjusted through the addition of an illiquidity premium. Risk adjustment IFRS 17 requires a risk adjustment for non-financial risk to be applied to reflect the compensation an entity requires for bearing uncertainty about the amount and timing of cash flows. This differs from the risk margin used under IFRS 4, which reflects the inherent uncertainty in the central estimate of future claims cash flows. Tower is developing its framework for determining the risk adjustment and is considering a cost of capital approach for the calculation of assets and liabilities for incurred claims. Tower has a programme to assess the impact of adopting IFRS 17 and to project manage the transition to the new standard including system development. Tower has substantially completed all transition tasks which include finalising accounting policy under IFRS 17, systems development work, and adapting business processes to meet reporting requirements under IFRS 17. IFRS 17 is not expected to change the underlying economics or cash flows of Tower’s business, although it may impact how profit emerges on a year-to-year basis, and it will change the presentation in the financial statements. Tower is currently in the process of assessing the financial impact of retrospectively applying the transition provisions in IFRS 17. Work is currently being undertaken to develop checks, evidence and audit trails to have reasonable assurance over the accuracy of the initial period of application impact on the Tower’s consolidated financial statements. Based on assessments undertaken to date, the impact is not expected to be material. ANNUAL REPORT 2023Notes to the consolidated financial statements (continued)2023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 106 Independent auditor’s report To the shareholders of Tower Limited Our opinion In our opinion, the accompanying consolidated financial statements of Tower Limited (the Company), including its subsidiaries (the Group), present fairly, in all material respects, the financial position of the Group as at 30 September 2023, its financial performance and its cash flows for the year then ended in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS) and International Financial Reporting Standards (IFRS). What we have audited The Group’s consolidated financial statements comprise: • the consolidated balance sheet as at 30 September 2023; • the consolidated statement of comprehensive income for the year then ended; • the consolidated statement of changes in equity for the year then ended; • the consolidated statement of cash flows for the year then ended; and • the notes to the consolidated financial statements, which include significant accounting policies and other explanatory information. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (New Zealand) (ISAs (NZ)) and International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with Professional and Ethical Standard 1 International Code of Ethics for Assurance Practitioners (including International Independence Standards) (New Zealand) (PES 1) issued by the New Zealand Auditing and Assurance Standards Board and the International Code of Ethics for Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements. Our firm carries out other assurance services for the Group over solvency and regulatory insurance returns. In addition, certain partners and employees of our firm may deal with the Group on normal terms within the ordinary course of trading activities of the Group. The provision of these other services and relationships have not impaired our independence as auditor of the Group. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 107 Independent auditor’s report (continued) Key audit matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Description of the key audit matter How our audit addressed the key audit matter Valuation of outstanding claims (2023: $240,597,000, 2022: $124,531,000) Claims data is a key input to the actuarial estimates. Accordingly, we: We considered the valuation of outstanding claims a key audit matter as it involves an estimation process combined with significant judgements and assumptions, made by management, to estimate future cash outflows to settle claims. Outstanding claims have increased this year due to the large weather events experienced in Auckland and the Upper North Island and Cyclone Gabrielle. The outstanding claims liability includes a central estimate of the future cash outflows relating to claims incurred, as at and prior to the reporting date, and the expected costs of handling those claims. There is uncertainty over the amount that reported claims and claims incurred at the reporting date but not yet reported to the Group will ultimately be settled at. The estimation process relies on the quality of underlying claims data and the use of informed estimates to determine the quantum of the ultimate loss. Key actuarial assumptions applied in the valuation of outstanding claims (excluding Canterbury earthquakes) include: • expected future claims development proportion; • claims handling expense ratios; and • discount rate. Outstanding claims in relation to the Canterbury earthquakes also have a unique degree of uncertainty and judgement. This mainly arises due to the uncertainty as to further deterioration of open known claims, Earthquake Commission reporting of new claims to the Group which have gone over the $100,000 statutory liability cap (over cap claims), new litigation claims, reopening of closed claims and expected claims costs for open claims. Changes in assumptions can lead to significant movements in the outstanding claims liability. The outstanding claims liability includes a risk margin that allows for the inherent uncertainty in the central estimate of future claim cash outflows. In determining the risk margin, the Group makes judgements about the volatility of each class of business written and the correlation between different geographical locations. Refer to note 2.4 to the consolidated financial statements. • evaluated the design effectiveness and tested controls over claims processing; • assessed a sample of claim case estimates at the year end to check that they were supported by an appropriate management assessment and documentation, and classified appropriately to relevant claim type; • assessed, on a sample basis, the accuracy of previous claim case estimates by comparing to the actual amount settled during the year and assessed the changes in the claim case estimate to determine whether such change was based on new information available during the year; • inspected a sample of claims paid during the year to confirm that they were supported by appropriate documentation and approved within delegated authority limits; and • tested the integrity of data used in the actuarial models by agreeing relevant model inputs, such as claims data, to source, on a sample basis. Together with our actuarial experts, we: • considered the work and findings of the actuaries engaged by Tower; • evaluated the actuarial models and methodologies used, and any changes to them, by comparing with generally accepted models and methodologies applied in the sector; • assessed key actuarial judgements and assumptions and challenged them by comparing with our expectations based on Tower’s experience, our own sector knowledge and independently observable industry trends (where applicable); • tested on a sample basis, the underlying calculations in certain valuation models including the application of discounting; • assessed the risk margin by comparing to known industry practice. In particular we focused on the assessed level of uncertainty in the central estimate and the inherent uncertainty in the remaining Canterbury earthquake claims and consistency of the risk margin with prior periods; and • reviewed disclosures in the financial statements for compliance with accounting standards. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 108 Independent auditor’s report (continued) Description of the key audit matter How our audit addressed the key audit matter Valuation of reinsurance recoveries on outstanding claims (2023: $119,156,000, 2022: $14,080,000) In addition to our audit procedures undertaken to assess the valuation of outstanding claims, we performed the following procedures: The valuation of reinsurance recoveries on outstanding claims is a key audit matter as a significant reinsurance asset has been recognised in respect of the recent Auckland and Upper North Island weather event, as well as Cyclone Gabrielle. Reinsurance recoveries have an implicit dependence on the estimate of gross outstanding claims, which involve a high degree of management judgement and estimation uncertainty. The Group has multiple reinsurance arrangements and allocating the claims to relevant reinsurance treaties is dependent on the accuracy of underlying claims data. Refer to notes 2.2, 2.4 and 2.7 to the consolidated financial statements. • read material reinsurance agreements in place to understand the terms and conditions; • assessed, on a sample basis, the appropriateness of outstanding claims classification, used for the calculation of reinsurance recoveries; • tested the completeness of the claims data used in the reinsurance calculations by comparing it to the outstanding claims population; • recalculated, on sample basis, reinsurance recoveries; • validated progress payments received from reinsurers in respect of the Auckland and Upper North Island weather event and Cyclone Gabrielle to bank; and • assessed the recoverability of balances owed by reinsurers by considering their credit worthiness and capital strength, payment history including ageing of receivables, and considered whether there were any indicators of dispute. Recoverability of the deferred tax asset arising from tax losses (2023: $29,411,000, 2022: $23,716,000) In considering the recoverability of the deferred tax asset arising from tax losses we performed the following procedures: The majority of the Group’s deferred tax asset arises from tax losses. We considered recoverability of the deferred tax asset a key audit matter because utilisation of the asset is sensitive to the Group’s expected future profitability and sufficient continuity of the ultimate shareholders or business continuity. Management judgement is involved in forecasting the timing and quantum of future taxable profits, which are inherently uncertain, and whether it is probable the tax losses will be utilised in the foreseeable future. Refer to note 7.3 to the consolidated financial statements. • compared the previous management budget with actual results to assess the reliability of management’s forecasting; • considered the reasonableness of the assumptions in the year ending 30 September 2024 board approved operational plan on the forecast utilisation of tax losses; • assessed the Group’s ability to maintain sufficient continuity of the ultimate shareholders or to meet the business continuity test and therefore its entitlement to offset the tax losses against future taxable profits; and • determined whether it was probable (more likely than not) that the tax losses would be utilised in the foreseeable future. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 109 Independent auditor’s report (continued) Our audit approach Overview Materiality Group scoping Key audit matters Overall group materiality: $5.1 million, which represents approximately 1% of gross written premium from continuing and discontinued operations. We chose gross written premium as the benchmark because, in our view, it is the benchmark against which the performance of the Group is most commonly measured by users, and is a generally accepted benchmark for insurance companies. A full scope audit was performed for the Company based on its financial significance to the Group. Specified audit procedures were performed on financial statement line items of certain subsidiaries and analytical review procedures were performed on remaining Group entities. As reported above, we have three key audit matters, being: • Valuation of outstanding claims • Valuation of reinsurance recoveries on outstanding claims • Recoverability of the deferred tax asset arising from tax losses As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud. Materiality The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out above. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate, on the consolidated financial statements as a whole. How we tailored our group audit scope We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates. Other information The Directors are responsible for the other information. The other information comprises the information included in the annual report, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of audit opinion or assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 110 Independent auditor’s report (continued) Responsibilities of the Directors for the consolidated financial statements Who we report to The Directors are responsible, on behalf of the Company, for the preparation and fair presentation of the consolidated financial statements in accordance with NZ IFRS and IFRS, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements, as a whole, are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (NZ) and ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial statements is located at the External Reporting Board’s website at: https://www.xrb.govt.nz/assurance-standards/auditors-responsibilities/audit-report-1/ This description forms part of our auditor’s report. This report is made solely to the Company’s shareholders, as a body. Our audit work has been undertaken so that we might state those matters which we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for this report or for the opinions we have formed. The engagement partner on the audit resulting in this independent auditor’s report is Karen Shires. For and on behalf of: Chartered Accountants 23 November 2023 Auckland ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 111 Appointed Actuary’s report 23 November 2023 The Directors Tower Limited 136 Fanshawe Street Auckland 1010 Dear Directors Review of Actuarial Information contained in the financial statements As required by Section 78 of IPSA the Appointed Actuary, Geoff Atkins of Finity Consulting, has reviewed the actuarial information contained in, or used in the preparation of, the financial statements at 30 September 2023. Geoff Atkins and Finity have no relationship with or interest in Tower other than being a provider of actuarial services. I prepared the actuarial valuation of liabilities remaining from the Canterbury Earthquakes and reviewed the actuarial valuations of insurance liabilities for the New Zealand business and the Pacific Islands businesses. I reviewed the other actuarial information as specified by IPSA in Section 77, including the solvency calculations for the financial statements. No limitations were placed on me in performing the review and all data and information requested was provided. Nothing has come to my attention that would lead me to believe that any of the actuarial information contained in, or used in the preparation of, the financial statements is not appropriate. In my opinion the company has maintained a solvency margin in excess of the minimum required as at 30 September 2023. The report is being provided for the sole use of Tower for the purpose state above. It is not intended, nor necessarily suitable, for any other purpose and should only be relied on for the purpose for which it is intended. Yours sincerely Geoff Atkins (Appointed Actuary) Fellow of the New Zealand Society of Actuaries Anagha Pasche Fellow of the New Zealand Society of Actuaries ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 112 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Consolidated financial statements Corporate governance GRI content index Contents 113 CORPORATE GOVERNANCE AT TOWER ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 114 This section of the Annual Report provides an overview of the corporate governance principles, policies and processes adopted and followed by Tower’s Board (Board) during the year ending 30 September 2023 (FY23). Statutory disclosures Diversity Gender Diversity For the reporting period to 30 September 2023, the Board considers that Tower’s corporate governance practices have materially adhered to the NZX Corporate Governance Code (NZX Code). Further information about the extent to which Tower has complied with each of the NZX Code recommendations is set out in Tower’s corporate governance statement, available on Tower’s website at tower.co.nz/investor-centre. The below table provides a quantitative breakdown as to the gender composition of Tower’s Directors and Officers, and other employee groups as at 30 September 2023, compared to 30 September 2022, including subsidiaries. The Executive Leadership team includes the Chief Executive Officer and those employees who report directly to the Chief Executive Officer. The Senior Leadership Team refers to employees in remuneration band 8 and above. Total company figures exclude the Board of Directors, and include permanent and fixed term employees, and the employees of Tower’s Pacific Island subsidiaries: GROUP Board of Directors Males Females Gender Diverse Executive Leadership team Males Females Gender Diverse Senior Leadership Males Females Gender Diverse Employees Males Females Gender Diverse Total company Males Females Gender Diverse Total employees 30 SEPTEMBER 2023 30 SEPTEMBER 2022 % GROUP NUMBER % GROUP NUMBER 80% 20% 0% 70% 30% 0% 57% 43% 0% 35% 64% 1% 36% 62% 1% 4 1 0 7 3 0 23 17 0 281 513 6 311 533 6 850 80% 20% 0% 88% 12% 63% 37% 38% 62% 39% 61% 4 1 0 7 1 27 16 268 446 302 463 765 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 115 Evaluation from the Board on Tower’s performance with respect to diversity and inclusion Tower has a diversity and inclusion policy, focussing on: • Gender diversity • Age and career progression • Ethnicity and Pacific and Māori inclusion • LGBTIQ+ identification and inclusion • Accessibility In FY23, Tower has: • provided ongoing training and education to raise employee awareness of diversity and inclusion initiatives and associated benefits • maintained merit-based recruitment and selection, development and talent management approaches that encourage and support diversity and inclusion at all levels • created and maintained a flexible and inclusive work environment that values difference and enhances business outcomes • monitored and maintained focus on the diversity of our workforce at senior levels • embedded leadership behaviours that support its belief in the value of diversity and inclusion • promoted workforce involvement in employee representative groups Board and Committee Composition During FY23 the Board comprised the following members: Michael Stiassny (Chair) Graham Stuart Marcus Nagel Geraldine McBride (from 1 October 2023) Blair Turnbull (from 29 March 2023 - 17 November 2023) Warren Lee (until 30 November 2022) Wendy Thorpe (until 29 March 2023) Director Independence The Board has determined, based on information provided by directors regarding their interests, and criteria for independence benchmarked against the RBNZ and NZX independence requirements, that as at 30 September 2023 Mr Stiassny, Mr Stuart, and Ms McBride were independent. The Board determined that Mr Nagel was not independent due to his relationship with Tower’s largest shareholder. Mr Turnbull is an executive director and is not a member of any of the Board Committees. Board Committees During FY23 the Board had the following Committees: Audit Committee Members: Graham Stuart (Chair), Michael Stiassny, Warren Lee (until 30 November 2022), Wendy Thorpe (until 29 March 2023), Marcus Nagel and Geraldine McBride (from 1 October 2022). Risk Committee Members: Wendy Thorpe (Chair) (until 29 March 2023), Michael Stiassny, Graham Stuart, Marcus Nagel. Warren Lee (until 30 November 2022) and Geraldine McBride (from 1 October 2022) (Acting Chair from 29 March 2023). Remuneration and Appointments Committee Members: Michael Stiassny (Chair), Graham Stuart), Warren Lee (until 30 November 2022), Wendy Thorpe (until 29 March 2023), Marcus Nagel and Geraldine McBride (from 1 October 2022). Other Committees Tower’s Board may establish Sub-Committees from time to time. In 2023, a Results Sub-Committee was convened on two occasions. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 116 Board and Committee meeting attendance Director attendance at Board and Committee meetings held from 1 October 2022 to 30 September 2023 is set out below: Remuneration Director Remuneration BOARD AUDIT COMMITTEE RISK COMMITTEE REMUNERATION AND APPOINTMENTS COMMITTEE RESULTS SUB- COMMITTEE Meetings held Michael Stiassny Graham Stuart Warren Lee (until 30 November 2022) Wendy Thorpe (until 29 March 2023) Marcus Nagel Geraldine McBride Blair Turnbull 12 12 12 1 4 11 12 6 3 3 3 1 1 3 3 – 4 4 4 1 2 4 4 – 4 4 4 – 2 4 4 – 2 2 2 – – – – – All members of the executive leadership team have a standing invitation to attend all Board meetings, although they do not always attend the entire meeting. The Chief Executive Officer, Chief Financial Officer, Chief Risk Officer and General Counsel & Company Secretary attend all Audit Committee and Risk Committee meetings by standing invitation. The Chief Executive Officer, Chief Administrative Officer and General Counsel & Company Secretary attend all meetings of the Remuneration and Appointment Committee by standing invitation. The General Counsel & Company Secretary is responsible for taking accurate minutes of each meeting and ensuring that Board procedures are observed. The Board’s approach is to remunerate directors in a manner which is fair and reasonable in a competitive market, having regard to the skills, knowledge and experience required. At the Annual Shareholders’ Meeting in February 2004 shareholders approved a maximum payment of NZ$900,000 per annum for director fees. Tower seeks external advice when reviewing Board remuneration. The Remuneration and Appointments Committee is responsible for assisting directors with the review of directors’ fees. Remuneration is considered through the lens of the Director and Executive Remuneration Policy to ensure that directors and executives are remunerated in a fair and reasonable manner, and that such remuneration is transparently communicated to relevant stakeholders. Annual fees as approved by the Board with effect from 1 October 2020 are: TOWER LIMITED BOARD/COMMITTEE FEES Base fee – Board of directors Audit Committee Risk Committee CHAIR (NZ$) 180,000 MEMBER (NZ$) 100,000 10,000 (included in base Director fee) 10,000 (included in base Director fee) Remuneration and Appointments Committee – – The total remuneration received by each director for the year ended 30 September 2023 is set out below (NZ$, and exclusive of GST, if any): REMUNERATION AND BENEFITS RECEIVED BY TOWER LIMITED DIRECTORS IN THE YEAR ENDED 30 SEPTEMBER 2023 (NZD) Michael Stiassny Graham Stuart Warren Lee (retired 30 November 2022) Wendy Thorpe (retired 29 March 2023) Geraldine McBride Marcus Nagel 180,000 110,000 16,667 55,000 100,000 100,000 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 117 REMUNERATION AND BENEFITS RECEIVED BY TOWER SUBSIDIARY DIRECTORS IN THE YEAR ENDED 30 SEPTEMBER 2023 Employee remuneration Isikeli Tikoduadua, Director Tower Insurance (Fiji) Limited and Tower Group Services (Fiji) Pte Limited Barry Whiteside, Director Tower Insurance (Fiji) Limited Ernie Gangloff, Director Tower Insurance (PNG) Limited (retired 28 October 2022) 18,000 Fijian Dollars 20,000 Fijian Dollars $16,198.63 Kina The table below sets out the number of employees or former employees of Tower (excluding directors and former directors and employees of Tower’s subsidiaries) who received remuneration and other benefits valued at or exceeding $100,000 received during the financial years ended 30 September 2023 and 2022. Remuneration includes base salary, superannuation contributions, performance payments and redundancy or other termination payments. The remuneration bands are expressed in New Zealand Dollars: Directors of Tower Limited and its subsidiaries are reimbursed for out of pocket expenses incurred in the course of their activities as directors, including travel and other expenses. As these expenses are not in the nature of remuneration or benefits, they are not listed here. No employee of Tower Limited or its subsidiaries who acts as a director of a subsidiary receives any remuneration for their role as a director of that subsidiary. The number of employees who receive remuneration of more than $100,000 is included in the remuneration table on this page. Auditor fees paid on behalf of Tower and its subsidiaries are disclosed in the financial statements. CEO and senior executive remuneration The Board’s approach to remunerating the Chief Executive Officer and other key executives is to provide market based remuneration packages comprising a blend of fixed and variable remuneration, with clear links between individual and company performance, and reward. This approach is intended to encourage Tower’s executives to meet Tower’s short and long term objectives. The Remuneration and Appointments Committee reviews the remuneration packages of the Chief Executive Officer and the Chief Executive Officer’s direct reports at least annually. The Chief Executive Officer, Mr Blair Turnbull, is remunerated through a combination of a base salary of $657,588, (exclusive of a 3% Kiwisaver contribution) and variable performance incentives including a Short Term Incentive (STI) and a Long Term Incentive (LTI). The maximum STI is currently $328,944 per annum based on meeting key financial and non-financial and operational performance measures. The maximum LTI per annum is currently $986,832 (total) should Tower deliver Total Shareholder Return performance relative to the performance of companies within the NZX50 index. In FY23, Mr Turnbull was not awarded a STI or LTI payment. Mr Turnbull also received 939,840 unvested share rights pursuant to a long term incentive plan, details of which are included in the Corporate Governance Statement. FROM TO 2023 2022 FROM TO 2023 2022 100,000 109,999 110,000 119,999 120,000 129,999 130,000 139,999 140,000 149,999 150,000 159,999 160,000 169,999 170,000 179,999 180,000 189,999 190,000 199,999 200,000 209,999 210,000 219,999 220,000 229,999 230,000 239,999 240,000 249,999 250,000 259,999 260,000 269,999 270,000 279,999 280,000 289,999 290,000 299,999 300,000 309,999 26 24 34 25 15 26 11 4 6 3 6 5 3 6 3 1 0 2 3 0 1 23 33 23 27 18 9 5 11 11 3 1 2 1 1 1 3 2 0 3 1 1 310,000 319,999 320,000 329,999 330,000 339,999 340,000 349,999 350,000 359,999 360,000 369,999 370,000 379,999 430,000 439,999 440,000 449,999 460,000 469,999 470,000 479,999 490,000 499,999 530,000 539,999 610,000 619,999 670,000 679,999 700,000 709,999 850,000 859,999 2 1 1 1 1 1 1 1 0 1 1 1 1 0 1 1 1 0 0 0 0 1 1 0 1 1 1 0 0 0 1 0 1 0 Total 220 186 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 118 Security Holder Information Substantial product holders (as at 30 September 2023) The names and holdings of Tower’s substantial product holders based on notices filed with Tower under the Financial Markets Conduct Act 2013 as at 30 September 2023 are: NAME TOTAL ORDINARY SHARES Bain Capital Credit LP, Bain Capital Investments (Europe) Limited and Dent Issuer Designated Activity Company Salt Funds Management Limited Accident Compensation Corporation New Zealand Funds Management Limited on behalf of itself and its wholly owned subsidiary New Zealand Funds Superannuation Limited Pacific International Insurance Pty Limited 67,464,858 30,479,743 36,239,113 26,615,216 22,072,615 These totals may differ from the shareholdings described in other sections on this report. Largest shareholders (as at 30 September 2023) The names and holdings of the 20 largest registered Tower shareholders as at 30 September 2023 were: UNITS % UNITS 1. 2. 3. 4. 5. 6. 7. 8. 9. Dent Issuer Designated Activity Company 75,896,447 Citibank Nominees (New Zealand) Limited - NZCSD 47,507,398 Accident Compensation Corporation - NZCSD Pacific International Insurance Pty Limited Lennon Holdings Limited BNP Paribas Nominees (NZ) Limited - NZCSD Masfen Securities Limited HSBC Nominees (New Zealand) Limited - NZCSD JBWere (NZ) Nominees Limited 34,040,321 22,072,615 16,200,000 13,858,232 13,430,197 11,714,723 7,921,421 10. HSBC Nominees (New Zealand) Limited A/C State Street - NZCSD 7,758,895 11. Investment Custodial Services Limited 12. Public Trust - NZCSD 13. 14. JP Morgan Chase Bank NA NZ Branch-Segregated Clients ACCT - NZCSD Tea Custodians Limited Client Property Trust Account - NZCSD 15. BNP Paribas Nominees (NZ) Limited - NZCSD 5,415,647 4,725,000 3,778,374 2,988,997 2,536,016 16. New Zealand Depository Nominee Limited 2,185,275 17. Hobson Wealth Custodian Limited 1,920,963 18. HSBC Nominees A/C NZ Superannuation Fund Nominees Limited - 1,660,618 NZCSD 20. FNZ Custodians Limited Totals: top 20 holders of ordinary shares Total remaining holders balance 1,623,315 1,493,545 278,727,999 100,755,988 20.00 12.52 8.97 5.82 4.27 3.65 3.54 3.09 2.09 2.04 1.43 1.25 1.00 0.79 0.67 0.58 0.51 0.44 0.43 0.39 73.45 26.55 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 119 Securities held by Directors Total voting securities At 30 September 2023, directors, or entities related to them held relevant interests (as defined in the Financial Markets Conduct Act 2013) in Tower Limited shares as follows: Ordinary shares DIRECTOR Wongaling Pty Limited: (Geraldine McBride) Marcus Nagel Michael Stiassny Graham Stuart Blair Turnbull (retired 17 November 2023) Director trading in Tower securities BENEFICIAL 5,477 62 624,897 202,500 253,030 Tower’s constitution requires that its directors hold shares in the company. On 27 February 2023, Wongaling Pty Limited disclosed its purchase of 5,477 shares in Tower Limited. Ms Geraldine McBride is the beneficial owner of those shares. Shareholder analysis Tower’s shares are quoted on both the NZX and ASX. As at 30 September 2023, 16,713 Tower shareholders held less than A$500 of Tower shares (i.e. less than a marketable parcel as defined in the ASX Listing Rules), amounting to a total of 6,137,613 of the Tower shares on issue. In comparison, a ‘minimum holding’ under the NZX Listing Rules means a holding of shares having a value of at least NZ$1,000. As at 30 September 2023, 19,447 Tower shareholders held less than NZ$1,000 of Tower Shares (being, a parcel size of 1,613 at $0.62 per share), amounting to a total of 9,316,511 of the Tower shares on issue. ORDINARY SHARES NUMBER OF HOLDERS 30 September 2023 379,483,987 23,566 Tower’s ordinary shares each carry a right to vote on any resolution on a poll at a meeting of shareholders. Holders of ordinary shares may vote at a meeting in person, or by proxy, representative or attorney. The address and telephone number of the office at which the register of Tower securities is kept is set out in the directory at the back of this Annual Report. Spread of Shareholders (as at 30 September 2023) HOLDING RANGE HOLDER COUNT HOLDER COUNT % HOLDING QUANTITY (ORDINARY SHARES) HOLDING QUANTITY % 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total 17,514 4141 672 1015 195 23,537 74.41 17.59 2.85 4.31 .82 100 6,886,493 8,498,784 4,793,747 30,899,288 328,405,675 379,483,987 1.81 2.24 1.26 8.14 86.54 100 Indemnity and insurance In accordance with section 162 of the Companies Act 1993 and Tower’s constitution, Tower has provided insurance for and indemnities to, directors and employees of Tower for losses from actions undertaken in the course of their duties. The insurance includes indemnity costs and expenses incurred to defend an action that falls outside the scope of the indemnity. Particulars have been entered in the Interests Register pursuant to section 162 of the Companies Act 1993. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 120 Interests register Tower and its subsidiaries are required to maintain an interests register in which the particulars of certain transactions and matters involving the directors must be recorded. The interests register for Tower Limited is available for inspection on request by shareholders. Tower’s constitution provides that an ‘interested’ director may not vote on a matter in which he or she is interested unless the director is required to sign a certificate in relation to that vote pursuant to the Companies Act 1993, or the matter relates to a grant of an indemnity pursuant to section 162 of the Companies Act 1993. During the year to 30 September 2023, pursuant to section 140 of the Companies Act 1993 Tower’s directors disclosed new interests and cessations of interest as noted in the table below: Geraldine McBride Sky Network Television Limited (until 2 November 2022) My Wave Limited My Wave Holdings Limited Marcus Nagel 3Arrow AG Jarowa AG Michael Stiassny Bengadol Corporation Limited Emerald Group Limited Gadol Corporation Limited Geffen Holdings Limited Michael Spencer Limited Ngāti Whātua Ōrākei Housing Trustee Limited (until 16 February 2023) Ngāti Whātua Ōrākei Whai Rawa Limited (until 16 February 2023) Poukawa Estate Limited Ted Kingsway Limited Whai Rawa GP Limited (until 16 February 2023) Whai Rawa Kainga Development Limited (until 16 February 2023) LPF Group Limited MS10 Limited Morgan HoldCo Limited Remuera Investments Limited Director Director Director Director Director Director Director Director Director Director Director Chair Director Director Director Director Director Director Director Director Te Waenga Ltd Tegel Group Holdings Ltd New Talisman Gold Mines Ltd 2 Cheap Cars Group Limited Momentum Life Limited (from September 2023) Graham Stuart Leroy Holdings Limited EROAD Limited VinPro Limited NorthWest Healthcare Properties Management Limited Metro Performance Glass Limited (until 1 August 2023) H4G Group Limited, trading as Vet South and VetNZ Comhla Vet Limited Blair Turnbull (retired 17 November 2023) InsurtechNZ (until February 2023) Insurance Council of New Zealand IFSO Commission (from February 2023) Wendy Thorpe (retired 29 March 2023) Online Education Services Pty Limited Epworth Foundation (Epworth Healthcare) Australian Central Credit Union Ltd T/A People’s Choice Credit Union Epworth Geelong Limited Data Action auDA Warren Lee (retired 30 November 2022) MyState Limited MyState Bank Limited TPT Wealth Limited MetLife Insurance Limited MetLife General Insurance Limited Warakirri Asset Management Limited Warakirri Holdings Pty Limited Flinders Investment Partners Pty Limited Director Director Director Director Director Director Director Director Chair Director Chair Director Co-Chair Board member Industry Representative Chair Chair Director Director Director Director Director Director Director Director Director Director Director Director ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 121 Subsidiary Company Directors’ Interests Specific disclosures of interest Directors also disclosed the monetary value of dividends received during the year. NATURE OF INTEREST MONETARY VALUE Michael Stiassny Shareholder of 694,330 shares in Tower Limited Graham Stuart Shareholder of 225,000 shares in Tower Limited Wendy Thorpe Shareholder of 16,250 shares in Tower Limited Marcus Nagel Shareholder of 62 shares in Tower Limited Warren Lee Beneficial Shareholder of 120,500 shares in Tower Blair Turnbull Shareholder of 253,030 shares in Tower Limited 27,773 5,625 650 2 4,800 10,121 Based on a Dividend of NZ$0.04 per share declared on 23 November 2022 Based on a Dividend of NZ$0.04 per share declared on 23 November 2022 Based on a Dividend of NZ$0.04 per share declared on 23 November 2022 Based on a Dividend of NZ$0.04 per share declared on 24 November 2022 Based on a Dividend of NZ$0.04 per share declared on 24 November 2022 Based on a Dividend of NZ$0.04 per share declared on 24 November 2022 Barry Whiteside Kontiki Finance Pacific Catastrophe Risk Insurance Company Bayly Trust Fiscal Review Committee, Fijian Ministry of Finance Isikeli Tikoduadua Merchant Finance Vodafone Fiji Fiji Commerce Commission iTaukei Land Trust Board Special Administrators for Suva City and Lami Town USP MBA Advisory Committee Veilawa Rereiwasaliwa Bank of Baroda – Fiji Operations Angus Shelton Shelton Contracting Limited Ernie Gangloff1 Gangloff Consulting Limited Gangloff Projects Limited Pacific Training Consortium Limited BSP Financial Group Limited New Britain Palm Oil Limited Highlands Pacific Limited Business Incubation Solution Limited BSP Finance (Fiji) Pte Limited Institute of National Affairs Inc. University Rugby Football Union Club Capital Rugby Union Inc. Director Director Director/Trustee Member Chairman Director Commissioner Director Chairman Chairman Member, Local Advisory Board Director Managing Director Director Director Director Director Director Director Director President President Treasurer ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 122 Blair Turnbull Paul Johnston Ronald Mudaliar Blair Turnbull Paul Johnston Stephen Grant Ives Ronald Mudaliar Tower subsidiary company directors Directors of Tower’s subsidiary companies during the year to 30 September 2023 were: TOWER SUBSIDIARY COMPANY DIRECTORS Tower Services Limited Blair Turnbull Paul Johnston Angus Shelton TOWER SUBSIDIARY COMPANY DIRECTORS National Pacific Insurance (Tonga) Limited The National Insurance Company of New Zealand Limited Blair Turnbull Tower Insurance (Vanuatu) Limited Paul Johnston Angus Shelton Blair Turnbull Tower Group Services (Fiji) Pte Ltd Previously known as National Insurance Company (Holdings) Pte Limited Isikeli Tikoduadua (retired 24 April 2023) National Pacific Insurance (American Samoa) Blair Turnbull Southern Pacific Insurance Company (Fiji) Limited Blair Turnbull Paul Johnston Ronald Mudaliar Veilawa Rereiwasaliwa (from 24 April 2023) Tower Insurance (PNG) Limited (ceased to be a subsidiary on 28 October 2022) Tower Insurance (Fiji) Limited Tower Insurance (Cook Islands) Limited National Pacific Insurance Limited Isikeli Tikoduadua Barry Whiteside Paul Johnston Ronald Mudaliar Blair Turnbull Isikeli Tikoduadua Paul Johnston Barry Whiteside Ronald Mudaliar Blair Turnbull Paul Johnston Ronald Mudaliar Blair Turnbull Paul Johnston Ronald Mudaliar Ronald Mudaliar Paul Johnston Blair Turnbull Paul Johnston Ronald Mudaliar Ernie Gangloff ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 123 Other matters Donations During the financial year ended 30 September 2023, donations made by Tower Limited, and its subsidiaries totalled $1,000.00. Credit rating The New Zealand Overseas Investment Act 2005 and related regulations determine certain investments in New Zealand by overseas persons. Generally, the Overseas Investment Office’s consent is required if an ‘overseas person’ acquires Tower shares or an interest in Tower shares of 25% or more of the shares on issue or, if the overseas person already holds 25% or more, the acquisition increases that holding. The New Zealand Commerce Act 1986 is likely to prevent a person from acquiring Tower shares if the acquisition would, or would be likely to, substantially lessen competition in a market. In April 2023, global rating organisation A.M. Best Company affirmed Tower Limited’s financial strength rating of A- (Excellent). Corporations Act 2001 (Australia) Waivers Tower is not subject to Chapters 6, 6A, 6B or 6C of the Corporations Act 2001 (Australia) dealing with the acquisition of shares (such as substantial holdings and takeovers). Tower Limited did not rely on, or make any applications for, waivers from the NZX Listing Rules or the ASX Listing Rules in the financial year ending on 30 September 2023. The Annual Report is signed on behalf of the Board by: Trading Halts, Suspension, Cancellations and other Powers A trading halt was put in place pending the release of TWR’s full year results announcement, which was delayed due to the file size exceeding the NZX market announcement platform limits. The trading halt remained in place until the release of TWR’s full year results. Limits on acquisition of securities under New Zealand law Tower undertook to the ASX, at the time it granted Tower a full listing in July 2002 to include the following information in its annual report. Except for the limitations detailed below, Tower securities are freely transferable under New Zealand law. The New Zealand Takeovers’ Code prohibits a person (including associates) from increasing their shareholding to more than 20% of the voting rights in Tower except in accordance with the Takeovers Code. The exceptions include a full or partial takeover offer in accordance with the Takeovers Code, a scheme of arrangement (under the Companies Act 1993), an acquisition or an allotment approved by an ordinary resolution of shareholders, a creeping acquisition (in defined circumstances) and a compulsory acquisition once a shareholder owns or controls 90% or more of the voting rights in Tower. Michael Stiassny Chair Graham Stuart Director ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 124 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 125 GRI CONTENT INDEX ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 126 GRI content index Statement of use: Tower has reported the information cited in this GRI content index for the period 1 October 2022 to 30 September 2023, in accordance with the GRI Standards. GRI 1 used: GRI 1: Foundation 2021 DISCLOSURE LOCATION/INFORMATION DISCLOSURE LOCATION/INFORMATION GRI 2: General Disclosures 2021 2-1 Organisational details Pg 130 Tower Directory 2-2 2-3 Entities included in the organisation’s sustainability reporting Reporting period, frequency and contact point 2-4 Restatements of information 2-5 External assurance 2-6 Activities, value chain and other business relationships 2-7 Employees 2-8 2-9 Workers who are not employees Governance structure and composition Pg 130 Tower Directory Tower reports sustainability information annually. This report covers the period 1 October 2022 – 30 September 2023. This report was published on 23 November, 2023. Questions about this report can be directed to Emily.Davies@tower.co.nz This is Tower’s second report in accordance with the GRI Standard External assurance approach is covered in our Corporate Governance Statement which can be found in this link: https://www.tower.co.nz/ investor-centre/corporate-governance/policies/ We have not sought external assurance on our sustainability information. https://www.tower.co.nz/about-us/ 2-10 2-11 2-12 2-13 2-14 Nomination and selection of the highest governance body Chair of the highest governance body Role of the highest governance body in overseeing the management of impacts https://www.tower.co.nz/wp-content/uploads/2020/12/TOWER- Constitution.pdf Pg 58 Pg 49 Delegation of responsibility for managing impacts The board delegates day-to-day management of the company to the CEO and does not currently provide for any additional specific delegation of ESG impacts. Role of the highest governance body in sustainability reporting Pg 49 2-15 Conflicts of interest See Code of Conduct Policy in this link: https://www.tower.co.nz/ investor-centre/corporate-governance/policies/ 2-16 Communication of critical concerns See Corporate Governance Statement in this link: https://www.tower. co.nz/investor-centre/corporate-governance/policies/ Tower has 897 employees across New Zealand and the Pacific, 64% of whom are women, 35% are men, 1% are gender diverse, non- binary, or transgender. This is based on the 96% of staff who chose to disclose their gender. The numbers of permanent, temporary, full, and part-time employees broken down by gender and region is currently not available. As at 30 September 2023, Tower had 50 contingent workers who are predominantly independent contractors on either direct or agency contracts engaged in technology or project-based work. There were no significant fluctuations in this number during the reporting period. 2-17 2-18 Communication of critical concerns regarding ESG topics is unavailable. Collective knowledge of the highest governance body See Corporate Governance Statement in this link: https://www.tower. co.nz/investor-centre/corporate-governance/policies/ Actions to advance the collective knowledge, skills, and experience of the highest governance body on sustainable development will continue to be undertaken in FY24. Evaluation of the performance of the highest governance body See Corporate Governance Statement in this link: https://www.tower. co.nz/investor-centre/corporate-governance/policies/ Our Governance structure and composition, along with a list of committees of the highest governance body can be found here: https://www.tower.co.nz/investor-centre/corporate-governance/ the-board/ 2-19 Remuneration policies See Corporate Governance Statement in this link: https://www.tower. co.nz/investor-centre/corporate-governance/policies/ ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 127 DISCLOSURE LOCATION/INFORMATION DISCLOSURE LOCATION/INFORMATION 2-20 Process to determine remuneration See Director and Executive Remuneration Policy and Remuneration and Appointments Committee Terms of Reference in this link: https://www.tower.co.nz/investor-centre/corporate-governance/ policies/ 2-21 2-22 Annual total compensation ratio Not disclosed: information on annual compensation ratio is not reported externally. Statement on sustainable development strategy Pg 48 2-23 Policy commitments Relevant policies currently in place can be found here: https://www. tower.co.nz/investor-centre/corporate-governance/policies/ 2-24 2-25 Embedding policy commitments See Corporate Governance Statement in this link: https://www.tower. co.nz/investor-centre/corporate-governance/policies/ Processes to remediate negative impacts Pg 52-57 https://www.tower.co.nz/contact-us/complaints-and-compliments/ 2-26 Mechanisms for seeking advice and raising concerns Remediation process for our material impacts is covered under the relevant topics. See Code of Conduct Policy in this link: https://www.tower.co.nz/ investor-centre/corporate-governance/policies/ Staff are encouraged to raise concerns with their manager, or a senior leader. Tower’s whistle blower service provides a confidential avenue to report any serious concerns. 2-27 Compliance with laws and regulations In FY23 Tower recorded no significant instances of non-compliance with laws and regulations. Accordingly, there are no fines to report. 2-28 Membership associations Tower is a member of Insurance Council of New Zealand and is active in ICNZ’s Climate Change committee. Tower is also a member of the Sustainable Business Council. 2-29 Approach to stakeholder engagement Tower takes a collaborative approach to stakeholder engagement. Our company purpose and values have stakeholders at the heart, see pages 18 and 19. Similarly, our Southern Star drives outcomes for customers and our people, see ‘our vision’ page 19. Our ESG strategy was developed in consultation with a range of stakeholders and considers our impacts on various stakeholder groups. 2-30 Collective bargaining agreements None GRI 3: Material Topics 2021 3-1 3-2 3-3 Process to determine material topics Pg 51 List of material topics Pg 52-57 Management of material topics See material impacts table Pg 52-57, for all. GRI 305: Emissions 2016 305-1 Direct (Scope 1) GHG emissions 305-2 Energy indirect (Scope 2) GHG emissions Pg 50 Scope 1 emissions include distributed natural gas in New Zealand and vehicle fleet fuel in New Zealand and the Pacific. FY20 chosen as the baseline year as this was the first year Tower measured emissions. New Zealand emissions factors used were sourced from Ministry for the Environment’s (MfE) 2020 Measuring Emissions: A Guide for Organisations. Emissions for Pacific Island electricity use were sourced from emissionfactors.com and were derived from UN 2021 and IPCC 2006. Quantities of each greenhouse gas are converted to tonnes CO2e using the global warming potential from the Intergovernmental Panel on Climate Change (IPCC) Fourth Assessment Report (AR4). The time horizon is 100 years. Further information on methodology and assumptions is unavailable. Pg 50 Scope 2 emissions include electricity consumption from all business premises. See 305-1 for relevant disclosures on baseline year, emissions factors and methodology and assumptions. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 128 GRI content index DISCLOSURE LOCATION/INFORMATION DISCLOSURE LOCATION/INFORMATION 305-3 Other indirect (Scope 3) GHG emissions 401-3 Parental leave Pg 50 Scope 3 emissions include transmission & distribution losses for electricity & gas, air travel, hotel stays, rental cars, taxi travel, working from home, paper purchased (NZ only), waste to landfill (NZ only) and water (NZ and some Pacific locations). Tower recognises the extent of Scope 3 emissions is significant. We have chosen to declare the following emissions sources that have been excluded from our reporting: HFC emissions from refrigeration or HVAC (NZ and Pacific); employee vehicle claims NZ; transmission & distribution losses for Pacific electricity; waste generated in Pacific operations; value chain emissions from purchased goods & services, capital goods, transportation & distribution – upstream and downstream, employee commuting, use of sold products, investment portfolio. Tower will expand its measurement and reporting of scope 3 emissions in FY25. See 305-1 for relevant disclosures on baseline year, emissions factors and methodology and assumptions. Tower increased its parental leave offering in FY23 and expanded it to our teams in the Pacific. From July 2023, all Tower employees enjoy 16 weeks paid leave for primary carer leave (or maternity leave as it’s referred to in the Pacific), or four weeks paid partner’s leave for partners of primary carers. We also offer all employees compassionate leave and flexible working on return. Additionally, any annual leave taken on the employee’s return from parental leave will be paid at their usual rate. This is more generous than the current Holidays Act legislation and means take home pay is not affected when the employee takes paid annual leave. In FY23: 22 employees took parental leave (all female) versus 27 in FY22; 18 employees returned to work from parental leave during FY23 (all female); of these 16 are still employed 12 months after return to work (all female). 305-5 Reduction of GHG emissions Pg 50 2016 GRI 401: Employment 2016 401-1 New employee hires and employee turnover In FY23 Tower hired 294 new employees to address growth and attrition. These comprised permanent, fixed term and casual new hires. New hires by Gender: Female: 174, Male: 92, Gender Diverse: 1, Non Binary: 1, Not disclosed: 26. New hires by region: New Zealand: 140, Pacific: 154.Number and rate of new employees by age is currently unavailable. Over the period employee numbers increased by 97 full-time equivalent staff, from 790 in FY22 to 887 in FY23, due to the 2023 severe weather events and the development of our Customer Hub in Fiji. Employee attrition was 20.4% in FY22, reflecting a softening of the employment market in New Zealand and our decision to expand our Customer Hub in Fiji, which typically experiences lower level of employee movement. 401-2 Benefits provided to full- time employees that are not provided to temporary or part-time employees Benefits are offered to both full-time and part-time permanent employees. Tower benefits include Group Insurances, parental leave, ability to buy additional leave, birthday leave, Tower insurance discounts, health insurance discounts, partner discounts, eyesight testing, and study assistance. Occupational health and safety management system See Health and Safety Policy in this link: https://www.tower.co.nz/investor-centre/corporate-governance/ policies/ GRI 403: Occupational Health and Safety 2018 403-1 403-2 Hazard identification, risk assessment, and incident investigation Tower’s H&S Management System has an incident register where incidents are reported. When reporting, it is mandatory that all incidents are assessed and each incident must have corrective actions identified and implemented before being closed. Once reported, incidents are then reviewed by the Health and Safety Officer who investigates any incidents with a high rating. Workers are encouraged to report hazards and hazardous situations through the H&S system. Tower’s H&S Policy is in line with New Zealand’s Health and Safety at Work Act 2015. All workers have access to the Health and Safety Policy on Tower’s intranet. Tower workers have access to Employee Assistance Programme EAP counselling sessions provided by external trained counsellors. These sessions are arranged by workers independently and any information discussed is strictly confidential between EAP and Tower employees. If employees choose to get health checks, these are done directly with General Practitioners and results are kept confidential between the worker and General Practitioner. 403-3 Occupational health services ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 129 DISCLOSURE LOCATION/INFORMATION DISCLOSURE LOCATION/INFORMATION GRI 405: Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees Pg 114-115 405-2 Ratio of basic salary and remuneration of women to men Pg 38 GRI 418: Customer Privacy 2016 418-1 Substantiated complaints concerning breaches of customer privacy and losses of customer data. In FY23 Tower recorded no substantiated complaints concerning breaches of customer privacy and losses of customer data. 403-4 Worker participation, consultation, and communication on occupational health and safety 403-5 Worker training on occupational health and safety 403-6 Promotion of worker health As per the Health and Safety at Work Act 2015, Tower has a team of Health and Safety representatives from across the business. These representatives engage and consult with workers regularly and report any concerns to the Health and Safety Officer and/or at the regular Health and Safety meeting. Tower’s H&S Management system is reviewed by the Health and Safety Officer annually to ensure risks are kept up to date. Tower has several Health and Safety committees that meet monthly. Committee members are allocated specific time each month to undertake their responsibilities. Their responsibilities include but are not limited to; office inspections, disseminating H&S updates from the meetings to relative teams, ensuring H&S is on the agenda at team meetings and promotion of health, safety and wellbeing education and activities. Tower offers training to workers who volunteer to be First Aiders, Fire Wardens, Mental Health First Aiders and Domestic Violence First Responders. Additionally, Defensive Driver training every two years is mandatory for all workers, where their primary employment involves driving. Asbestos awareness training is mandatory for Building Assessors. Training is provided free of charge and workers are given paid leave to undertake all of the above training. Tower supports its employees that have non-work-related accidents through workstation assessments to ensure they have the necessary equipment to undertake their job. Where a return-to-work plan is required, Tower will work alongside ACC to facilitate a satisfactory solution for the employee. Health checks in the Pacific are done through a local General Practitioner, and the results are confidential and not shared with Tower. Tower offers employees access to several health promotion services including; EAP (online and in person), discounted flu vaccinations and access to trained Mental Health First Aiders (online and in-person). Tower promotes prevention of communicable diseases in the Pacific through education on symptoms, prevention and treatment. Our Rainbow network supports education on AIDS awareness and prevention. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 130 Tower Directory Enquiries For customer enquiries, call Tower on 0800 808 808 or visit www.tower.co.nz For investor enquires: Telephone: +64 9 369 2000 Email: investor.relations@tower.co.nz Website: www.tower.co.nz Board of Directors Michael Stiassny (Chair) Graham Stuart Marcus Nagel Geraldine McBride (from 1 October 2022) Blair Turnbull (from 29 March 2023 - 17 November 2023) Wendy Thorpe (until 29 March 2023) Warren Lee (until 30 November 2022) Mike Cutter (from 17 November 2023) Chief Executive Officer Blair Turnbull Company Secretary Tania Pearson Executive Leadership Team (at 30 September 2023) Blair Turnbull, Managing Director and Chief Executive Officer Paul Johnston, Chief Financial Officer Sharyn Reichstein, Chief Risk Officer Michelle Finch, Chief Revenue, Marketing and Brand Officer Andrew Hambleton, Chief Administrative Officer Anna Kooperberg, Chief Customer Experience Officer (on parental leave) Kieran Simmons, Chief Customer Experience Officer, (Acting) Ronald Mudaliar, Chief Underwriting Officer Steven Wilson, Chief Claims Officer Registered Office New Zealand Level 5, 136 Fanshawe Street, Auckland PO Box 90347 Auckland Telephone: +64 9 369 2000 Facsimile: +64 9 369 2245 Australia c/ – PricewaterhouseCoopers Nominees (N.S.W) Pty Ltd PricewaterhouseCoopers Darling Park Tower 2 Level 1 201 Sussex Street Sydney NSW 2000 Australia Auditor PricewaterhouseCoopers Lawyers MinterEllisonRuddWatts Banker Westpac New Zealand Limited Company numbers Tower Limited (Incorporated in New Zealand) NZ Incorporation 143050 NZBN 9429040323299 ARBN 645 941 028 Stock Exchanges The Company’s ordinary shares are listed on the NZSX and the ASX. On Wednesday 18 May 2016, Tower’s ASX admission category changed to “ASX Foreign Exempt Listing”. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 131 Registrar New Zealand Computershare Investor Services Limited Level 2, 159 Hurstmere Road Takapuna, Auckland Private Bag 92119 Auckland 1142 Freephone within New Zealand: 0800 222 065 Telephone New Zealand: +64 9 488 8777 Australia Computershare Investor Services Pty Limited Yarra Falls, 452 Johnston Street Abbotsford VIC 3067 GPO Box 3329 Melbourne Vic 3000 Freephone within Australia: 1800 501 366 Telephone Australia: +61 3 9415 4083 Email: enquiry@computershare.co.nz Website: www.computershare.com/nz Shareholders can also manage your holdings electronically by using Computershare’s secure website www.investorcentre.com/nz This website enables holders to view balances, change addresses, view payment and tax information and update payment instructions and report options. Tower recommends shareholders elect to have any payments direct credited to their nominated bank account in New Zealand or Australia to minimise the risk of fraud and misplacement of cheques. We also encourage shareholders to receive investor communications electronically, as delivery of our communications to you is faster and it is better for the environment. All you need to do is log in to www.investorcentre.com/nz and update your ‘Communication Preference’ to enable us to send all your investor correspondence electronically where possible. Please quote your CSN number or shareholder number when contacting Computershare. ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 132 ANNUAL REPORT 20232023 in review Weather events Our strategy Sustainability Consolidated financial statements Corporate governance GRI content index Contents 133 insightcreative.co.nz  TOW005 ANNUAL REPORT 2023tower.co.nz