Tower Limited (INDUSTOWER.BO) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Tower Limited Full Year Results Announcement Call 2025. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael Stiassny, Chairman of Tower. Please go ahead.

Good morning, and thank you for making the time to join us for this call and presentation of our 2025 full year results. With me in Auckland is our Chief Executive Officer, Paul Johnston; and Interim Chief Financial Officer, Angus Shelton, who will take you through the results and answer your questions. I think we can all agree that it's been a great year for Tower shareholders. FY '25 record underlying result demonstrates a strong business, delivering value today whilst continuing to build for tomorrow. This year, we returned $45 million of capital to shareholders, and I'm pleased to announce that we have declared a fully imputed final dividend of $0.165 per share. So combined with our interim dividend, this brings total dividends for the year to $0.245 per share. In considering this dividend, the Board wanted to distribute the benefit from lower large event costs to shareholders. The $0.165 per share dividend is made up of $0.075 per share from adjusted earnings, excluding large events, and an additional $0.09 per share reflecting the underutilization of the $50 million large event allowance in FY '25. These decisions underscore our commitment to consistently deliver returns backed by sustainable profit growth and a robust capital and solvency position. Whilst we celebrate these achievements, we are also mindful of the future. The unusually kind weather conditions and the absence of significant natural hazard events have undoubtedly contributed to our success, both this year and last. However, we know such conditions are not permanent. That is why we will continue to focus on what we control: investing in our digital platform, maintaining rigorous underwriting discipline, product innovation and leveraging technology, data and efficiency to drive performance. Our goal is clear: to build a business that is not only resilient but also deeply customer focused, ensuring we are well prepared for whatever lies ahead. We were the first insurer in New Zealand to announce the introduction of address-level risk-based pricing. Risk-based pricing enables lower pricing for low-risk customers while effectively managing exposure. We have maintained disciplined execution of our strategy, strengthened by strategic partnerships with the likes of Trade Me, Kiwibank, and from mid next year, Westpac, brand momentum with a new campaign that will help drive future growth. At the same time, we're investing in innovation technology and AI to position Tower for its next growth phase. These investments will enhance efficiency, deliver better customer experiences ensuring Tower remains competitive and relevant in a rapidly changing market. Before I hand over to Paul, I'd like to add a few additional words about Tower's risk-based pricing strategy and approach to public advocacy and sharing hazard information with customers. We see this as a competitive advantage for Tower and that it's increasingly driving real-world action. As an example, the South Dunedin Future project is an excellent model of community-led adaptation planning. The project actively sought to incorporate insurance considerations, including from Tower into its planning processes, which, in my view, should be applauded. I was not surprised to read the results of a recent nationwide survey by ICNZ that found 67% of respondents knew that natural hazards impacted their insurance premiums and almost 25% felt they did not have access to clear information about those hazards when owning or buying a property. This tallies with our own research which found that 86% of people surveyed consider it's important to have information about their property's risk profile. Whilst the National Adaptation framework aims to provide a way forward, by the time the details, by the time we work out who pays are hashed out for the average homeowner or buyer, it could be too little, too late. They need certainty and they want access to information now. The reality is there is a lot of data that it is already available at a cost, and most insurers are using it when they price risk. The Tower difference, and this is what I believe we should be very proud of is that we have chosen to make our insurance assessment of earthquake, flood, sea surge and landslide risks visible and accessible. For us, it's the right thing to do. Our experience aligns with the recent statements by Kris Faafoi, the ICNZ Chief Executive, that global reinsurers have made it clear that climate adaptation in New Zealand is not optional. Our view remains that risk-based pricing provides the strongest clearest indication of where adaptation measures are critical. That is why we have also shared our insights and demonstrated our hazard model to both local councils and central government to contribute meaningfully to the national climate adaptation conversation. Ultimately, I would like to see a New Zealand-wide database created that becomes the single source of truth and is accessible by everyone, a centralized authoritative data source to truly understand the perils our country faces at both a granular and regional level. It would be a most powerful tool to really drive and focus climate adaptation action. If used to guide smarter land use decisions and resilient infrastructure investment, it could help maintain cost-effective reinsurance and therefore long-term insurance accessibility in New Zealand. But most importantly, it would empower people and communities to make informed choices about where they live and how they build their family's futures. Food for thought. But back to today, FY '25 has been an exceptional year. We remain focused on building a business that is sustainable and resilient through the cycle and one that continues to deliver attractive returns for shareholders. I'll now hand over to Paul and Angus, who will take you through the results and outlook before we open for questions.

Kia ora, and good morning, everyone. Thank you for joining us for our 2025 full year results. Here is an overview of our presentation today, which will include the details of our record FY '25 underlying result and its key drivers. We will also provide an update on our strategic plan and the next phase of Tower's growth, which I'll begin with now. FY '24 and FY '25 were all about continuing to build stronger foundations under Horizon 1 of our strategic plan. During this phase, we focused on resilience and efficiency to position Tower for sustainable growth. We strengthened our core by building foundational strength, managing risk exposure carefully, driving operational efficiencies and investing in technology to improve processes and customer experience. At the same time, we worked hard to create an effective and distinctive culture that empowers our people and supports long-term success. These efforts, which I'll talk about in more detail shortly, have created a solid platform for the next stage of our strategy. We are now entering Horizon 2, where the focus shifts to innovation and transformation to accelerate growth. Tower has seen strong operational and business performance in the year. Gross written premium increased to $600 million and customer numbers grew strongly to 318,000. We also saw a substantial reduction in the BAU claims ratio while the management expense ratio remained stable and large events costs were low. These factors combined have led to a record underlying profit after tax of $107.2 million. Reported profit for FY '25 is $83.7 million. On the basis of these results, Tower will pay a fully imputed final dividend of $0.165 per share, bringing full year dividends to $0.245 per share. This compares to $0.095 per share last year in addition to the $45 million capital return. FY '25 was an exceptional year for Tower driven by favorable external conditions and the disciplined execution of our strategy. While the conditions provided a strong tailwind, we expect these to normalize in FY '26. Large event claims costs were just $7.2 million, significantly below the historical 10-year average. This benign weather environment also supported improvements in our BAU claims ratio and overall profitability. We delivered strong policy growth. However, the soft rating cycle, lower inflation and reduced claims from a lower risk portfolio led to a decline in average premiums. As shown in the chart on the right, effective average premiums fell sharply over the year as we moved quickly to adjust pricing to attract and retain quality risks in what remains a highly competitive market. This is a welcome relief for customers after the premium increases driven by COVID-related supply chain challenges and the 2023 weather events. Inflation has also come back returning to historical averages. This contributed to improvements in our claims performance. Motor theft frequency has reverted to pre-COVID levels following actions taken in prior years to reduce exposure to high theft vehicles, helping to lower claims frequency and severity in the Motor portfolio. Finally, reductions in the official cash rate have reduced investment income. These conditions, combined with our transformation initiatives, created a unique environment for FY '25. This chart provides context to Tower's performance over a 5-year cycle in which we've delivered consistent and sustainable improvements in underlying profitability, driven by disciplined execution and strategic investment. When we remove the cost of large events from underlying NPAT, the underlying trend is clear. Profitability has strengthened year after year, reflecting the impact of improvements we've made to the business. Profit has also been helped by more recent benign BAU claims experience in the last 2 years. Our FY '26 guidance for underlying net profit after taxes of between $87 million and $97 million, excluding large events, assumes the current soft rating cycle continues and the BAU claims ratio begins to return to more normal levels. Despite a soft rating cycle and intense competition, Tower achieved strong policy growth in FY '25. We welcomed 13,000 new customers, bringing our total to 318,000 and delivered 6% policy growth in New Zealand core products with strong 11% growth in house policies. This performance reflects our strategic focus on the House portfolio. House insurance customers typically hold more policies and stay longer. So prioritizing this segment strengthens both retention and profitability. Importantly, growth has come with improved risk quality. Our risk-based pricing strategy means we're growing in lower-risk customers. As a result, Tower's expected average annual loss from flooding has reduced by 21% on a per-policy basis and 16% overall, a significant improvement in portfolio resilience. We also strengthened our brand presence. Our new campaign, The Misses, launched during the year and resonated strongly with key audiences, winning Kantar's June 2025 Ad Impact Award. Looking at the graph, you can see the shift in risk count over the past 5 years. House policies have grown consistently with a sharp increase in FY '25, while the Motor portfolio has now returned to growth after a drop in FY '24 following actions to tighten risk appetite in late FY '23. This reflects our deliberate strategy to focus on high-quality risks and build a stronger, more resilient portfolio. In FY '25, we leveraged the benefits of increased scale by investing in strategic initiatives designed to deliver long-term value for Tower and our customers. These initiatives focus on driving greater efficiency, enhancing customer experience and supporting sustainable growth. This includes the launch of Amazon Connect, improving customer interactions and service delivery. We also introduced an integrated motor assessing system, which is cutting assessment times, reducing manual effort on claims handling and lower repair costs. Our digitization program is nearing completion with 79% of tasks now able to be completed online, making it easier and more efficient for customers to manage policies and lodge claims. We expanded risk-based pricing to include 2 new perils and started work on building our AI capability. These steps position us for greater efficiency and innovation in FY '26 and FY '27. Our innovative approach was recognized with the insurance business Five Star Insurance Innovator Award for the second year running in 2025. Delivering simple and rewarding experiences for our customers remains a core priority. And in FY '25, we made strong progress. Our Net Promoter Score rose to plus 44, up from plus 38 in FY '24, reflecting the impact of our digitization program and operational improvements. We also improved telephony performance with sales and service abandonment rates dropping to an average of 7%, down 1% year-on-year as we streamline processes and expanded digital capability. Digital adoption overall continues to improve. In New Zealand, 63% of sales, 51% of service tasks and 70% of claims lodgements are now completed online. At the same time, 59% of customers are registered for My Tower, up from 53% last year, showing strong engagement with our digital platform. Our Suva Hub continues to deliver efficiency benefits, now handling 83% of New Zealand sales and service calls compared to 55% in FY '24. This scale improvement is helping us deliver faster, more consistent service. Finally, we were proud to be recognized as the insurance sector award winner at the 2025 CRM Contact Center Awards New Zealand, reinforcing our customer focus. I will now hand you over to our Interim Chief Financial Officer, Angus Shelton, who will talk you through the details of our financial performance for this year.

Thank you, Paul, and good morning, everyone. Gross written premium grew by 2% compared to FY '24, driven by strong policy volumes. This growth was tempered by lower average premiums as Tower prioritized attracting low-risk customers and maintaining competitive pricing. The BAU [Technical Difficulty] and relatively benign weather conditions throughout the year. Large event costs for the full year were $7.2 million. The MER remained stable at 31% as we reinvested improvements from increased scale into technology and growth initiatives. We are reporting an underlying NPAT, including large events of $107.2 million, a strong uplift from the prior year and a reported profit after tax of $83.7 million, up from $74.3 million in FY '24. Reported profit includes strengthening of provisions for Canterbury earthquake claims, customer remediation costs and some software impairment. Here is the bridge between underlying NPAT in FY '24 of $83.5 million and underlying NPAT of $107.2 million in FY '25. You can see that business growth driven by higher net insurance revenue contributed $9.5 million. BAU claims improvements due to prior year rating and fewer than expected claims due to weather and lower motor frequency added a further $25.1 million. Partly offsetting these gains were the movement in large event costs year-on-year and $4.1 million after tax of increased strategic investments aimed at delivering future growth and efficiency. Overall, these factors have driven a strong uplift in underlying NPAT year-on-year. Despite strong volume growth, the softer rating environment impacted GWP growth, which was 2% year-on-year. Within this, House GWP grew strongly at 10%, driven by an 11% increase in policies, reflecting our strategic focus on the House portfolio. On the other hand, Motor GWP declined by 5%. While Motor policies grew by 2%, we reduced premium rates to balance margin and growth in a competitive market. Our partnerships channel delivered 12% GWP growth and overall New Zealand retention improved to 78%, up from 77% in FY '24. On the right, you can see the growth in total GWP over time, which has increased steadily from $404 million in FY '21 to $600 million in FY '25. In FY '25, we saw a significant improvement in claims performance with the BAU claims ratio reducing to 41.3%, down from 48.1% in FY '24. This improvement reflects prior year premium growth earning through and a flattening of both severity and frequency trends. As shown in the graphs, Motor claims frequency eased to 11.8% and severity moderated to $3,156 per claim, following prior actions to reduce exposure to high theft motor policies. Efficiency initiatives such as reducing reliance on external accesses also helped to contain costs. House claims frequency increased to 7.4%, driven by more small weather-related claims while severity remains stable at $3,954 per claim supported by a less inflationary environment and improved risk selection. Finally, large event costs for the year were $7.2 million, reflecting the relatively benign weather conditions. We can see that the management expense ratio remained at 31.4% in FY '25, consistent with FY '24. While we saw improved efficiencies of scale from business growth, which contributed a 2.1% reduction in MER, this was offset by increased investment in strategic and foundational initiatives to improve growth, efficiency and resilience, which added 1.1%. There was also a 0.7% increase from timing differences related to deferred acquisition costs and a further 0.3% increase from staff and other costs. These cost increases are largely linked to inflation and growth initiatives, but importantly, they remain below the rate of inflation, thanks to efficiencies from digitization and the Suva Hub. In FY '25, net investment income was $19.2 million, which is $2.4 million lower than FY '24. Tower continues to maintain a conservative investment strategy focused on high credit quality and liquidity with a target duration of around 6 months for the core investment portfolio. This approach has helped mitigate volatility from macroeconomic factors and mark-to-market movements while allowing us to benefit from higher interest rates earlier in the cycle. However, as you can see on the left, the running yield on the core portfolio has declined steadily finishing the year at 3.1%, down from its peak of over 6% in early FY '24. With interest rates now well past their peak, we expect yields to remain suppressed and continue to trend in line with OCR movements. The 2 key nonunderlying items, which impacted reported profit in FY '25 were Canterbury earthquake provisions and customer remediation costs. Starting with the Canterbury earthquakes. We continue to settle claims with 25 claims closed during the year, but we also received 22 new overcap or reopened claims from the NHC, which is 7 more than FY '24. This higher-than-expected inflow resulted in the total number of open claims only falling slightly from 30 September 2024 to 13 at 30 September 2025. Because these new claims came in at a higher rate than we've seen recently and with average costs trending above historical levels, we strengthened our outstanding claims provision to allow for the possibility of more new or reopened claims in the future. As a result, FY '25 includes an adverse Canterbury earthquake charge of $7.9 million after tax recorded as a non-underlying item. We continue to work closely with NHC to identify potential overcap claims earlier and with our specialist team to finalize outstanding Canterbury claims as efficiently as possible. On customer remediations, we incurred a $10.9 million after-tax charge, which includes further provision for remediating customers and the costs associated with delivering the remediation programs. Investigating and resolving historical errors remains complex and resource-intensive, often requiring as much investment in analysis and confirmation as the remediation payments themselves. That's why we're investing in systems and processes to ensure we get it right for the future. In FY '26, Tower has successfully renewed its reinsurance program, securing comprehensive cover at competitive rates. The program includes catastrophe reinsurance of up to $915 million for 2 events, an increase from $800 million in FY '25, to meet the requirements of our growing House portfolio and continued cover for a third event of up to $85 million. The retention for catastrophe events has increased slightly to $20 million following the expiry of multiyear arrangements. We've also made a structural change for large individual property risks, moving from proportional cover to excess of loss, which reduces reinsurance premiums while maintaining strong protection for large claims. As a result of these changes, reinsurance premium expense is expected to reduce to an estimated 11.3% of GWP in FY '26, down from 13.4% in FY '25. This reduction will be partly offset by lower recoveries on property risks previously ceded under proportional treaties. We've also deepened partnerships with global reinsurers with several committing to new multiyear agreements, providing greater certainty around future costs and catastrophe excesses. For FY '26, we have set a large event allowance of $45 million, down from $50 million in FY '25, which reflects our improved risk selection. The storms across New Zealand in late October 2025 will be recorded as a larger event in FY '26 with an estimated cost of $4.5 million. Tower's capital and solvency position remains strong, supported by prudent capital management and a reaffirmed A- financial strength rating by A.M. Best in April 2025. During the year, we transitioned to the second amendment to the Reserve Bank's interim solvency standard, and our solvency ratio is now 143%. The change from last year includes the $45 million capital returned to shareholders, profit and regulatory capital movements and the FY '25 dividends. Adjusted solvency margin as at 30 September 2025 is $89 million, which is net of the final dividend of $0.165 per share. Tower continues to maintain a strong capital position and the financial flexibilities to support growth while continuing to meet regulatory requirements. Thank you. I will now hand back to Paul, who will provide an update on our guidance and near-term priorities.

Thank you, Angus. We are now moving into the next phase of our strategic plan, one centered on innovation and transforming our offerings. Horizon 2, spanning FY '26 and FY '27 is focused on sustainable growth and delivering a leading customer experience, supported by investment in customer data, digitization and innovation. We will embed AI where it adds value and efficiency while carefully managing risks. As always, we remain committed to consistently improving earnings while leveraging the efficiencies and resilience we've built in Horizon 1. Looking further ahead to FY '28 to FY '30, our ambition is to broaden growth through new channels and innovative products, moving from being a market challenger to a market leader. This means continuing to build a leading brand, driving a highly automated and digital business model and delivering personalized customer experiences at scale. I'll take you through some of the specific initiatives that will drive this transformation in the following slides. We're targeting more than $750 million in GWP by FY '28 through organic growth. And in FY '25, we delivered a number of initiatives to get us there. A major milestone is our new partnership with Westpac New Zealand starting July 2026. This partnership will expand our reach and support our future growth. We will also be offering insurance to a portfolio of Kiwibank customers currently insured by Ando during the next 18 months. On the brand side, we've launched a bold new campaign, The Misses. This campaign reinforces Tower's position as a modern digital first insurer and builds emotional connection with customers. We've also implemented sea surge and landslide risk-based pricing, which we expect to help attract new customers and improve retention through lower pricing. Finally, removing the multi-policy discount will help simplify our policy sales and management processes. Tower remains committed to providing fair, transparent and competitive pricing, and we will continue to review our pricing to deliver value to customers. Innovation is central to our strategy for delivering a simpler, smarter and more rewarding customer experience while driving efficiency across the business. By FY '28, we're targeting 80% of sales servicing claims lodgement tasks to be completed through digital channels. This shift will make interactions faster and easier for customers while reducing cost and complexity for Tower. Our investments in digitization will be key to achieving this goal. We plan to build a customer data platform that lays the foundation for our vision of hyper-personalized service, a future where we can surface relevant insights about each customer to suggest products, services and benefits tailored to their unique needs and situation. This will help customers get the best cover and value for their circumstances. Alongside this, we plan to roll out AI-driven process automation to streamline workflows and transform claims management with a new house assessing platform. Our partnership with Amazon Connect will help deliver best-in-class enhancements to our contact center. Finally, we will invest in product innovation to meet emerging customer needs, particularly in the context of climate change. Looking ahead to FY '26, we are targeting gross written premium growth of between 5% and 10%, with a management expense ratio expected to remain between 31% and 32%. This will deliver underlying NPAT, excluding large events, of between $87 million and $97 million. Our FY '26 large events allowance is $45 million. We are targeting a combined operating ratio of between 86% and 88%, supporting strong underlying profitability. Assuming full utilization of the large events allowance, underlying NPAT is expected to be between $55 million and $65 million, with any unused portion of the large events allowance flowing through to improve the full year result. Reported NPAT will be impacted by nonunderlying items related to remediations and costs associated with regulatory change. Looking further ahead, we have disclosed medium-term targets for FY '28. As the insurance cycle stabilizes and strategic initiatives deliver, we expect GWP to reach $750 million or more, representing a cumulative annual growth rate over the next 3 years of over 7.5%. We also expect the management expense ratio to improve to between 28% and 30% and a combined operating ratio target of between 85% and 87%. These targets reflect our confidence in the strategy and the strong foundations we have built, positioning Tower for sustainable growth and long-term value creation. Thank you for your time this morning. I'll now hand back to the operator to ask for questions.

[Operator Instructions] First question comes from Kieran Carling from Craigs Investment Partners.

Great result. Well done. First question from me is just on your guidance for FY '26. Fair to say we've seen a fair bit of pressure on rates through FY '25, which now appear to be stabilizing. But can you talk us through your key assumptions for FY '26 when it comes to the rate environment and then the expected contribution from the Kiwibank back book and also the new Westpac partnership?

Yes. Thank you, Kieran. So as you've mentioned, rates have gone down this year. We're expecting those to start to normalize into next year. So moving from a position where they were decreasing to flattening out. We have some confidence in our ability to continue growing our portfolio, particularly of house customers. And we will benefit from the Westpac partnership in the last quarter of the year. And also, as you mentioned, we are referring a back book of Kiwibank customers currently insured by another insurer over to us in that last quarter as well. So we're looking for that growth target next year to come mainly from policy growth rather without contribution from rate.

Great. Just to elaborate on that, are you able to quantify what GWP growth you're expected to get from that Westpac partnership? If I understand correctly, you're not getting access to the back book from IAG. So can you just help break down what contribution you're expecting?

You're correct. We're not planning to get any revenue from the back book. It is just for sales of new business from 1st of July, and I'm not in a position to comment on the GWP.

Okay. But fair to say that you're not expecting any real rate growth at all in FY '26?

That's correct. The growth in FY '26 will come from volume, not from rate.

Okay. Next question is just on the management expense ratio. So you were previously targeting below 26% in FY '27. And then back in May, that shifted to below 28%. And now we're seeing guidance for FY '28 at 28% to 30%. So I appreciate that you've seen some staff cost inflation. There's some strategic investments being made, but what's driven that latest increase? And I guess, is it fair to assume that the management expense ratio will stabilize around that 28% to 30% in the medium to long term?

Yes, we're definitely still targeting 28% to 30% in the medium to long term. On the journey there, we've put in guidance of 31% to 32% for FY '26. There's very little impact from inflation within that number, although obviously, there is some from salary costs and the nature of that. Largely, that increase reflects us investing in growth. So that's both the various initiatives that we've discussed in relation to our technology investments, particularly our contact center and our claims transformation as well. There's also growth associated with those new partnerships that we've announced, particularly the Westpac partnership. And we're investing more spend in brand and marketing with our new brand campaign. So we're increasing the spend year-on-year in marketing costs.

Okay. But just in relation to the last targets you released, which was below 28% in FY '27. What's changed since May when that target was released?

Probably one of the factors that's driving that change is the Westpac partnership. So the management expense ratio we report there does include the commissions payable to partners. And with Westpac, we expect to be increasing the amount we pay in commissions. Also, our view on future spend, both on technology and on brand has changed to warrant more investment in those areas.

Okay. And then I guess just going back to GWP because I think it's quite an important topic. Factor them into your longer-term growth assumptions, we saw the Westpac partnership announced earlier this year, which has obviously been in the works for quite some time. Do you have any other partnership agreements, which you're baking into those longer-term assumptions that we don't know about today?

Well, certainly, when we look at our growth of the medium to long term, we are looking to bring on new partners. Tower is always looking to obtain growth from that.

Okay. And I might just ask one last question. You've lowered your large event allowance from $50 million to $45 million. I appreciate that your reinsurance costs have come down a little bit. But can you just talk us through the rationale behind that, I guess, particularly given your excess for large events has increased year-on-year from '25 to '26?

Yes. So we're continually reevaluating those expenses, and it builds on the trends we have seen. And clearly, we've had a couple of years of benign large events. So looking at that long-term information that drives our guidance has changed slightly there. There is also definitely a significant improvement in our risk exposure, particularly for flood, and we've seen the average asset at risk -- average annual losses, sorry, reducing for that. So we expect probably slightly less frequency of large events than we had previously, but we're also expecting some benefit to lower cost of large events through that improved risk selection.

[Operator Instructions] Next question comes from James Lindsay from Forsyth Barr.

Congratulations on the result. Maybe if I just start carrying on in that last phase. You'll obviously move from 87% to 91% with housing at low risk, and that's driven that 21% decrease in flood costs. What are you targeting to get that percentage to over the next year? And could that drive a couple of years out a further reduction in that large events allowance from $45 million?

So yes, you're right. We've definitely -- good morning, James, I should say first. We've definitely seen an improvement in loss expectations around flood. Probably for flood, we've reached the sort of position that is our target. So we've got that increased benefit coming through from that. What we would expect to see in the next 1 to 2 years is the benefit of the risk-based pricing changes that we made earlier this year for landslip and for sea surge. They're not a significant perils as flood is but we would expect to see some improvement in the risk profile for both of those hazards, which should have driven an improvement in future years.

And just on the flood -- sorry, the sea surge changes you've made, how many policies would you think that will sort of be moved off the books because of those changes?

We're expecting on the whole, probably pretty small movements in terms of policy numbers, but it will likely result in a bit of a decrease in average premiums as some of those customers have larger premiums and because we're reducing premiums for around 90% of our customers due to the new risk-based pricing.

Obviously, well done on the NPS scores. It's nice sort of level it is at. Just interested in your view if that helps improve retention as well. I mean that ticked up 1%. But would you expect that to be lifting more given the NPS improvement?

James, Paul here. We absolutely are looking for small improvements in retention as we go forward. It does vary very much by portfolio. But fundamentally, the better customer service that we can offer, then we do expect that to flow through to retention. And so that improvement in customer service as represented by NPS has helped our retention this year. Absolutely.

And obviously, you've given some information with regard to the development in AI with sort of talking about improving workflows and processes and the contact center. So is it all cost out rather than sort of new product or sort of customer experience -- what's -- where is the benefit really in dollar terms versus the spend? Just interested in your view?

Yes. Good question. The first thing to say is that every bit of AI investment that we do is very targeted with an ROE on it and so -- ROI, sorry. And that ROI, though, does split itself between customer improvement benefits driving revenue improvement or between cost out benefits as well. And so some of that future year management expense ratio reduction will be enabled by a lot of what we're doing this year in AI.

Yes. Got it. And then actually, just going back to the Westpac deal, I understand the question before with regard to sort of the back book. What ability do you have about providing sort of updated pricing to those existing Westpac customers? Is there any marketing allowed to the back book? Or just trying to understand about the nuances of new versus the old customers, at least having an opportunity to look at your pricing? Are you allowed any contact with them at all?

So we can in partnership with Westpac can market generally across their entire customer base. And so if there are customers with existing policies within receiving that marketing and they're interested in taking out a policy, we can issue them a policy. We're just not able to do targeted marketing to that particular portfolio of customers, but they are captured within the general marketing audience and also if they would happen to go into a branch and talk to a personal banker for any reason, they might choose to have a conversation with that personal banker about insurance, and we would be able to deliver that then.

Yes, got it. It was a nuance I was trying to say is that you're actually allowed to, from a Westpac perspective, e-mail them with, "Hey, have you reviewed your policies, et cetera," and that's an allowed activity.

No, that's not quite correct. What I was saying is those sort of general marketing campaigns, we are able to send out to the entire base.

Got it. Again, well done. Actually, just last one, just on the dividend and capital position. Obviously, a big uplift in sort of more than 100% of EPS payout for the period. Sort of your view about the 143% from a capital perspective about what is a reasonable range under the new guidelines?

So that $89 million worth of solvency margin is just above our target solvency margin. We're happy with having a solvency position at that level. But obviously, as the business grows, we would need some additional capital for business growth, which would increase our target solvency margins. So we'd expect that number to increase a little with business growth in future years.

Got it. And maybe just a last one for me, just with regard to the sort of nuances. Obviously, Motor has been -- on pricing has been under a lot of pressure. Has there been any alleviation of the pressure there? Or any sort of update on the specifics of Motor versus dwelling pricing?

Yes. James, most definitely -- the pricing has been driven by both our changing view of the technical view of price. So that's sort of our underlying claims expenses, but also the sum insureds of motor vehicles. And we are starting to see a drop in the reduction in sum insureds of motor vehicles. And then also we are we're looking at what our technical price is all the time, but at the moment, we're kind of happy with that level. So we're not looking to change that too much, but this is the change in motor vehicle, sum insureds will start to flatten that out. And as Angus said earlier to a previous question, we're expecting pricing to be reasonably flat this year.

Thank you for all the questions. This concludes the Q&A session. I will now hand back to Michael for closing remarks.

Well, not many questions. So thank you, everyone, for taking part and well done to management on a great year.