Tower Limited (TWR) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Tower Limited Half Year Results Announcement 2024 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, Michael Stiassny, Chairman. Please go ahead.

Good morning, everyone, and thanks for making the time to join us for this positive investor call and presentation of our 2024 half year results. With me, as usual, in our Auckland office is our Chief Executive Officer, Blair Turnbull; and our Chief Financial Officer, Paul Johnston, who will take you through the results and answer questions, if any. After the tumultuous weather events of 2023, it is a welcome shift to be delivering good news today. Remaining focused on implementing strategy and solid operational delivery, coupled with benign weather patterns has resulted in a considerably improved business performance. In addition, enhanced profitability and the comparatively swift resolution of catastrophe event claims has significantly improved Tower's capital position. Consequently, I'm very pleased to announce that based on Tower's ordinary dividend policy of paying 60% to 80% of cash earnings, where it is prudent to do so, the Board has declared an interim dividend of $0.03 per share to be paid on the 27th of June. As you will recall, at the end of FY '23 following the significant weather events in February 2023, Tower set a prudent large event allowance of $45 million, which currently remains intact. Should the weather gods continue to look favorably upon us between now and 30 September, any unused portion of that $45 million, $32 million after tax, will directly increase underlying net profit to improve the full year results. Our year-end underlying net profit after tax guidance of greater than $35 million assumes full use of the $45 million allowance. So the potential upgrade, God willing, will be significant. The strategic review Tower announced late last year is continuing to progress, with a range of options being considered to maximize shareholder value and optimize our capital structure to support our market competitiveness. No decisions have been made, and we will update the market at the appropriate time. Suffice to say that the Tower executive remains fully focused on strategy and business delivery. Whilst we are all enjoying calmer weather this year, insurers paid out some $4 billion to New Zealand customers following last year's catastrophic events. This underscores the critical role insurance continues to play in New Zealand's resilience, both economic and societal. Ensuring insurance remains available and cost-effective will necessarily be our focus going forward. That will require Tower to develop new and innovative offerings that not only identify and manage risk and support customers and communities through climate change, but are also affordable. As I've said previously, this is a particularly difficult sum to balance and regrettably, Tower and other insurers will not be able to continue to provide insurance for everyone. Tower has led the way in New Zealand with our early adoption of risk-based pricing and underwriting. Our view was and remains that risk-based pricing is in the best interest of policyholders, shareholders and New Zealand Inc. There is no question that risk-based pricing gives Tower a competitive advantage by enabling more accurate risk selection and pricing, but importantly, that also signals to the market where to buy and invest, and these signals are absolutely crucial if New Zealand is to successfully manage and avoid some of the financial risks posed by climate change. Despite this, what I would call common sense, for the longest time it has felt like we have been a [ lone ] voice and there were plenty of detractors. Happily for the future of this country, it appears the tide is turning. To quote recent comments from the Reserve Bank of New Zealand, "Risk-based pricing can provide a strong signal to encourage the proactive mitigation and lowering of exposure to risks, which can be beneficial for society's overall risk management." The Reserve Bank then went further in its most recent financial stability report calling on other insurers and, most notably the banks, to, "take action to improve their understanding of natural hazards to proactively manage affordability challenges." We couldn't agree more. The banks have been missing in action, seemingly reluctant to actively embed climate-related risks in their business operations and risk management frameworks, but nevertheless content to continue making record profits. I look forward to seeing how the banks choose to respond to the Reserve Bank's challenge because insurers can't and shouldn't be shouldering this burden alone. In closing, risk-based pricing will continue to underpin Tower's competitive position and underwriting capability. And together with improvements in digital and operational efficiencies and better expense control will ensure that Tower remains well positioned to both support customers and deliver shareholder value. I'll now hand over to Blair and Paul, who will take you through the results and outlook before we take questions.

[Foreign Language] [ Kia Ora ]. Thank you, Michael, and good morning, everyone. Thank you for joining us for our 2024 half year financial results. Here is a summary of our results, which overall demonstrate Tower's positive operational and business performance. On the tail of last year's events, we've never been clearer about our strategy of being a leading direct player in our New Zealand and Pacific markets and leveraging digital technology and data to drive efficiencies and excellent customer experiences and outcomes. I will walk through these points in more detail shortly, but first, an overview of our performance this year. Gross written premium for the half year to 31 March increased to $291 million, up 20% on the same period last year, excluding divested portfolios. This was predominantly driven by prior period rating increases designed to mitigate the impacts of inflation, crime and increased reinsurance costs following the 2023 catastrophe events. Customer numbers decreased to 309,000, down from 312,000 in half year '23 partly due to our tightened risk appetite for hightheft motor vehicle models. Tower reduced high-risk motor policies by 3,500 policies in the half. Enhanced processes, our reduction in motor theft claims and calmer weather have led to a decrease in the BAU claims ratio to 49.7% compared to 51.1% in half year '23. We are pleased to see our management expense ratio improved again to 31.3% versus 35% in half year '23, thanks to our GWP growth combined with a disciplined cost control and improved efficiencies from investments in digitization and streamlining the business. Large event costs for the half were negative $1.9 million due to a favorable revision to the most recent estimate for Vanuatu cyclone claims incurred in the prior year. There have been no large events in the half compared to $37.3 million of large event costs in half year '23. Reflecting a positive operational and business performance, we are reporting an underlying profit after tax of $36.6 million, up from an underlying loss of $3.7 million in HY '23. Reported HY '24 profit is $36 million compared to a loss of $5.1 million at the half year '23. And on the basis of these results, Tower will pay an interim dividend of $0.03 per share. Continued premium growth. The prior period rating increases that were designed to mitigate the impacts of inflation, crime and increased reinsurance costs following the 2023 catastrophe events have taken effect and were the predominant driver of the 20% GWP growth in the half. We continually review premiums to ensure we provide good value and competitive prices for our customers, while also ensuring that the premiums we collect cover the cost of the claims we pay out. And this year Canstar announced the Tower as the winner of its Home and Contents Insurer of the Year Award. The independent research panel noted the outstanding value offered by Tower's insurance products, especially its Standard and Plus policy options, which feature comprehensive insurance cover at affordable prices. Our dynamic rating ability enables us to respond quickly to market conditions. Inflation and reinsurance markets are currently looking to be more favorable in the second half of the year. And providing this eventuates, we will review premiums accordingly, noting, of course, that our approach to risk-based pricing means that pricing for individual customers will always reflect their individual risks. We are particularly pleased to see a proportion of house policies start to increase as we focus more on the home insurance market. We know that our home insurance customers hold more policies and stay longer than motor customers. Reflecting this is the fact that 55% of policy cancellations in the half were customers who held just one motor policy with Tower. We offer more favorable pricing to lower risk vehicles and apply higher premiums to those that our data shows will potentially incur higher claims costs. Our retention rate for our New Zealand risk portfolio remained stable at 77%. Half of our customers hold multiple policies with us and these customers stay with us for an average of 8 years. Business unit distribution. Our strategy is underpinned by our 3 distribution channels: Tower Direct; Partnerships; and our Pacific operation. For Tower Direct, over the half year, we've continued to build rewarding and engaging relationships with customers and our flagship Tower Direct business now comprises 75% of our total GWP, up from 58% 3 years ago and in line with our strategy to focus on direct-to-consumer business. A key contributor to this was a 14% increase in new home policies sold compared to HY '23. Partnerships. Our partnership channel continues to provide positive growth opportunities. In line with our strategy, our group referral model customer journey looks and feels like our Tower Direct experience and is focused on one-off referral commissions at the point of policy sale. This increases the benefit to Tower from customers who stay with us after the first year of business compared to traditional annual commission models. In the half year, partnerships in force risks increased 6% to 106,000, driven in part by the 36% increase to 3,000 active advisors now referring customers to Tower over the year. The Pacific. This year marks 150 years in operation in the Pacific, and we are continuing to digitize and simplify our offering in the region, aligning our New Zealand and Pacific activities more closely to deliver growth and efficiencies. And with this simplification in mind, we completed the sale of our Solomon Islands business in HY '24, following on the sale of our Papua New Guinea subsidiary in FY '23, and we do expect the sale of our Vanuatu subsidiary to complete in the second half of FY '24 pending regulatory approval. Tower's first parametric product is now live in Fiji, Tonga and Samoa, following a successful trial launched in Fiji in FY '22. The customer experience continues to improve. Our digital platform is improving the overall Tower experience for our customers as they increasingly adopt our online sales and service channels. In HY '24, the proportion of New Zealand service and claims tasks completed online over the last 12 months increased to 57%. And active My Tower users increased 10% to 156,000, and this uptake comes as we have released new features in My Tower, such as Our Ways to Save advice and the ability to change payment frequency online. We also completed the rollout of My Tower across our Pacific operations in FY '23. Customer satisfaction for New Zealand online sales engagements is positive. Our combined New Zealand net promoter score for online experiences remained steady at 52%, and our overall NPS score has improved to 31%, up from 28% in September 2023. With our core platform now live across the Tower group and our Suva Hub officially opened in February 2024, we are able to flex resources across Fiji and New Zealand at 2 biggest markets. The benefits of our 300 strong Suva Hub team continue to be realized, contributing to a decrease in our sales and service abandonment rate now at 12% versus 20% in HY '23. An important part of delivering a positive customer experience is fixing things when we don't get them right. As we've shared previously, Tower is focused on putting things right for customers who have received incorrect discounts or benefits. The most significant part of our remediation program has been refunding customers who have not received correct multi-policy discounts, and we've made substantial progress towards remediating these customers. And as of 30th of April, 2024, we had paid over $8.6 million, excluding GST to these customers. Continued improvement in our management expense ratio. We're pleased to have achieved yet another reduction in MER to 31.3%, down from 35% in HY '23 and contributing to this MER improvement are Tower's GWP growth, combined with disciplined cost control, which has seen expenses rise at a lower rate than inflation, as well as business efficiencies from investments in digitization and streamlining the business. The expansion of our Suva Hub has also delivered operational efficiencies. In the half year, our Suva team answered 50% of all New Zealand sales and service calls to Tower, up from 16% in FY '23. And pleasingly, these improvements have also seen our management expenses increase below the rate of inflation. Our commission ratio continues to improve, reducing to 1.6% in the half from 2.5% in HY '23, thanks to legacy portfolio purchases and referral arrangements that have reduced total commission. Our BAU claims ratio is back within target range. Throughout FY '23, BAU claims costs were challenged by large events, the frequency of motor claims, rapidly increasing inflationary pressures and supply chain capacity constraints, which impacted the severity or cost of claims. In the half year 2024, a number of key drivers have improved our BAU claims ratio from a peak of 59% in the second half of 2023, back to within our target range at 49.7%. Firstly, underwriting changes combined with targeted premium increases across motor and home have been effective in reducing claims from higher-risk assets. General rating increases implemented to offset inflation and increased reinsurance costs are also now earning through. Recording record claims volumes due to the FY '23 catastrophe events, Tower improved processes and implemented new technology to deliver faster and more efficient claims management, and this has resulted in 50% of motor claims now being automatically allocated to our repair network via our digital journey compared to just 10% in the second half of FY '23. We have also reduced our reliance on third-party assessors and now more than 80% of house and motor claims are [ there ] either assessed internally or sent straight through to builders and repairers, and this has reduced both assessing costs and complexity. External factors have also played a part with calmer weather in the half reducing both the frequency of home claims in New Zealand and across all claims from the Pacific region. The frequency of motor vehicle thefts has also reduced in the half. And consequently, BAU open claims are now tracking closer to historical averages. As at 27th May, 2024, Tower had closed 97% of FY '23 catastrophe event claims. Business performance continues to improve. The underlying NPAT excluding large events for HY '24 was $35 million. And as you can see from this chart, we are steadily improving our underlying business performance. The fundamentals of our business are performing well, and investment income is also benefiting from higher interest rates. I'll now hand you over to our Chief Financial Officer, Paul Johnston, who will take you through the details of our financial performance this year.

Thank you, Blair. Looking at the consolidated results, we can see that growth in GWP has been strong, increasing by $46 million or 20%, excluding divested portfolios compared to half year '23. This growth was driven by an appropriate mix of rating and underwriting actions, alongside modest volume growth in the house portfolio. Motor theft and claims volumes continue to reduce following decisive underwriting actions. Organizational efficiencies through the likes of our Suva Hub and digital journey improvements have helped reduce our BAU loss ratio to 49.7%. No large weather events have been experienced in the half year. Pleasingly, the MER improved to 31.3% as a result of expense efficiencies and scale. Higher yields have seen net investment income increase by $3.7 million to $10 million. Underlying net profit after tax, including large events, is $36.6 million, up from a $3.7 million loss in half year '23, reflecting Tower's financial resilience following catastrophic weather events experienced in full year '23. Tower's half year '24 reported profit after tax is $36 million. Movement in underlying NPAT. Here is the bridge between underlying NPAT and half year '23 of minus $3.7 million and underlying NPAT of $36.6 million in half year '24. You can see that calmer weather with no large event costs, coupled with business growth, the BAU loss ratio falling back into target range, improved management expense ratio and investment income have helped support this result. Reported profit was impacted by an increase to the CEQ valuation and an increased customer remediation provision as well as other non-underlying costs, partially offset by the gain on sale of Solomon Islands business. Due to the low level of open properties and outstanding provisions, this will be the last period in which Canterbury Earthquake claims are reported in detail. You can find the slide with the half year '24 detail in the appendix of this presentation. Business as usual claims ratio reduced. Over the past 2.5 years, the insurance industry has been impacted by rapidly increasing inflationary pressures, the increasing frequency of motor claims and motor theft as well as supply chain capacity constraints, which have impacted the severity or cost of claims. Throughout full year '23, these continue to track above historical norms in New Zealand following a more subdued period due to Covid lockdowns in previous periods. Coupled with weather events, these factors led to our BAU loss ratio increasing. Throughout FY '23 and half year '24, Tower applied targeted premium increases across motor and home to offset inflation, higher reinsurance costs and other increases. We also continue to work closely with supply chain partners while focusing on internal efficiencies and streamlining our business to moderate the impact on customers as much as possible. These actions, combined with motor theft frequency beginning to reduce from its full year '23 peak and calmer weather which has lessened the frequency and severity of house claims, have led to a reduction in our BAU claims ratio. Our BAU claims ratio is now within the target range at 49.7%. Continued improvement in management expense ratio. We are pleased to see our management expense ratio continue to reduce with an improvement over the half year of 3.7% to 31.3%. The effects of inflation were partially offset by cost efficiencies in the year. Increased scale from business growth also enabled efficiencies and a 4.7% reduction in MER with a further 0.5% decrease in net commission expenses due to the legacy portfolio purchases. Staff and other costs accounted for a 0.9% increase and a 0.6% increase in amortization was due to legacy portfolio purchases and continued spend on investments to drive growth and efficiency automations. Higher investment returns as yields have increased. In half year '24, net investment income increased to $10 million before tax. This was $3.7 million higher than the same period last year. This increased income reflects interest rates stabilizing, resulting in higher running yields. Tower maintains a conservative investment policy with a focus on high credit quality and liquidity bonds and a target duration for the core investment portfolio of 6 months. Our strategy has mitigated the impact on our profit from macroeconomic factors and mark-to-market movements in the past. Throughout FY '23 and half year '24, this has allowed us to benefit from higher interest rates as evidenced by the running yield on the core investment portfolio remaining stable at 5.67% as at 31 March, 2024. The outlook for investment income is to remain stable across the second half of FY '24. Reinsurance program supports resilience. Tower's reinsurance strategy provides protection from volatility caused by large events and maintains financial flexibility to support growth while underpinning strong solvency. Our reinsurance arrangements for FY '24 include catastrophe reinsurance of up to $750 million for 2 events with an excess of $16.9 million for each event. This was down from $889 million in full year '23 due to the EQC cap change which reduced the amount of coverage needed. We also purchased coverage for a third event of up to $75 million with a $20 million excess. Our FY '24 retention limits and program premium increases were mitigated by our 3-year rolling contracts. Tower's FY '24 large allowance is $45 million. We have not recorded any large events in the half. Full utilization of the large events allowance is assumed in our guidance for the full year. Capital and solvency position. Increased profits and the progress we have made in [ settling ] catastrophe event claims and collecting the recoveries from reinsurers in the half have further improved our solvency position compared to 139% at the 2023 full year. With the solvency ratio of 162%, we are now holding $117.1 million above the minimum capital required for solvency, which accounts for the dividend payment. This is an increase from $79.8 million as at 30 September, 2023. Tower's regulatory solvency position is calculated under the new Reserve Bank of New Zealand Interim Solvency Standard, which applies from the current financial year. On 15th of May, 2024, Tower uploaded a presentation to the NZX and ASX detailing the impacts of these new regimes. While the presentation and disclosure of information and Tower's financial statements from the half year 2024 will change, the standards will not affect Tower's strategy, profitability and dividend policy. We note that the RBNZ is proposing a second amendment to the interim solvency standard, which is not expected to be issued and effective until Tower's 2025 financial year. The proposed changes to the interim solvency standards are likely to have a material impact on Tower's regulatory solvency position and will reduce the solvency margin. We were pleased that Tower's A- credit rating was reaffirmed in April 2024 by AM Best. The Board has declared an interim dividend of $0.03 per share. Looking forward. Thank you. I'll now hand back to Blair, who will provide an update on our guidance and priorities for FY '24.

Thanks, Paul. In line with our strategy, our priorities for the remainder of the year are clear. We will continue to invest in creating leading customer experiences and initiatives to support affordability, while targeting the right risks at the right price. This includes adding landslide and sea surge risk ratings to our automated customer-facing quote-to-buy tool where customers can already see their home's risk [ ratings ] for earthquake and flood hazards. And in the second half, we will continue to focus on offering competitive pricing. Should inflation and the reinsurance markets soften near the end of the year, as we currently expect, then we'll see lower levels of premium increases coming through. In the coming year, we anticipate the proportion of new risk -- of new business from home insurance policy sales to grow as we target high-quality risks, and we will continue to grow organically through our existing partnerships. An important priority is addressing the multi-policy discount remediation and other customer remediations, while also ensuring we address the root causes of errors that have led to these remediations. In the second half, we will continue to focus on delivering efficiency, digitization and process improvements. We will launch new house and motor assessing systems to reduce assessment times and repair costs, and we will continue to leverage our Suva Hub to increase efficiency and customer benefits. Our claims transformation project is already delivering benefits, and we expect this to further accelerate in the coming 12 months as key assessment and workflow initiatives are delivered. We will also continue to invest in products and initiatives that foster future climate change resilience and sustainability. Turning to our FY '24 guidance and future targets. In FY '24, Tower expects GWP growth, excluding revenue from sales of subsidiary operations of between 10% and 15%. We have set a conservative large events allowance of $45 million for FY '24 versus $56 million in the prior year. The half year release of $1.9 million due to a favorable revision to the most recent estimate for Vanuatu cyclone claims, and FY '23 has reduced the FY '24 large events guidance expense to $43 million. And consistent with FY '23, we measure large events as those which have a total cost of more than $2 million. We expect further improvements to our management expense ratio, which we anticipate will be between 30% and 32%, and we are on track to meet this target with the current MER of 31.3%. As the rating and other actions that we have put in place to address inflation continue to improve our BAU loss ratio, we expect our combined operating ratio to reduce to less than 93%, down from previous guidance of between 95% and 97%. And assuming full utilization of the $45 million large events allowance, Tower anticipates underlying NPAT to be greater than $35 million. However, any unused portion of the large events allowance at year-end will increase underlying NPAT and improve the full year result. If there are no large events, this would represent an additional $32 million of underlying NPAT or $45 million less tax. Our FY '25 medium-term targets will see our focus in the next financial year on delivering another 10% to 15% GWP growth, a management expense ratio of less than 28% and a combined operating ratio of less than 91%. We are targeting our return on equity of between 12% and 15%. In FY '26, we plan to deliver another 10% to 15% GWP growth, a management expense ratio of less than 26% and the combined operating ratio of less than 87%. We'll be targeting our return on equity greater than 15%. Thank you for your time this morning. I will now hand back to the operator to ask for questions.

[Operator Instructions] Our first question comes from Andrew Buncombe from Macquarie.

Just the first one in relation to your FY '24 GWP growth guidance. Can you give us some color around what it would take to actually get to the bottom end of that range this year?

Thanks, Andrew, for your question. 20% in the first half reflects a lot of the rating that we put through last year as a result of the reinsurance inflation and height in crime. We're still saying in the second half of this year we expect those premium increases to level out a little bit. And so it will be less than obviously what we've achieved in the first half. We've been very responsive to what we see in the market. We want to be competitive on the pricing. We have some conservatism in there. But it will -- the reflection of that is on the 20% on the first half.

Second question, just in relation to Slide 23 and your FY '26 targets. Can you just give us some color around how you're thinking about that $55 million large event allowance in the context of the reinsurance program you intend to buy at that point? It just strikes me as a little bit unusual that you have confidence around that number when you don't know what the reinsurance market looks like. So just some color behind that thinking would be great.

2 comments to reply to that question. The first one is that we do buy on a multiyear basis. Obviously, as you know, a lot of our multiyear is rolling off, but we'll continue to look to renew. But that multiyear gives us a little bit of certainty for proportions of our program. And then the other one is, obviously, we form a view on what the trajectory of the reinsurance market is and what we feel our reinsurance will be looking for with regards to a retention limit for us in the future. So we are -- obviously, that -- both those numbers are projections, but they are based around holding our 90% confidence level for that large events allowance, taking into account where we expect retention limits to move to.

And then just a final one for me, please, on the solvency calculation. Previously you flagged the $15 million solvency charge in those stacked bar charts. Firstly, can I confirm that, that is still there? And secondly, how should we be thinking about that going forward?

Yes, that -- when we call an adjusted prescribed capital requirement, the adjusted is to include that $15 million license condition from the RBNZ. So yes, that is absolutely included in those stack bar charts under the new ISS that is. If you -- and then going forward, we continue to work with the RBNZ. We've made great progress over the years around strengthening our risk and capital positions and so, we're continuing to dialogue. As you know, our license conditions started off at $100 million, and it's now reduced over the last few years down to that $15 million. And so, yes, we continue to push and speak to the RBNZ to get it down to 0.

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

Congratulations on the results and recovery of the dividend. So that's excellent work indeed. Three questions from me, if I may. The first one, just with regards to, again, the GWP growth. And I suppose if I think about the sort of the matrix of customer numbers, new product development and on price, can you just talk about sort of how each of those sort of 3 components are going? Obviously, this first half customer numbers were down.

Do you want to go through the other 2 questions, James, or one at the time?

Yes. No, that's fine, I can cover [ up ] the second one. Just with regards to the BAU loss ratio, obviously, good progress there you mentioned within a range. What would you now expect to be the sort of a normalized range for BAU? And then thirdly, if I picked it up correctly, suggesting that no ongoing further detail for Canterbury. I'm just interested on your rationale for that? Obviously, it's been a very long time, and they're down to 21 claims left. Can we suggest that your confidence in having no further charges coming through by not having the detail provided? 3 questions here.

Thanks, James. Look, I'll take the GWP one, and then Paul will talk to loss ratio in Canterbury. So on GWP look, as mentioned to Andrew, the rating that we put through last year does take a while to flow through the full portfolio. And so the first half of this year reflects the rating that we put through, that we started about this time last year in response to those big events, the inflation and the heightened crime. The key part as we look forward into the second half of this year, if our expectation around inflation and also crime does start to level a little bit to more normalized levels, then we would expect to see lower levels of insurance premium increases going forward compared to the first half of this year. Our customer mix is also quite key for us. You're right to highlight that our overall customer numbers were down marginally. We did increase and focus on our home book, but we did take some -- an approach to very selective around their motor book, and we did exit some high leading models that we're prone to those crime activities in the past year like [indiscernible] rates. And that's resulted in the overall motor portfolio reducing as we noted. Can you talk to the loss ratio, Paul, and Canterbury?

Yes, so a normalized range for BAU loss ratio we feel somewhere is around those very high 40s to very low 50%. And -- so that's pretty good benchmark compared to the -- any insurance company around the world. We feel that's a fair loss ratio with regards to premium and for our customers. And it also means that we're running the business as efficiently as we can. If I look at your second question on Canterbury Earthquake, 2 points there. One, now that we've moved to IFRS 17, we have increased the probability of adequacy to 90% for our [ precious ] earthquake reserves. And so we're actually holding a little bit more on the balance sheet there now for those [ precious ] earthquake reserves in order to hold a slightly more conservative position. And as you've seen over the years, while obviously, those claims are still with us, they are getting smaller and smaller and that outstanding balance sheet position are still continuing to decrease. And so those 2 coupled together just mean that we feel it's just a much less impactful part of our business now and we'll continue to manage those out and look after our customers down there. But fundamentally, we've strengthened the position a little bit more with that move to IFRS 17. And so therefore, we -- it's not such the balance sheet focus that it used to be in the past.

No one else is reporting it separately. And as you can imagine, James, it becomes almost gets its own head of steam if we keep focusing on it for 11 claims. So it's a way of moving on.

Yes. And congratulations, as I say, on solid performance and luckily the weather obviously helped you, but I think this result obviously shows a lot of extra work on the operational side as well as, so congrats to you, Paul.

Our next question comes from Andrew Adams from Barrenjoey.

I just want to build on the previous questions, I guess. Just back on the GWP guidance. So premium rates leveling out, I guess, you've been getting 15% to 20%. Do we think leveling [ outlook's ] back to single-digit? And likewise on volume. Are you kind of expecting more volume exits in second half '24? Because I guess the second half '24 GWP guidance than the FY '25, '26 guidance doesn't quite reconcile. So we're taking a step backward in second '24, but then it's all better again in '25. So just trying to understand what's unique in '24 that you think is happening on GWP that's not going to create that momentum into '25?

Andrew, I'll take this one, Blair, if you like. The key thing really is that FY '24, as Blair talked about in the slides, has been focused on really looking at the right risk from a motor vehicle point of view, and that's where we've gone back using customer volumes. And so we'll -- we continue to see some of those underwriting decisions and the underwriting discipline in the portfolio play out in FY '24. And then we expect to see ourselves for the [ outer ] years going back to our mix of organic growth and rate growth as well. And you're right that we've managed to achieve low double-digits for the last couple of years. And so we just see that the next few years is the continuation of that trend with using our risk-based pricing and managing that, attracting the right risks at the right price for us.

And maybe that touches on that point, Andrew, regarding GWP again is, yes, we've seen a lot of rating over the past year. We still expect to see between 10% and 15% and as per our guidance for the full year and into '25 and '26. As the Chair said, we've set up front for a long time now [ with ] -- we are very selective on the risks. We want the right risk, right price. Risk-based pricing is at the heart of everything we do. There's lots of insurance companies that can grow $20 worth of premium per $10. We want to be -- we're very clear about the risks we take on in both home and also in terms of motor. We think that we offer something unique in terms of direct-to-consumer. We can be very competitive and with our partnership model, and we believe we've got the scalability to offer competitive pricing. As we've seen a number of times, we have seen a lot of inflation and crime come through in the past year. And as we look forward, we see those insurance premium increases start to level off a little bit, and we'll be very competitive in the risks that we want to target.

But we still think we can get high single-digit or 10% [ growth ] into the [ outer ] periods?

Yes, 10% to 15%. We think we've got something unique in the market, and we can -- and through the direct and the partnership side and to lesser extent, the Pacific side, we believe we can get good targeted growth.

Yes. And then, I guess, related also on your [ COR ] guidance. So even if we allow for the full usage of the $43 million and your BAU is kind of -- your BAU loss ratio is kind of in the mid of that kind of target range. So just if we back solve into second half '24 and your guidance for full year, you are kind of allowing for some deterioration in that [ COR ] in to the second half '24. What's kind of driving that deterioration in second half on first half?

2 things. One of them is that full year is the large events allowance, obviously. And then the second one is, as I said, the BAU claims ratio will bounce around somewhere between -- around that 50% mark. But then the third one is the...

So around 50% at the moment, are we kind of assuming it's worse than 50% or higher than 50% in the second half? And I guess, given the premium rate increases coming through and the positive signs we're seeing on inflation, shouldn't it be at least as good as first half?

Well, in New Zealand, we have had a very benign 6 months from a weather point of view, and we're going into winter. And as we know that our loss ratio is seasonally -- does seasonally bounce around. And so, yes, I mean, if we can -- if we do end up with a very wet winter, then we'll see it tick up a little bit. We do believe that we're holding conservative numbers here, and so we'll see how we go with the weather. But fundamentally, we're within range of what we're targeting over the long-term, and we're happy with that.

We're unfortunately different [indiscernible]. We sort of -- because of the weather patterns, we be held a lot easier to have our year-end earlier. And so therefore, we track the worst part of our trading in the first 6 months rather than the last. So we amass our money in the first 6 and then try and hold ourselves together for the last 6. And it's a bad -- it's an unfortunate weather pattern that we face, isn't it.

Our next question comes from James Lindsay from Forsyth Barr.

James, you still there?

Yes. No, I don't actually hear the moderators calling out my name. So just last one for me, just sort of again to your comments with regard to reinsurance markets sort of becoming more favorable in the second half. Half on half -- or sorry, for this period, reinsurance costs were up by 31%. Can you give us some expectations for your view for the second half? And just what sort of -- what you're seeing in international markets with regard to pricing that sort of gives you a bit more confidence?

So obviously, we -- as you know, we buy our reinsurance 1 year in advance or the multiyears, but we lock in the price for that whole year. So what we've seen in this half year is basically the earned impact of what we committed to at the beginning of the year. So absent any large events and requirements for any reinstatement costs, we don't see our reinsurance materially moving around. Obviously, we'll earn a bit more through and therefore, we'll earn a bit more reinsurance costs through. So that's what we're seeing. So yes, the second half should be similar to the first. And then with regards to the outer years, global markets -- there's a lot of indication out there that global markets are softening. We are about to start out detailed discussions with our reinsurers, although we, of course, have a lot of them throughout the year. But yes, we're certainly expecting a much more benign renewal environment this year than we had last year.

I see no further questions at this time. I will now pass back to Michael for closing remarks.

Well, thank you, everyone, for attending today. It's always good to announce a positive result and to be paying a dividend. And thanks as a shareholder and indeed on behalf of the Board to management, it's been a good 6 months. We have had some good wins behind us, and we hope that continues for the next 6 months. So thank you, everyone.