Tower Limited (TWR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Tower Limited Half Year Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Mr. Michael Stiassny, Chairman of Tower Limited. Thank you, sir. Please go ahead.

Good morning, everyone, and thanks for making time to join us this morning. With me in Auckland is our Chief Executive Officer, Richard Harding; and our Chief Financial Officer, Jeff Wright, who will take you through our half year results and answer any questions. Before I go any further, it is only appropriate that I acknowledge these difficult and challenging times that we all find ourselves in, and especially for our team at Tower as yesterday, you will note, we announced some proposed changes that will impact on our people and our operating model. These types of changes are never easy for anyone involved, and we are doing what we can to support our people through this process. Richard will go into this in more depth shortly. About 5 years ago, Tower embarked on a transformation to reposition itself as a digital challenger brand. We believe that underpinned by a customer-focused, digital-first strategy, Tower would step up to successfully compete in the 21st century insurance marketplace. This belief has not been misplaced. And while transformation is never easy, Tower is delivering on its ambitious plan to have New Zealanders and Pacific Islanders see us in a new light and setting the bar for how insurance should be. This is borne out by the continuing delivery of improved results over the past few years. The business has been simplified and is growing with more customers choosing to insure with Tower. Our new IT platform continues to deliver benefits with customers using our digital channels to engage with and purchase Tower products and manage their insurance online. It is proof that our confidence in user-friendly technology, coupled with a genuine customer-centric focus, is well placed. Digital technology is now at the heart of our business and will be a vital enabler as we continue to challenge industry norms. As I've said, we are living in unprecedented times. And for many of us, there is significant uncertainty about what the future holds. Actually, there is actually significant uncertainty for all of us as to what the future holds. Fortunately, insurance is an inherently strong and resilient industry. And post-transformation, Tower is now in a far better position to respond well to the post-COVID challenges. However, no business can be completely immune to the impact of the global economic downturn that we are experiencing, and accordingly, our plans must adjust. Therefore, our focus has sharpened on managing our cost base in order to continue to deliver shareholder value. And as I've said, Richard will talk about this shortly. Another small aspect of managing our cost base has been simplifying our corporate structure. On Monday, we announced we are addressing the complex structure of holding companies and related entities relating to previously divested business units. This change will have no impact to our shareholders, to our insurance license or result in any changes for our customers but is another important step in driving further business efficiency. For years, we have promoted the concept of raising the bar within the industry. Simply speaking, this means doing the right thing. We believe this is essential if the industry is to regain the trust of New Zealand public. In this regard, Tower has committed to not making a windfall gain from COVID-19. As a shareholder of Tower, you can be proud of the support that we have offered our customers and our decision to refund motor customers a portion of their premiums. This is a cost-neutral decision but clearly demonstrates our fundamental belief that people, our customers, deserve better. Following the capital raise in 2019 and the change in Tower's license condition, Tower remains very well capitalized with a solvency ratio of 280%. Tower's Board and management team remain strongly committed to paying dividends and to the efficient management of capital. However, the Reserve Bank of New Zealand has advised the financial sector to protect our solvency positions and preserve capital in light of the COVID-19 disruption and uncertain economic outlook. Given the RBNZ's position, Tower's Board has determined that no first half dividend will be paid and any second half dividend will be determined in line with the company's full year results whilst considering the economic conditions at the time. As you know, Richard finishes with us on 1 August 2020. As this is his last results presentation, on behalf of the Board and the staff and indeed the shareholders, I would like to thank Richard for his efforts. Richard has successfully led Tower's transition from a traditional, even a bit boring insurer to one that is profitable, nimble and ready to disrupt and challenge the industry. That has been no small feat. Richard has also built a skilled management team who are committed to completing and continuing to leverage Tower's digital transformation. The addition of incoming CEO, Blair Turnbull, will allow us to amplify our digital challenger strategy even more. Blair has an enviable CV, achieving outstanding results for the national and international organizations for whom he has worked. Importantly, he has a proven global track record in large-scale digital and data innovation and delivering disruptive customer-focused model. Blair will begin with us on 1 August 2020 subject to completion of regulatory approval processes. It's now my pleasure to hand over to Richard and Jeff, who will take you through the results and outlook in much further detail. Thank you.

Thank you, Michael, and good morning, everybody. Thank you all for joining us this morning, and I hope that you're all staying well in these unprecedented times. Tower continued to deliver positive results with a strong first half performance. Our reported results of $14.9 million is a $3 million improvement on the same period last year and proof that our strategy is paying off. In my time at Tower, we have worked to completely transform the business by fixing the foundation and building new digital capability. It is pleasing to see we continue to grow the business by challenging and breaking industry norms. Our determination to deliver something better to customers has been noticed, and we continue to deliver solid growth. Gross written premium in the core New Zealand portfolio increased by 11.9% with 8.3% attributable to organic growth and the remaining 3.6% representing the first quarter of the Youi New Zealand portfolio. Total GWP reached $183.6 million across New Zealand and the Pacific, a $14 million improvement on the same period last year, thanks in part to continued strength of our digital sales channels. Continued implementation of risk-based pricing, along with improved underwriting and a reversion to more benign weather patterns, has seen claims ratio stabilize. Excluding large events, our claims ratio stabilized at 44.6%, a 0.2% increase from the 44.4% in the first half of 2019. The Timaru hailstorm was a large event that saw our total claims expense ratio increase slightly to 46.4%, a 1.9% increase on the first half of '19. Our Pacific business continues to deliver solid and profitable growth. Improved underwriting and a benign weather environment in the first half drove a positive outcome. However, this will be impacted by Tropical Cyclone Harold claims in the second half. In the first half, an increase to the provisions for legal fees relating to the litigation of the EQC receivable resulted in a $1.1 million after-tax expense, which Jeff will provide more detail on later in the presentation. Last year, we successfully delivered and launched our new IT platform, and we're now over halfway through migrating customers to the new platform and rationalizing them onto new products. We continue to closely manage this process and support our customers through the change and, as a result, are seeing retention rates in line with regular renewal cycles. Given the emergence of COVID-19 in March, the results delivered in the first half demonstrate the strength of our strategy, and we're now in a good position to respond to an uncertain environment. As the only New Zealand listed insurer, we're now focused on offering customers a better alternative, and this focus is driving solid growth in our core book. As I mentioned earlier, our continued momentum has driven solid GWP growth with GWP growing across all New Zealand portfolio. Including the first quarter addition of the Youi New Zealand portfolio, GWP in New Zealand house grew 4.6%, split evenly between volume and rating, New Zealand contents grew 9.6%, with the majority attributable to rating partly due to the EQC levy changes, and New Zealand motor growing 14.7% driven by volume and growth. This is being achieved through a combination of factors, including continued execution of our risk-based pricing and similar -- and simpler policies that customers can understand, constant refinement of underwriting criteria enabling more granular assessment, stable retention through our digital and phone channels, attracting new profitable customers with improved and targeted offerings. The growth we have achieved is a result of offering customers simpler insurance at a fairer price and realizing the potential of the Tower brand. It is pleasing to report that we are now experiencing sustainable growth across the Pacific region, and Jeff will speak to you in more detail on this shortly. In 2016, we began our digital transformation journey. And since then, I've consistently said that digital will drive the future growth of Tower. We've continued to place significant effort into improving this channel's performance and attracting new customers. Our efforts to become a digital insurer continue to reap rewards, with almost 60% of new business coming through our digital channels in March 2020, and this compares to less than 10% during 2016. We've delivered significant growth with GWP through digital channels reaching $24.9 million in the first half, and this is thanks to our continuous improvement focus on those digital channels. Our recently improved digital claims lodgment process and innovations like our claims chatbot, Charlie, has resulted in over 40% of claims being lodged online in March 2020. And recently, we launched our full self-service offering, and this has resulted in 14% of our migrated customers signing up. It is pleasing to see increasing adoption and usage by these customers with usage rates increasing around 50% month-on-month since the launch. This new self-service capability enables customers to buy insurance, manage their policies and lodge claims all online, delivering increased operational efficiencies. Digital remains one of the most crucial foundations of our business moving forward. It enables differentiation, agility, innovation and growth. And our new platform will enable us to respond well in a changing economic environment. Underwriting and claims are intrinsically linked and sit at the heart of what an insurance company is and does for its customers. Our focus on achieving underwriting excellence is a constant for Tower and continues to play a vital part in the delivery of our strategy. We've taken significant steps towards achieving our underwriting excellence goal and have implemented better risk selection and underwriting processes. We continue to focus on claims leakage and recovery. We've launched and continue to refine our plain language policies that have won awards and provide clarity to customers and our employees at the time of claim. And we're implementing new data practices to enable us to accurately monitor our portfolio. This relentless focus on underwriting excellence has helped us shift our portfolio to a more balanced mix and stabilized claims frequency. This is particularly noticeable in our New Zealand house product with clear products and benefits to customers seeing our frequency stabilize in line with expectations after a year of very benign weather in '19. Almost 2 years ago, we led the way with risk-based pricing and removing cross-subsidization between low- and high-risk customers. Being a first mover gave us a 12-month head start, and we continue to reap the benefits from this by growing in Auckland and other low-risk areas like Hamilton and Taranaki. Along with the changes to the EQC cap, the reduction in extreme risk policies, combined with the already completed changes in our Wellington profile, has reduced the amount of reinsurance cover we require. As our customers migrate onto the new IT platform, we will utilize the improved rating engine, more granular segmentation and pricing approach to drive further growth and underwriting improvements. It is clear this strategy is working and will continue to deliver growth and reinsurance efficiency in the future. We have invested in the business to drive long-term value. As we've outlined previously, a major component of this is the new technology and moving customers to the new platform and our new product set. Managing customers through the migration process is one of the most important parts of our technology transformation, and we created a tailored customer management approach to reduce risks, maximize retention and manage customer impact. Migration is now well underway, with retention rates in line with our expectations. Combined with new business, over half of our in-force policies are now on the new system. While moving customers to the new system, we're also moving them from hundreds of different product set to a core set of just 12. Moving around 350,000 customers to a core set of 12 products will deliver significant benefits to our customers and efficiencies in our business. Customer migration continues and will be complete by the end of the 2020 calendar year. Youi New Zealand customers are also being migrated with over 7,000 customers successfully transferred to our new system and our new product set. Migration of the Youi New Zealand customers is expected to be complete by the end of February 2021. As we've said before, during the migration, we're experiencing a duplication of costs. Once our customer migration is completed, we expect cost of between $5 million to $7 million pretax to be removed from our expense base. COVID-19 is a truly unprecedented global event. And I commend the government's swift action taken to flatten the curve and minimize the impact to people's health. Here in New Zealand, the country went into complete lockdown for around 4 weeks with strict orders to stay home and only essential businesses allowed to operate. Insurers play an important part in the lives of customers, providing peace of mind that we are there to set things right when we're needed. And Tower was granted license to continue operating during this lockdown period. Fortunately, our investment in technology allowed us to rapidly adapt and enable all our team to work from home, ensuring their health and safety and allowing us to be fully operational and ready to help customers who needed us. During the lockdown period, our focus was firmly on supporting our customers in what we know was an unsettling time. To help those customers experiencing genuine hardship, we introduced a number of measures to reduce financial pressure, including comprehensive insurance reviews and payment deferral options. So far, we have had only a very small number of customers utilize these solutions. In the lead-up to and during the level 4 lockdown, we saw a significant reduction in new business, which has impacted our growth. As the country and economy is now reopening in level 2, we are seeing new business return to more normalized levels. This is not surprising given that people were unable to buy and sell cars and houses and were focused on things other than changing their insurance. The inability to trade also meant that strong retention rates were experienced during this period. However, there's no doubt the most significant impact of the level 3 and 4 lockdown was a reduction in motor claims by around 70% compared to our normal claims experience. As a New Zealand company that is building its brand on being a challenger and standing up for better customer outcomes, passing the reduction in motor claims costs back to our customers is the right thing to do. We announced our intent to do this in April. And now that we understand the reduction in claims costs, I'm pleased to confirm that we'll be refunding at least $6.8 million to our motor customers in June. The total cost of the refund is offset by the reduced claims costs and will result in a neutral financial impact. We are still working through the final detail to ensure the refund is managed appropriately, but I know that customers will appreciate having a percentage of their premium returned in these tough economic times. We recognize there may be supply chain constraints due to the lockdown as well as decreased usage of public transport as we look forward. And this may result in a slight uplift in claims expense in the short term. However, the significance of the reduction in claims costs meant it was important to pass this back to customers. I'll now hand back to Jeff who will take you through our detailed financial results.

Thank you, Richard, and good morning, everyone. Looking at the consolidated results, we can see that continued growth was a key driver of Tower's half year results. This growth was offset by the impacts of the Timaru hailstorm and lower investment income. We have continued to deliver solid growth this half, with gross written premium increasing from $14 million (sic) [ increasing $14 million ] compared to the same period last year. At the same time, claims costs excluding large events rose $8 million due to the growth in risks. Underlying profit after tax reduced slightly to $16.9 million mainly due to the impacts of the Timaru hailstorm, lower investment income and higher expenses relating to the management of multiple systems through the customer migration. The Canterbury earthquake portfolio is performing well and in line with expectations, with an increase in provision for new over-caps offset by other releases across the portfolio. There was also an increase in provision for future legal fees for the EQC receivable, resulting in a total category impact of $1.1 million after tax. And I'll provide more detail on this shortly. Our reported profit of $14.9 million after tax is a continued improvement, up $3 million on the same period last year. We had a strong first half that included a slowing of growth through March as the impacts of COVID were felt. While we saw this continue through April and May and it will impact our second half, it is good to see business returning as the economy reopens. Slide 12 details the key drivers of underlying profit before tax from the first half of 2019 to the first half of 2020. The solid growth is reflected in the $17.2 million increase in net earned premium, a combination of growth in our core portfolio and our risk-based pricing approach. On this slide, you can also see the impact of the Timaru hailstorm and growth in our risk count, which has resulted in an increase in our claims expense for New Zealand. Benign weather and remediation across key Pacific portfolios delivered a slight reduction in claims cost. As Richard mentioned earlier, management expenses are higher due to the completion of our IT transformation and investment in customer migration, along with the amortization of the Youi New Zealand portfolio acquisition. Our strategy continues driving growth in our New Zealand business, with positive results offset by large weather events and increased costs associated with the amortization of Youi New Zealand, decreased investment income and the management of multiple technology systems. As we have mentioned earlier, growth remains solid, and excluding large events, our claims ratio has stabilized. Our management expense ratio increased slightly to 37.3% due to the amortization of the Youi New Zealand portfolio and costs associated with the multiple systems. As a result, underlying profit decreased to $13.1 million, which is $3.4 million lower than the same period last year. New Zealand claims expenses have stabilized over the past 12 months with a number of underwriting and pricing initiatives helping to offset inflation. As you can see on this slide, there are 3 key factors that have contributed to this positive result. We experienced a small uplift in the claims ratio due to the Timaru hailstorm with a cost of $2.9 million net of reinsurance, accounting for a 2.2% increase. Our new simpler products and risk-based pricing approach have contributed to a 2.4% reduction in New Zealand house claims, along with reduced claim severity. As also reported by other insurers, New Zealand is experiencing inflation in motor claims costs due to the increasing cost of repairs because of the ongoing modernization of vehicles with enhanced technology. This increase is being addressed through ongoing pricing activity. While it is pleasing to have stabilized our claims ratio, we remain focused on refining our products and pricing approach to ensure we continue addressing claims costs. We are pleased to see continued -- see contributions from our Pacific business continue to improve. We saw the strongest revenue growth in Vanuatu, Solomon Islands and Samoa, thanks to additional underwriting, pricing and marketing support for our local teams. Our continued disciplined approach in Fiji has led to improved profitability. And with the remediation of the Papua New Guinea portfolio now complete, that portfolio has also returned to profitability. Overall, Pacific gross written premium was slightly up, increasing $1.9 million to $30 million. Improvements in claims costs have been delivered through targeted underwriting and pricing initiatives across our key markets and, combined with a benign weather environment for the first half, have resulted in a 1.7% improvement in the claims ratio excluding large events. We achieved a lower expense ratio in the Pacific due to ongoing work to remove duplication of back-office functions. It's important to note here that due to the nature of the distribution model in the Pacific, commission costs are higher than in New Zealand. With commission excluded, the management expense ratio was 36.3%. Unfortunately, the positive results achieved in the Pacific in the first half will be offset to a degree by the impacts of Tropical Cyclone Harold in the second half. Following the successful completion of the capital raise, the change in license condition and the purchase of the Youi New Zealand portfolio, Tower Insurance remains in a strong capital position. Tower has a unique solvency strength with the equivalent of 280% of minimum solvency capital and, as at the 31st of March, held $45.3 million above RBNZ minimum requirements with actual solvency capital of $148.2 million. We have long maintained how fundamentally broken the EQC system is and have advocated strongly for a complete overhaul. The Cartwright inquiry into the EQC released a critical report that validated our long-held belief that EQC failed to respond adequately. The report detailed the significant problems of the EQC and how woefully unprepared they were to respond to an event of the size of Canterbury. The report highlighted the EQC's significant lack of capability to adequately understand and assess claims, which resulted in inefficiencies and poor customer outcomes that, in some cases, still drag on today. This demonstrates, in some part, why Tower took action to remediate customers' land and homes despite it being the responsibility of the EQC. But it is not our role nor our shareholders' responsibility to pick up the tab for EQC's lack of preparedness and for the failure of its repair providers, which is why we are seeking recovery. Considering the nature of the report and the many failings identified by the inquiry, we are disappointed that an agreement could not be reached through the alternative dispute resolution process and that full litigation is now required. Accordingly, an increase in provisions for legal fees for the EQC receivable has been made, resulting in a Canterbury impact of $1.1 million after tax. As Richard said earlier, managing risk is at the heart of what we do as an insurer. And our reinsurance program provides certainty and protection. In November 2019, a large hailstorm hit Timaru, causing claims expenses of $4.9 million. $2 million of this has been recovered from reinsurance, which results in a before tax impact of $2.9 million in the first half. In April 2020, Tropical Cyclone Harold caused widespread damage in the Pacific Islands. Whilst Vanuatu and Tonga were the most impacted, we also received claims in the Solomon Islands and Fiji. And this will impact second half results by $8 million before tax. Combining this with the Timaru hailstorm earlier in the year, Tower Insurance's aggregate reinsurance cover has now been activated. This provides Tower Insurance immediate cover for any future large events in New Zealand and the Pacific -- weather events in New Zealand and the Pacific in excess of $1 million up to $7 million per event and up to a total of $20 million for the remainder of FY '20. To date, our large event expense for 2020 is approximately $10.9 million before tax. This is $2.9 million more than the $8 million large event assumption in Tower's previously provided FY '20 market guidance. Thank you. And I'll now hand back to Richard who will provide an update on our strategy and outlook.

Thank you, Jeff. Our plan has driven change and transformed the business. The work we've completed over the past few years has provided a strong and solid base for us to keep growing from. We have turned industry norms on their head and delivered a number of firsts to the New Zealand market. And the growth we have achieved is demonstration that people have noticed what we're doing. Our strategy has always been to deliver better outcomes for customers. And moving forward, this stays true as we continue to challenge norms and improve our digital offering further. And in a changing economic environment, being a digital-first business positions us well to respond quickly. Our new technology platform enables innovation and rapid response to customer needs. It will allow us to take new products to market faster, alter pricing to test and learn and drive growth in new areas. Our online capability is unique and is built for the modern world. With the rapid increase in consumers using digital, this important part of our strategy continues to be a core focus and will be vital to continue driving growth. Along with improving the customer experience, automation and digitization will drive productivity gains and increased agility and flexibility of our workforce. In short, we will continue to drive our digital challenger strategy forward, putting customers first and finding ways to do this more efficiently. It is clear that the world has changed and we're entering an extended period of uncertainty. Looking back over my 30 or so years in the insurance industry, insurance has always been resilient to economic downturn particularly for those companies like Tower that operate in the domestic personal lines arena. Our strategy positions us well to adapt and respond to a changing environment. We have new technology in place that we'll keep refining to meet the needs -- changing needs of customers and attract them to our business. However, these are unprecedented times and there is considerable uncertainty on the horizon. The Pacific Islands are likely to be heavily impacted as many of these economies are built on tourism and are dependent on global trade, which will be significantly reduced for the foreseeable future. And the global recession we're entering has been labeled the worst economic change since the Great Depression. And the future is now even harder than normal to predict. Based on my experience, during economic uncertainty, most customers try to keep their most important assets insured, primarily their homes and their cars. It means that on the one hand, customers tend to shop around less and stick to what they know, brands that they trust and perceive as high quality. On the other hand, though, customers are also more price-sensitive and sensitive to change. Balancing these 2 different objectives requires close and careful management of the portfolio and ongoing engagement with your -- with our customer base to understand what is happening in the market. Across all areas of our business, we now expect to be operating in a lower growth environment over the coming 12 to 18 months. You'll have heard me talk about our strategy to grow our business and reduce our expense ratio. Our plan was to achieve business growth from our existing cost base. However, in anticipation of this extended economic slowdown and lower growth environment, we need to take action now to reduce our cost base to achieve our target MER of 35%. We are currently working through a process to deliver savings of $7.2 million per year, which includes a proposal for the reduction of 95 FTE, along with other cost-out initiatives. If the proposed changes are confirmed with our employee, the net effect of this activity means that heading into FY '21, Tower will be operating at or near its MER target of 35%. At Tower, we are a close-knit team, and any process or decisions that affect our people are never lightly made. As you would expect, we'll be supporting our team through any changes as best we can. However, it is important that Tower is in a strong and sustainable position to weather the economic headwinds ahead. We have updated our guidance for Tower's underlying NPAT in FY '20 to a range of between $25 million to $28 million, reflecting the following. Tropical Cyclone Harold and the Timaru hailstorm resulted in $10.9 million before tax impact compared to an assumption of $8 million in Tower's initial FY '20 guidance. Lower growth rate is being assumed in the second half due to the recessionary economic environment. Additional expense reduction activity will deliver savings of $2.6 million in the last quarter of FY '20. And if those proposed FTE changes are confirmed, one-off restructuring costs will impact Tower's nonunderlying profit by $2 million. There is no financial impact from Tower's refund of motor premium due to COVID-19 lockdown as these are offset by any savings in claims costs. As Michael mentioned earlier, the Reserve Bank of New Zealand has advised the financial sector to protect solvency positions and preserve capital in light of the COVID-19 disruption and uncertain economic outlook. Given the RBNZ position, Tower's Board has determined that no first half dividend will be paid and any second half dividend will be determined in line with the company's full year results while considering economic conditions at the time. Today's results demonstrate the strength of the Tower business and show it is well placed to respond to the changing economic environment. You can be confident that our focus remains on solidifying our position as a digital challenger and delivering shareholder value for you. Before I ask for questions, I want to thank the Tower executive and wider team. This is my last results announcement as CEO, and I'm sad to say goodbye. I'm proud of what we have achieved. The company we have created is vastly different from what it used to be. And I know that so much opportunity still exists in the business. While I'm excited to return to my family in Sydney and spend more time with them, I'll be closely following Tower's progress as it continues to transform into a digital insurer. The Board's choice of Blair Turnbull as Tower's new CEO gives me great confidence the work we have underway and the improving results we're delivering will continue. Blair brings extensive, large-scale digital and data innovation experience and a passion for delivering disruptive customer-focused models. His experience will be vital in helping Tower achieve the next phase of its strategy, and I look forward to seeing him bring this to life. I'd like to thank the Board for their support over the past few years. It's been critical in our journey to transform Tower and achieve these solid results. Thank you for your support as shareholders during my time here. I know that there have been some challenges, but we're on a good footing now and well placed to respond to what the future holds. And thank you, lastly, to everyone at Tower for all of their efforts in driving change, transforming the business and believing that it was possible. So thank you. I'll hand back for questions.

[Operator Instructions] Your first question today comes from the line of Andrew Buncombe from Macquarie.

Just 2 from me, please. The first one is in relation to the IT system. Congratulations on the process on the migration so far. And I understand that, that will end in December this year, but I also understand that the costs really only come out once the old technology and data centers are turned off. So my first question is just an update. Is there a plan to date for turning those systems off? And then the second question, you've mentioned that the aggregate reinsurance program has been activated. Are you able to give us a bit of a guide as to how much of that cover remains for the rest of the year?

It's the difficulty of being in different places. Who's going to go? I'll go, Jeff.

Go ahead.

Andrew, thanks for your questions. In terms of the first question around IT systems, you're exactly right, whilst there's improving productivity as we roll forward and we start to get the majority of the portfolio migrated onto the new platform, there is a lump of savings that come when we turn off the old platform and, as you said, close off data centers and old boxes and so forth. And that comes through FY '21. And somewhere in my speech, I talked about $5 million to $7 million pretax. It sort of comes out just after the first half. It's probably, I'm going to say, April, May time depending on the complexity of sort of shutting down those old systems. But it's in that area and that sort of period of time just after the first half of FY '21 that you'll start to see that benefit arise. In terms of the aggregate reinsurance activated, so what we really mean is we've used up the excess in this first half, and now the full $20 million is available for the second half. So we haven't used any of the actual aggregate cover. I'll just note that it's a franchise, so it kicks in after $1 million up to $7.5 million per event. So that's the aggregate.

[Operator Instructions] There are no questions from the phone at this time. I would like to hand the presentation back to today's presenters. Please continue.

I'd just like to, on behalf of Richard and Jeff, thank you all. As always, Richard and Jeff and obviously myself are available if there are any questions later in the day. So thank you very much, everyone. And once again, thank you to Richard. Bye.

Thanks, everybody. Goodbye. Thank you for your help. Bye.

Ladies and gentlemen, that does conclude today's conference call. Thank you for participating. You may now disconnect.