TOWER LIMITED - Annual Report 2007

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Market Information New Zealand Exchange Limited NZX Centre Level 2, 11 Cable Street Wellington NEW ZEALAND

Company Announcements Office Australian Stock Exchange Limited Exchange Centre Level 6, 20 Bridge Street Sydney NSW 2000 AUSTRALIA

24 December 2007

Dear Sir/Madam,

TOWER Limited – Company Announcement

In accordance with Listing Rules we attach the following document:

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TOWER Limited Annual Report for the year ended 30 September 2007

Yours faithfully

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Eric O’Sullivan

Company Secretary

tower ANNUAL report 2007

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Chairman’s Letter	5
Business Review	6–7
TOWER’s Community Commitment	8
Corporate Governance	9–24
Financial Statements	25–73
TOWER Directory	74

TOWER Group

Health & Life Insurance

General Insurance

Investments

KiwiSaver

This Annual Report is dated 21 December 2007.

All amounts in this Annual Report, unless stated otherwise, are in New Zealand dollars.

Highlights

 STRONG TRADING RESULTS FROM ALL THREE OPERATING DIVISIONS

 PROFIT FROM CONTINUING OPERATIONS UP BY 23%

 DIVIDEND FOR SHAREHOLDERS OF 6 CENTS PER SHARE

TOWER Annual Report 2007

Chairman’s Letter

Financial results were better than expected by the market with the company producing a net profit after tax of $34.6 million from its New Zealand and Pacific operations.

Dear Shareholder

The financial year to 30 September 2007 saw several notable achievements for TOWER.

Early in the year, shareholders overwhelmingly approved the separation of the New Zealand and Australian businesses allowing TOWER to renew its focus on our New Zealand and Pacific Islands operations.

A strong senior management team has been put in place and strategies to take the company forward are being identified and implemented. While the journey has barely begun, the opportunities are plentiful and the board is confident that the company has the necessary skills and importantly the attitude in its management and staff.

Financial results were better than expected by the market with the company producing a net profit after tax of $34.6 million from its New Zealand and Pacific operations. This was 23% ahead of the $28.1 million earned, on a comparable basis, in the previous financial year. An additional one-off profit of $198.0 million was recorded from separation of the Australian business.

A further major milestone achieved this year is the return to paying a dividend to our shareholders. It is more than 5 years since TOWER last paid a return to shareholders and it is pleasing that the Board is now in a position to declare a dividend of 6 cents per share net of tax which will be payable on 5 February.

Looking forward there are clear opportunities to build on the underlying strengths of TOWER’s business and we are confident that the results will show through. Finally I want to thank every one of our staff for their continuing efforts to lift standards and move the business forward.

And as a shareholder, thank you for your support of TOWER.

A I (Tony) Gibbs Chairman

Business Review

Our clear objective is to achieve excellent shareholder returns, which we will do by delivering great products to our customers with outstanding service.

At the time the company announced its six months results earlier this year, I commented that we were well on track to establishing a strong and robust TOWER that will grow shareholder value. We have continued this trend in the second half with a strong finish to the year and the overall result is a profit after tax of $34.6 million from continuing operations.

Summary Of Results

Year ended 30 September 2007

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NZ $million 2007 2006 Change
Proforma
Business unit operating earnings 46.3 38.7 +20%
Corporate expenses (6.4) (10.5) -39%
Investment returns on shareholder
funds 19.9 20.6 -3%
Finance costs (5.6) (6.9) -19%
Profit before tax –
continuing operations 54.2 41.9 +29%
Tax (19.6) (13.8) +42%
Profit after tax –
continuing operations 34.6 28.1 +23%
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This result is a good start to our objective of improving shareholder returns and you can be assured that the energies of the management team and the staff are firmly committed to this task.

The separation of the Australian business in the early part of the year was completed very smoothly and has allowed us to now focus fully on the New Zealand and Pacific Islands operations. We have identified several key areas which are seen as high priorities for TOWER and which are capable of delivering positive financial benefits to the company. Included among these are:

Investment in new products and systems for KiwiSaver and for the Portfolio Investor Entity (“PIE”) tax regime.
Aligning processes to improve our customer service.
Strong control of our operating and administration costs.

These and many other projects are now underway and, along with new initiatives under consideration, will be a key to TOWER’s development over the next couple of years.

Looking at the results for the year to 30 September 2007, it was particularly pleasing that all three of the Group’s operating divisions showed an improved bottom line profit.

HEALTH & LIFE

Under the leadership of Steve Boomert as CEO, the Health & Life business is a leading participant in the group life, retail and group health markets. Its after tax profit improved by 19% in the year due mainly to better underwriting in Health and lower lapses in Life.

Health & Life

Year Ended 30 September 2007

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NZ $million 2007 2006 Change
Operating earnings - Health 4.8 3.0 +60%
Operating earnings - Life 16.7 13.3 +26%
Total operating earnings after tax 21.5 16.3 +32%
Investment returns 1.2 2.8 -57%
Profit after tax 22.7 19.1 +19%
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The business continued to see good growth with inforce premiums growing by 11% to $182 million at 30 September 2007 but the claims ratio, even though it showed an improvement in some product lines, is still not at a satisfactory level and is currently being addressed by management.

Development of new distribution opportunities, foreshadowed in last year’s report, is occurring and strong relationships with intermediaries are being built.

Our “Infrastructure Refresh” programme to form a platform for the much needed development of our information technology.

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Steve Boomert JameS DouglaS tony HilDyarD
CEO - Health & Life CEO - General Insurance CEO - Investments
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TOWER Annual Report 2007

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GENERAL INSURANCE

New CEO of the General Insurance business, James Douglas who came to TOWER in April this year, took management responsibility for a business that was in recovery mode. While the Pacific Islands operations continued to perform well, the New Zealand parts of the business were only just beginning to show positive signs of progress. This positive progress has continued more strongly in the second half of the financial year, reaching an after tax profit which was 57% higher than the previous year.

General Insurance

The division has invested a substantial amount in the last year on systems development to ready it for both the “PIE” regime and for its role as a KiwiSaver default provider. In accordance with TOWER’s conservative accounting policy, these costs have largely been expensed in the year incurred.

KiwiSaver has started well, with the uptake considerably faster than originally expected and TOWER’s position as a default provider presents us with future growth opportunities that we are well placed to take advantage of.

OUTLOOk

Year Ended 30 September 2007

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NZ $million 2007 2006 Change
Net premiums 184.1 178.5 +3%
Incurred claims (109.1) (109.7) -
Expenses (65.4) (61.6) +6%
Underwriting profit 9.6 7.2 +33%
Investment returns 11.3 9.2 +23%
Tax (8.5) (8.5) -
Profit after tax 12.4 7.9 +57%
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The improved underwriting profit was achieved through a combination of higher premiums earned, coupled with a constant level of claims notwithstanding several adverse weather events in New Zealand. A further positive effect came from higher investment returns due largely to the effect of rising interest rates on short dated assets.

These are all pleasing trends and our key strategy of rebuilding outstanding customer service will, we hope, cement them in place for the future.

With a satisfactory first year now behind us since the de-merger, TOWER is well positioned to move ahead. A strong and talented management team is in place, our staff resources are well balanced and our business strategies and plans have been determined. There is no shortage of opportunities for us to build upon – some of them inside the business and some outside. Our clear objective is to achieve excellent shareholder returns, which we will do by delivering great products to our customers with outstanding service.

Rob Flannagan Group Chief Executive Officer

INVESTMENTS

Led by divisional CEO Tony Hildyard, the Investments business maintained its position as a leading wholesale funds manager in the New Zealand market. Investment markets performed well during the year and even though total funds under management saw a slight reduction, the division responded with a 12% improvement in after tax profit.

Investments

Year Ended 30 September 2007

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NZ $million 2007 2006 Change
Total income 51.0 52.8 -3%
Total expenses (38.9) (42.1) -8%
Operating Earnings 12.1 10.7 +13%
Tax (4.5) (3.9) +15%
Profit after tax 7.6 6.8 +12%
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We were particularly pleased that TOWER Investments again won the FundSource 2007 Fund Manager of the Year Award, a milestone it has achieved for 3 of the past 4 years.

TOWER’s Community Commitment

TOWER remains firmly committed to enhancing the lives of New Zealanders through a proactive and dynamic sponsorship portfolio. We take our partnerships very seriously as through these events and activities we are able to make a significant and positive impact on the communities in which we relax and work.

TOWER’s current partnerships have been forged as a result of careful analysis and assessment of many diverse community opportunities – whilst we cannot support every proposal that we receive, we are proud that we are involved in sponsorships that have a wide reach right across the country and that do touch the lives of New Zealanders from all walks of life.

One of TOWER’s key partnerships in 2006/07 was as a staunch supporter of the Royal New Zealand Ballet. This is the fifth year that TOWER has presented a “TOWER Season” with the ballet company and this year we were

proud to deliver “TOWER Tutus on Tour” for the first time. Geographically, no part of New Zealand was left untouched as the magic of dance was brought alive to almost 50 New Zealand cities and towns from Akaroa to Kaitaia, Greymouth to Te Kuiti. Hardly a seat was left unfilled as provincial and urban New Zealander families saw the ballet company perform to sell out houses nationwide. In early 2008, TOWER will present the TOWER Season of Red which promises to be a season not to be missed!

This year TOWER marked its eighth year as the Principal Sponsor of the world class TOWER New Zealand Youth Choir and its sister choir, TOWER Voices New Zealand. Both Choirs fulfilled a challenging and full programme of domestic and international travel during the year when once again, their expertise and word class status was reaffirmed guided by the outstanding Dr Karen Grylls.

TOWER’s companies also continue to individually support a number of events including awards and conferences, along with iconic events such as the Ellerslie Flower Show which was a major commitment for TOWER Insurance in the past year.

Tower Group Senior Management

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Back row - Steve Boomert CEO Health & Life, Tony Dixon Chief Information Officer, Maree Webster Group Chief Financial Officer, Tony Hildyard CEO Investments. Front row - Judy Newcombe GM People, Performance & Strategy, Rob Flannagan Group CEO, James Douglas CEO General Insurance.

8 TOWER Annual Report 2007

Corporate Governance

TOWER’s board and the management team have a responsibility to achieve the highest standards of corporate performance, ethical behaviour and accountability. The board has adopted and developed corporate governance structures and practices that are consistent with best practice and ensure the integrity of the governance framework, with continual reassessment of its practices against these standards. Where developments arise in corporate governance, the board is committed to review TOWER’s practices and incorporate changes where appropriate to ensure TOWER maintains best practice governance structures.

COMPLIANCE WITH GOVERNANCE REQUIREMENTS AND RECOMMENDATIONS

As TOWER securities are listed on the New Zealand and Australian Stock Exchanges, TOWER adheres to the New Zealand Exchange Limited (NZX) Listing Rules; the NZX Corporate Governance Best Practice Code; the New Zealand Securities Commission Corporate Governance Principles and Guidelines; the Australian Stock Exchange Limited (ASX) Listing Rules; and the ASX Corporate Governance Council Best Practice Recommendations.

For the reporting period to 30 September 2007, TOWER considers its corporate governance practices have complied with the NZX Corporate Governance Best Practice Code and the ASX Corporate Governance Council Best Practice Recommendations.

Copies of the principal governance documents and more detail about TOWER’s governance practices are available on TOWER’s website at www.towerlimited.com under ‘Corporate Governance’.

HOW TOWER’S BUSINESS PRACTICES REFLECT CORPORATE GOVERNANCE BEST PRACTICE

Role of the TOWER Board of Directors

The Board, elected by TOWER shareholders, is responsible for the performance of the TOWER Group as a whole. In practice, this is achieved through formal delegation to the Group Chief Executive Officer (Group CEO) and to its three Board committees (Audit and Compliance Committee, Remuneration and Appointments Committee, and Investment Committee – the role of each of these committees is outlined on pages 14 and 15).

The day-to-day leadership and management of the Group is undertaken by the Group CEO and senior executives. The Group CEO has also formally delegated certain functions to senior management to ensure

consistent and efficient decision-making across the Group. Executives have no power to do anything which the Group CEO cannot do pursuant to his delegations. Within this formal delegation framework those executives who report directly to the Group CEO have authority to sub-delegate certain authorities to their direct reports. The Board meets regularly with management to provide strategic guidance for TOWER and effective oversight of management.

Each year the Board holds a strategy session with senior management to review TOWER’s business direction. The application of these strategies within each business area is reviewed regularly at Board meetings.

The Board is primarily governed by the Board Charter, Board Protocols and the Code of Ethics. The Board Charter records the Board’s roles and responsibilities, the Board Protocols describe internal Board procedures for efficient decision-making and the Code of Ethics ensures decisionmaking is in accordance with TOWER’s values. These documents can be found under ‘Corporate Governance’ on TOWER’s website at www.towerlimited.com.

The Board Charter records that the primary role of the Board is to effectively represent and promote the interests of shareholders with a view to enhancing growth and returns across the Group, adding long-term value to TOWER shares. The Board, when fulfilling its roles and responsibilities, is required to have appropriate regard to TOWER values, the concerns of its shareholders, its relationships with significant stakeholders and the communities and environment in which it operates.

The Board reserves certain functions to itself. These include:

determining the Group’s strategic objectives, and approving annual operating plans, financial targets and capital expenditure plans;
assessing and monitoring performance, including management’s performance against the strategic objectives, operating plans and financial targets;
approving all changes to the Group’s corporate structure where these are of strategic importance;
determining Group financial and treasury strategies and policies, including approving all dividend policies and distributions to shareholders, lending and borrowing, tax, and investment and Foreign Exchange policies;
determining the Group risk management policies and framework and the Group information technology strategies and policies;
approving capital expenditure, operating expenditure, asset acquisitions and divestments, and settlement of legal proceedings, in all cases where this is outside the normal course of business and/or above delegated limits;
approving all transactions relating to major business and company acquisitions, mergers and divestments; and
approving the appointment and remuneration of the Group CEO.

TOWER Annual Report 2007

Corporate Governance

BOARD COMPOSITION, NOMINATIONS AND APPOINTMENTS

Board composition

At 30 September 2007 the Board included six nonexecutive Directors. The TOWER Constitution requires a minimum of six Directors and a maximum of nine.

The Remuneration and Appointments Committee is responsible for identifying Directors for appointment to the Board to ensure there is an appropriate blend of commercial skills and experience to govern and add value to the TOWER businesses. The Committee is also responsible for the Board Protocols which have been established to facilitate the effective operation of the Board. Current Directors contribute significant commercial, financial, legal and investment skills to the Board. Directors’ profiles are on pages 12 to 13.

Role of Chairman

The Chairman’s role is to lead and manage the Board so that it operates effectively, and to facilitate interaction between the Board and the Group CEO. The Group CEO is charged with the day-to-day leadership and management of the TOWER Group.

The Chairman of the Board is elected by the Directors. The Board supports the separation of the roles of Chairman and Group CEO and these roles have always been separate at TOWER. Tony Gibbs was appointed Chairman of TOWER Limited on 19 December 2006, replacing Keith Barton who retired to become Chairman of TOWER Australia Group Limited following the completion of the separation of TOWER Limited and TOWER Australia Group Limited.

Nominations, appointments and ongoing education

The Remuneration and Appointments Committee recommends to the Board suitable candidates for appointment as Directors. The Committee will consider, among other things:

the candidate’s experience as a Director;

On appointment to the Board, Directors receive a formal letter of appointment outlining their duties and obligations and are provided induction information about TOWER in the form of a Director’s Manual. The Director’s Manual contains a historical background on TOWER and its operations, information about how the Group is structured, details of the company’s Directors’ and officers’ insurance, the Board Charter and other TOWER corporate governance policies. The induction process also involves one-on-one discussions with the Chairman, other Directors and briefings from senior management to help new Directors participate actively in Board decisionmaking at the earliest opportunity.

To ensure ongoing education, Directors are regularly informed of developments that affect TOWER’s industry and business environment, as well as Company and legal issues that impact the Directors themselves. The Directors receive comprehensive board papers and briefing information before Board meetings including a report from the Group CEO and divisional reports from the CEO of each business unit. Directors have unrestricted access to management and any additional information they consider necessary for informed decision-making. The Company Secretary is usually the first point of contact for such requests.

Senior management also attend Board meetings in order to provide presentations to the Board and answer any queries Directors may have. This allows the Board to understand the practical issues affecting TOWER and the impact of these issues on its performance.

Directors are expected to develop their skills, competencies and industry knowledge by taking responsibility for their continuing education.

A Director may obtain independent professional advice relating to the affairs of TOWER or his/her responsibilities as a Director or Board Committee member. Where the Director has the approval of the Board Chairman or Committee Chairman to obtain independent professional advice, TOWER will meet the reasonable costs of the advice.

their skills, expertise and competencies (including in the financial services industry);
the extent to which those skills complement the skills of existing Directors;
their ability to devote sufficient time to the directorship; and
the candidate’s reputation and integrity.

10 TOWER Annual Report 2007

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Director Independence

The Board Protocols require that a majority of the Board are independent Directors. The Board regularly assesses the independence of each Director based on the interests disclosed by them. For this purpose Directors are required to immediately advise the Board of any new or changed relationships so the Board can make this assessment.

Based on the NZX Listing Rules and the ASX Corporate Governance Council Best Practice Recommendations, the Board Protocols define a Director as being independent if he/she is a Non-executive Director who does not have any direct or indirect interest or relationship that could, or could reasonably be perceived to:

reasonably influence, in a material way, his/her decisions relating to TOWER; or
materially interfere with his/her ability to act in the company’s best interests.

Examples of relationships that remove independence are relationships with a material TOWER customer, supplier, professional advisor or substantial shareholder. Currently, the Board considers that four of the Directors are independent, namely: Bill Falconer, John Spencer, Susie Staley and Denis Wood. The Board considers that Tony Gibbs and Mike Jefferies are not independent as a result of their appointment to the TOWER Board by Guinness Peat Group, a substantial shareholder of TOWER.

In accordance with TOWER’s Constitution, Directors with an actual or potential conflict of interest on particular issues are required to disclose the conflict and may still attend meetings but will abstain from voting on that issue.

Retirement and re-election

At least one-third of the total number of Directors must retire from office each year by rotation and, if they choose, stand for re-election by shareholders at the Annual Meeting. The Directors who retire each year are those who have been in office longest since their last election. If two Directors have held office for equal terms and cannot agree who will retire, it is determined by lot.

Board and Committee Performance Review

The Board recognises that the performance of the Directors, and Board Committees are crucial to TOWER’s success and to the interests of shareholders. The Board reviews its own composition and performance and that of the Board Committees in accordance with the terms of the Board Charter. The Remuneration and Appointments Committee is responsible for the performance management and annual appraisal of the Group CEO and individual Directors. Evaluations may be carried out by an external consultant.

Director share ownership

All Directors are required by the company’s constitution to hold TOWER shares. Directors and management are required to comply with TOWER’s Insider Trading Guidelines when purchasing and disposing of TOWER securities. The number of shares held by each Director and their dealings in TOWER securities during the financial year are disclosed on page 24.

Indemnities and Insurance

TOWER has given Deeds of Indemnity to Directors for potential liabilities and costs they may incur for acts or omissions in their capacity as Directors. Directors’ and Officers’ liability insurance is in place for Directors and employees acting on behalf of TOWER and its subsidiaries. While the insurance covers risks arising out of acts or omissions of Directors and employees acting for TOWER, it does not cover dishonest, fraudulent or malicious acts or omissions, or criminal liability.

Attendance at Board and Committee Meetings

The Board held 11 scheduled meetings during the year from 1 October 2006 - 30 September 2007. Director attendance at the Board meetings is set out on page 16. The Company Secretary attends all Board and Committee meetings. He is responsible for taking accurate minutes of each meeting and ensuring that Board procedures are observed.

In addition, all Directors appointed by the Board since the last Annual Meeting to fill a casual vacancy must stand for election. Shareholders will be provided with relevant information on the Directors standing for reelection prior to the Annual Meeting to enable them to make informed decisions when voting.

TOWER Annual Report 2007 11

Corporate Governance

Directors’ Profiles

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TONY GIBBS

FInstD

Chairman. Non-Executive.

Not independent

Appointed: 27 March 2003 Last Re-Elected: 2007

Board Committee Memberships: Chairman of Remuneration and Appointments Committee. Mr Gibbs was elected to TOWER’s board in 2003 and brings more than 25 years history of a diverse range of management and directorship experience to the board covering mergers, acquisitions, divestments and restructuring.

He is chairman of Turners & Growers Limited and Staveley Inc, and a director of the following companies: Coats plc, Coats Holdings Limited, Guinness Peat Group plc, Guinness Peat Group New Zealand Limited, GPG Forests Limited, GPG Shares Limited, Turners & Growers Fresh Limited, Ithaca Custodians Limited, Ezypeel Mandarins Limited, and Aeneid Seventeen Limited. Mr Gibbs was previously chairman of a number of companies including: AGB McNair Limited, Tyndall Life NZ Limited, Turners Auctions Limited, Tenon Limited and the New Zealand Guardian Trust Co Limited (deputy chairman). He is a former director of companies including The Colonial Motor Company Limited, Tyndall Australia Limited, Wrightson Limited, Enza Limited, Staveley Industries plc and Rubicon Limited. He is resident in Auckland, New Zealand.

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BILL FALCONER LLB, CNZM, DFloD

Non-Executive Director

Independent

Appointed: 31 December 2003 Last Re-Elected: 2006

Board Committee Memberships: Member of Audit and Compliance Committee.

Mr Falconer joined the TOWER board in December 2003. He has had a successful career as a public servant, lawyer and company director. He is currently the chairman of Hellaby Holdings Limited, Oyster Bay Marlborough Vineyards Limited, Waterfront Partnership and the Meat Industry Association, and a director of Westfield Trust (NZ) Limited and the New Zealand Symphony Orchestra. He is resident in Cambridge, New Zealand.

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MICHAEL JEFFERIES BCom, CA

Non–Executive Director

Not independent

Appointed: 19 December 2006 Elected: 2007

Board Committee Memberships: Member of Audit and Compliance Committee, Member of Investment Committee.

Mr Jefferies joined the TOWER board in December 2006. He is a chartered accountant with extensive experience in finance and investment and is a senior executive of Guiness Peat Group. Mr Jefferies is currently chairman of TAFMO Limited, and deputy chairman of TOWER Australia Group Limited, a director of Ozgrowth Limited and Metals X Limited. He is resident in Perth, Australia.

12 TOWER Annual Report 2007

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JOHN SPENCER BCom, FCA

Non-Executive Director

Independent

Appointed: 1 October 2003 Last Re-Elected: 2006

Board Committee Memberships: Chairman of Audit and Compliance Committee.

Mr Spencer joined the TOWER board in October 2003 and has been chairman of the Audit and Compliance Committee since December 2003. He brings to the board significant financial and commercial expertise gained over many years from senior management positions he has held with a number of major companies in New Zealand and overseas. Prior to the formation of Fonterra, he was the Chief Executive Officer of New Zealand Dairy Group. Mr Spencer is chairman of Tainui Group Holdings Limited, Telfer Young Limited and AsureQuality Limited, deputy chairman of Solid Energy New Zealand Limited and the Accounting Standards Review Board, and a director of WEL Networks Limited and Waikato Regional Airport. He is a past director of the Institute of Chartered Accountants, receiving the ‘Valued Contribution to the Profession’ award in 2002. He is resident in Wellington, New Zealand.

SUSIE STALEY LLB (Otago), FNZIM, FInstD

Non-Executive Director

Independent

Appointed: 1 October 1999 Last Re-Elected: 2007

Board Committee Memberships: Member of Remuneration and Appointments Committee, Member of Investment Committee.

Ms Staley was elected to TOWER Corporation’s Board in 1996. She served on several due diligence committees for the Group and was chairman of the capital raising programme in 2003 and the separation project in 2006.

A property and business lawyer, Susie Staley has a background in strategic management and brings a wide range of business and corporate experience to the Board. She is currently chairman of Maritime New Zealand, a director of Global Technologies (NZ) and a trustee of University of Otago Foundation Trust. She was formerly the chairman of Ngai Tahu Property Management Limited, and a director of Dunedin International Airport and PGG Wrightson Limited. Susie is an Accredited Director and a member of the IOD Accreditation board. She is resident in Dunedin, New Zealand.

DENIS WOOD

MA (Hons) Economics

Non-Executive Director

Independent

Appointed: 27 May 2005 Elected: 2006

Board Committee Memberships: Chairman of Investment Committee.

Mr Wood was appointed to the TOWER board in May 2005. He previously had a career in investment banking and has extensive experience in investment management, corporate restructuring, strategic planning and capital raising. Mr Wood is on the board of Radius Health Group and is chairman of Mercy Hospice Auckland Limited. He is resident in Auckland, New Zealand.

TOWER Annual Report 2007 13

Corporate Governance

Board Committees

The Board has three standing Committees: the Audit and Compliance Committee, the Remuneration and Appointments Committee, and the Investment Committee. Other Committees are established from time to time to examine specific issues as required by the Board.

The Committees are governed by written terms of reference, which detail their specific functions and responsibilities. The terms of reference for each Committee are reviewed annually. Copies of each Committee’s terms of reference are available on the TOWER website at www.towerlimited.com.

The Committees make recommendations to the Board. They have no decision-making ability except where expressly provided by the Board. The Board annually confirms the membership and Chairmanship of each of the Committees. The experience and skills of the individual Committee members are set out in the Directors’ profiles on pages 12 to 13. Member attendance at each Committee meeting is set out on page 16.

AUDIT AND COMPLIANCE COMMITTEE

MEMBERS: JOHN SPENCER (CHAIRMAN), BILL FALCONER AND MIKE JEFFERIES.

TOWER has a structure to independently verify and safeguard the integrity of the Group’s financial reporting. The principal components of this are the Audit and Compliance Committee, the external and internal auditors, and the certifications provided to the Board by senior management.

Terms of Reference of the Audit and Compliance Committee include the following duties and responsibilities:

independently and objectively review the financial information presented by management to the Board, the external auditors and the public;
review draft half year and annual financial statements and the external auditor’s report, and make recommendations to the Board as to their adoption;
oversee the performance of the external auditor and to
be satisfied as to its independence;
review the effectiveness and efficiency of management processes, Group risk management and internal financial controls and control systems;
monitor and review compliance with regulatory and
statutory requirements and obligations;
monitor the internal audit function and receive regular reports from the internal auditors on risks, exposures and compliance;
maintain open and direct lines of communication with the external and internal auditors; and
make recommendations to the Board as to the
appointment of the external auditors.

The Audit and Compliance Committee meets with the internal auditors four times during the financial year and with the external auditors at least twice.

The Terms of Reference require that the Committee has a minimum of three suitably qualified Non-Executive Directors, the majority of whom are independent. The Board appoints the Chairman of the Committee, who cannot also be Chairman of the Board.

Following each meeting the Chairman of the Committee provides a report to the Board. The Chairman also provides an annual report summarising the Committee’s activities, findings, recommendations and results for the past year.

14 TOWER Annual Report 2007

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REMUNERATION AND APPOINTMENTS COMMITTEE

MEMBERS: TONY GIBBS (CHAIRMAN) AND SUSIE STALEY.

The Remuneration and Appointments Committee advises the Board in respect of a number of matters, including:

the appointment and succession of Board Directors, and Director remuneration; and
the Group CEO and senior executive appointments, termination, performance appraisal and remuneration.

The Terms of Reference for the Remuneration and Appointments Committee require that the Committee comprises suitably qualified Non-Executive Directors. The Board appoints the Chairman of the Committee.

INVESTMENT COMMITTEE

MEMBERS: DENIS WOOD (CHAIRMAN), MIKE JEFFERIES AND SUSIE STALEY.

The Investment Committee has various duties and responsibilities, including:

reviewing investment policy for TOWER shareholder and policyholder funds;
reviewing risk management policy and statements in respect of investment management, including derivative policy;
considering the establishment, adjustment or deletion of limits and counter-party approvals, and the scope of financial instruments to be used in the management of TOWER’s investments;
reviewing the appointment of external investment managers;
monitoring investment and fund manager performance; and
monitoring compliance with investment policies and client mandates.

The Terms of Reference for the Investment Committee require that the Committee comprise a minimum of two suitably qualified Non-Executive Directors. The Board appoints the Chairman of the Committee, who must be a Non-Executive Director but cannot also be Chairman of the Board.

TOWER Annual Report 2007 15

Corporate Governance

Attendance and Remuneration

2006/2007 TOWER LIMITED DIRECTORS’ ATTENDANCE RECORD

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TOWER Limited Investment Remuneration & Audit & Compliance
Board Committee Appointments Committee Committee
Number of Meetings Number of Meetings Number of Meetings Number of Meetings
Attended Attended Attended Attended
Meetings Held 11 4 4 5
Keith Barton 3 (of 3) - 1 (of 1) -
Bill Falconer 9 - - 5
Tony Gibbs 11 - 4 -
Mike Jefferies 10 4 - 3 (of 3)
Jim Minto 3 (of 3) 1 (of 1) - -
John Spencer 11 - - 5
Susie Staley 11 4 4 -
Gary Weiss 3 (of 3) 1 (of 1) - -
Denis Wood 11 4 - 2 (of 2)
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1 Tony Gibbs was appointed Chairman on 12 December 2006.

2 Keith Barton, Jim Minto and Gary Weiss retired from the Board on 19 December 2006 following the de-merger.

3 Mike Jefferies was appointed as a Director on 12 December 2006. He was an alternate Director from 1 October to 11 December.

REMUNERATION

TOWER’s remuneration policies aim to attract and retain talented and motivated Directors and employees who will contribute to enhanced Group performance. TOWER aims to provide employees with remuneration that is competitive, equitable and related to the achievement of individual, team and business unit objectives. TOWER rewards high performing staff for providing superior performance.

The Remuneration and Appointments Committee role

The Remuneration and Appointments Committee is responsible for assisting and advising the Board in relation to:

remuneration strategy, structure and policy;
remuneration of the Group CEO;
setting Non-Executive Directors’ remuneration;
setting Board Committee Members’ fees and;
determining remuneration packages of Senior Executives, following recommendations from the Group CEO.

16 TOWER Annual Report 2007

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Non-executive Directors

The Board’s policy is to remunerate Directors at a similar level to comparable Australasian companies, with a small premium to reflect the complexity of the insurance and financial services sector. At the Annual Meeting in February 2004 shareholders approved an increase in Director remuneration to the current maximum of NZ$900,000 per annum. TOWER seeks external advice when reviewing Board remuneration. The Remuneration and Appointments Committee is responsible for reviewing Directors’ fees.

The annual fees currently paid are as follows:

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Board Chairman NZ$130,000 for chairing the
TOWER Limited Board
Non-Executive Directors NZ$78,570 for serving on the
TOWER Limited Board
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Non-Executive Directors are paid additional annual fees for serving on Board Committees as follows:

Audit & Compliance Committee

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|||
|---|---|
|Chairman|NZ$15,000|
|Members|NZ$9,000|
|Remuneration & Appointments Committee|
|Chairman|NZ$7,500|
|Members|NZ$5,000|
|Investment Committee|
|Chairman|NZ$7,500|
|Members|NZ$5,000|

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Additional fees may be paid to Non-Executive Directors for one-off tasks and/or additional appointments where required for example, sitting on a due diligence committee.

The remuneration policy for Non-Executive Directors does not include participation in either a share or share option plan.

Particular TOWER Directors are entitled to a retirement allowance on their retirement from the TOWER board. At the 2004 Annual Meeting shareholders approved an increase in the maximum amount of Directors’ fees. In exchange for the increase and to provide greater transparency for remuneration the Board resolved that retirement allowances would cease to accrue from 1 October 2003. Allowances are paid as a lump sum on retirement from the Board. The retirement allowance is calculated by dividing the relevant Director’s number of years service by nine and multiplying the result by the Director’s remuneration for a three year period.

The retirement allowances which have accrued are:

Susie Staley $101,101 to be paid on retirement.

Note: To be eligible for a retirement allowance a Director needs to be in office for at least three years prior to 1 October 2003. For this reason no other TOWER Directors are eligible for a retirement allowance.

2006/2007 Directors’ Remuneration and Benefits

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TOWER Limited Board
2007 2006
Director’s Director’s
Fees Other Fees Other
Keith Barton [3] 33,846 - 98,708 -
Bill Falconer 87,570 - 87,570 -
Tony Gibbs 137,500 - 83,570 -
Mike Jefferies 72,725 - - 5,000
Jim Minto [1,3] - 137,535 - 1,262,914
Olaf O’Duill [2] - - 106,827 48,375
John Spencer 93,570 - 93,570 -
Susie Staley 88,570 - 83,570 -
Gary Weiss [3] 18,316 - 83,570 -
Denis Wood 90,916 - 115,544 -
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1 Executive Director, received salary rather than Director’s fees.
2 Ceased to be a TOWER Limited Director during 2005-06. Includes retirement payment.
3 Ceased to be a TOWER Limited Director during 2006-07.

TOWER Annual Report 2007 17

Corporate Governance

2006/2007 Staff Remuneration

Employee remuneration above NZ$100,000 for the year ended 30 September:

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Bands
From To 2006/2007 2005/2006
100,000 109,999 24 36
110,000 119,999 11 30
120,000 129,999 12 34
130,000 139,999 12 21
140,000 149,999 12 21
150,000 159,999 3 14
160,000 169,999 4 11
170,000 179,999 5 18
180,000 189,999 3 6
190,000 199,999 1 8
200,000 209,999 1 9
210,000 219,999 4 7
220,000 229,999 2 4
230,000 239,999 1 4
240,000 249,999 1 5
250,000 259,999 - 3
260,000 269,999 - 3
270,000 279,999 2 3
280,000 289,999 1 6
290,000 299,999 3 2
300,000 309,999 - 5
310,000 319,999 1 1
320,000 329,999 2 1
340,000 349,999 - 1
360,000 369,999 1 -
370,000 379,999 1 -
380,000 389,999 - 2
390,000 399,999 - 4
410,000 419,999 1 -
420,000 429,999 1 1
430,000 439,999 - 1
450,000 459,999 - 1
460,000 469,999 - 1
480,000 489,999 - 1
500,000 509,999 - 2
550,000 559,999 - 1
560,000 569,999 1 -
590,000 599,999 - 1
600,000 609,999 - 1
610,000 619,999 - 1
650,000 659,999 1 -
660,000 669,999 1 -
670,000 679,999 - 1
700,000 709,999 1 1
780,000 789,999 - 1
790,000 799,999 1 -
920,000 929,999 - 1
1,250,000 1,259,999 - 1
Total 114 275
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The remuneration bands are expressed in NZ dollars and include TOWER Australia for the period from 1 October 2006 until separation.

18 TOWER Annual Report 2007

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Audit and Risk Management at TOWER

RISk MANAGEMENT

TOWER has established a framework to identify, assess, monitor and manage risk. At the forefront of this are the internal audit and compliance processes, and the comprehensive risk management process for each operating company. The Risk Management Charter establishes the framework to ensure a formal and consistent process of risk identification, assessment, mitigation, management and acceptance, and a regular review of risk is carried out across the Group. The Risk Profile describes the material financial and non-financial risks for the Group and how they are managed. Each company has documented its key risks and action plans to mitigate them. These processes are incorporated into the regular strategic review process.

The Audit and Compliance Committee is responsible for monitoring Group risks and exposures, and compliance with statutory obligations. The executive management team regularly reports to the Committee on risk management.

Internal audit

TOWER contracts the independent Chartered Accounting firm Ernst & Young to carry out the Internal Audit function. Ernst & Young report to the Chairman of the Audit and Compliance Committee and have full access to other Committee members and the Board. The Committee approves the Internal Audit Charter that governs the internal audit function across the Group.

The Internal Audit Charter formally records the delegations the Audit and Compliance Committee has made to the Internal Auditor in relation to the internal control systems and processes of the Group businesses. The Audit and Compliance Committee approves the appointment of the Internal Auditor following the Group CEO’s recommendation.

The internal auditors help the Board and the Group exercise good corporate governance and meet their regulatory obligations by providing them with independent assurance of the adequacy and effectiveness of internal control systems and processes within TOWER. The internal auditors have unrestricted access to TOWER information and staff, and are completely independent of the activities and operations they audit.

EXTERNAL AUDIT

The TOWER Board is fully committed to ensuring the quality and independence of the external audit process. As part of this process TOWER encourages full and frank disclosure and discussions between the Board, TOWER’s internal auditors, management and the external auditor (PricewaterhouseCoopers (PwC)).

PwC was re-appointed as auditor by shareholders at the Annual Meeting in 2007 to audit the TOWER and Group Financial Statements.

A formal engagement letter with PwC sets out the respective obligations and responsibilities of PwC and the company in relation to preparation and audit of financial statements, and the integrity of the Group’s financial systems. The Board also has a formal External Audit Independence Policy that includes the provision of non-audit services by the external auditor. This policy specifies which services the external auditor may and may not provide TOWER. The policy is overseen by the Audit and Compliance Committee. The External Audit Independence Policy is available on TOWER’s website at www.towerlimited.com under the ‘Corporate Governance’ section.

Non-audit services provided by PwC to the Group during the accounting period did not, in TOWER’s opinion, affect auditor independence. PwC is also required to provide the Audit and Compliance Committee with an annual certification of its continued independence, and in particular confirm that it has not carried out any engagements during the year which would impair its professional independence.

Representatives from TOWER’s external auditor will be present at the Annual Meeting and will be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.

PwC was paid NZ$1,044,248 for audit-related work and NZ$308,000 for non-audit related work (refer to Note 7 of the Financial Statements on page 39).

GROUP CORPORATE GOVERNANCE POLICIES AND PROCEDURES

To support the Board’s aims of developing and fostering corporate governance practices which are consistent with best practice, TOWER has developed a number of Group corporate governance policies that apply to all Directors and employees of TOWER. Summaries of some of these policies are discussed on the following page and where indicated copies are available on TOWER’s website at www.towerlimited.com under the ‘Corporate Governance’ section.

TOWER Annual Report 2007 19

Corporate Governance

Regulatory Disclosures

Ethical and Responsible Behaviour

TOWER is committed to meeting its legal and other obligations to stakeholders, including shareholders, employees, customers, policyholders and the wider community.

Maintaining TOWER’s reputation for honesty and fairness is crucial to its success as a financial services business. The Board has adopted a Code of Ethics which is an important tool for achieving these aims as it sets out the minimum standards of conduct and behaviour TOWER expects of its Directors, executives and employees and requires them to adhere to these standards. The Code of Ethics is available to staff both on the TOWER website and through the induction process. The types of behaviour addressed in the Code of Ethics include:

avoiding situations in which personal interest interfere or appear to interfere with the interests of TOWER;
using a person’s position at TOWER’s or TOWER’s
information or property for personal gain;
safeguarding the confidentiality of all TOWER nonpublic information; and
complying with all applicable legal requirements and ensuring that behaviour is appropriate while conducting TOWER’s business.

Any person who becomes aware of a breach or suspected breach of the Code of Ethics is required to report it to their manager immediately and the Company Secretary, who will investigate and take appropriate action as necessary.

In addition to the Code of Ethics TOWER has a Whistleblower Policy which is applicable to all staff. The policy sets out TOWER’s approach to the way in which suspicions/allegations of fraud, corruption and/or misconduct within the Group are to be reported by staff and how TOWER will deal with such incidents. The Policy provides that TOWER will ensure that a person who, in good faith, makes an allegation of misconduct under the Policy will not be personally disadvantaged by having made the report.

Insider Trading

Legal restrictions and TOWER’s Insider Trading Policy do not allow trading and dealing in TOWER securities while Directors and employees are in possession of information that has not been released to the public and that is likely to have a material effect on the price of TOWER securities. There are supplementary guidelines for Directors and designated employees (usually Senior Executives) requiring prior consent to trade, and specifying periods when trading is allowed (following half year and full year announcements). A copy of TOWER’s Insider Trading Policy is available on TOWER’s website at www. towerlimited.com.

Compliance Policy

TOWER’s approach to compliance is recorded in the TOWER Compliance Policy. The Policy sets out the key compliance responsibilities of TOWER’s Directors, executives, staff and contractors in all their business dealings. The Charter promotes TOWER’s commitment to sound corporate governance by strongly endorsing a responsible compliance environment for all of its staff. TOWER recognises that a responsible approach to corporate governance and compliance provides a foundation for business reputation and stakeholder confidence.

Market and Shareholder Communication

TOWER recognises that public confidence in the integrity of TOWER is based on continuous, full and open disclosure of information about its activities to the market and relevant stakeholders. TOWER’s Corporate Disclosure Policy provides for a planned, pro-active communication programme with shareholders and the wider investment community. A copy of TOWER’s Corporate Disclosure Policy is available on TOWER’s website at www.towerlimited.com. TOWER believes this communication programme assists in creating a fully informed market and enhances shareholder value. TOWER’s Corporate Disclosure Policy provides that only authorised spokespersons can communicate on behalf of TOWER with the investment community, shareholders and the media.

TOWER has policies and procedures in place designed to ensure that:

all investors have equal and timely access to material information concerning TOWER;
company announcements are factual and presented in
a clear and balanced way; and
TOWER complies with the continuous disclosure
requirements of the ASX and NZX.

The Company Secretary is accountable for compliance with disclosure obligations. Announcements of financial results, changes in profit forecasts and other material market announcements require Board approval.

TOWER’s corporate website, www.towerlimited.com, provides information to shareholders and investors about the Group. The website includes copies of past Annual Reports, results announcements, Investor Reports, media releases (including NZX and ASX Announcements), and general TOWER information.

20 TOWER Annual Report 2007

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Announcements

TOWER makes the following regular announcements to the market and shareholders:

full year results are announced in late November;
TOWER’s Annual Report is released in late December;
TOWER’s Notice of Annual Meeting is sent to shareholders in late December;
half year results are announced in late May; and
half year reports are sent to shareholders in late June.

Credit Rating

TOWER Limited has an AM Best credit rating of BBB-.

Shareholder Analysis

TOWER’s shares are quoted on both the NZX and ASX. As at 30 November 2007, 23,975 TOWER shareholders held less than A$500 (ie, less than a marketable parcel as defined in the ASX Market Rules) of TOWER shares.

Total Voting Securities

As at 30 November 2007 TOWER had 189,393,353 ordinary shares on issue. TOWER’s ordinary shares each carry a right to vote on any resolution or a poll at a meeting of shareholders. Holders of ordinary shares may vote at a meeting in person, or by proxy, representative or attorney. Voting may be conducted by show of hands or poll.

TOWER Annual Report 2007 21

Corporate Governance

Substantial Security Holders

The following security holders had given notice pursuant to the Securities Markets Act 1988 that they are a substantial security holder in TOWER and hold a ‘relevant interest’ in the number of securities noted:

Guinness Peat Group plc (Ithaca (Custodians) Limited). Notice has been given in relation to 37,785,486 ordinary
shares (19.95%).
Paradice Investment Management Pty Limited. Notice has been given in relation to 17,851,535 ordinary shares (9.43%).
Macquarie Bank Limited. Notice has been given in relation to 11,398,833 ordinary shares (6.01%).
Orbis MIS – Orbis Australia Equity Fund. Notice has been given in relation to 9,494,833 ordinary shares (5.01%).

Principal Shareholders

The names and holdings of the 20 largest registered TOWER shareholders as at 30 November 2007 are:

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Ordinary Shares % of Issued Capital
1 Ithaca (Custodians) Limited 37,785,486 19.95
2 HSBC Custody Nominees (Australia) Limited 11,384,148 6.01
3 J P Morgan Nominees Australia Limited 7,891,741 4.17
4 National Nominees New Zealand Limited 7,168,470 3.79
5 Citibank Nominees (New Zealand) Limited 6,612,390 3.49
6 National Nominees Limited 4,958,462 2.62
7 Irrewarra Investments Pty Limited 4,779,197 2.52
8 HSBC Nominees (New Zealand) Limited 4,333,487 2.29
9 ANZ Nominees Limited 4,040,601 2.13
10 Accident Compensation Corporation 2,733,160 1.44
11 TEA Custodians Limited 2,685,370 1.42
12 NZ Superannuation Fund Nominees Limited 2,543,372 1.34
13 ANZ Nominees Limited - NZCSD 2,066,416 1.09
14 Asteron Life Limited - NZCSD 1,582,200 0.84
15 Irrewarra Investments Pty Limited 1,550,000 0.82
16 New Plymouth District Council 1,452,533 0.77
17 New Zealand Equity Nominee Pool - NZCSD 1,270,226 0.67
18 Cogent Nominees Pty Limited 1,104,590 0.58
19 Feta Nominees Pty Limited 1,049,306 0.55
20 Invia Custodian Pty Limited 953,156 0.50
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Shareholder Statistics (as at 30 November 2007)

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Domicile Number of holders % Number of shares %
New Zealand 43,166 72.49 120,828,549 63.80
Australia 15,585 26.19 67,425,948 35.60
Rest of World 795 1.32 1,138,856 0.60
Total 59,546 100.00 189,393,353 100.00
Size of holdings Number of holders % Number of shares %
1 - 1,000 48,755 81.88 16,769,869 8.85
1,001 - 5,000 8,841 14.85 17,738,323 9.37
5,001 - 10,000 1,037 1.74 7,380,426 3.90
10,001 - 100,000 824 1.38 19,568,764 10.33
100,001 and over 89 0.15 127,935,971 67.55
Total 59,546 100.00 189,393,353 100.00
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22 TOWER Annual Report 2007

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TOWER LIMITED DISCLOSURES

Interests Register

Each company in the Group is required to maintain an Interests Register in which the particulars of certain transactions and matters involving the Directors must be recorded. The Interests Register for TOWER Limited is available for inspection on request.

Details of matters that have been entered in the Interests Register by individual Directors during the accounting period are outlined in the table of Directors’ disclosures

below. An ‘interested’ Director may not vote on a matter in which he or she is interested unless the Director is required to sign a certificate in relation to that vote pursuant to the Companies Act 1993, or the matter relates to a grant of an indemnity pursuant to s162 of the Companies Act 1993.

Disclosure of Interest by TOWER Limited Directors

During the financial year Directors disclosed an interest, or a cessation of interest, in the following entities pursuant to section 140 of the Companies Act 1993.

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Bill Falconer Waterfront Partnership Appointed as Chairman
Tony Gibbs Vector Limited Resigned as a Director
Mike Jefferies TAFMO Limited Chairman
Australian Wealth Management Limited Director
Metals X Limited Director
TOWER Australia Group Limited Director
Ozgrowth Limited Director
Australian Wealth Management Limited Resigned as a Director
John Spencer AssureQuality Management Limited Appointed as Chairman
Denis Wood Pike River Coal Limited Resigned as a Director
Radius Health Group Limited Appointed as a Director
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Particulars entered in the TOWER Limited Interests Register

During the financial year particulars of the following transactions were entered in the Interests Register pursuant to sections 161 and 162 of the Companies Act 1993.

The renewal of the Group Directors’ and Officers’ Liability Insurance and Professional Indemnity insurance cover for the benefit of Group Directors and employees.

Use of company information by Directors

No member of the Board of TOWER Limited, nor of any subsidiary, issued a notice requesting to use information received in his or her capacity as a Director which would not have otherwise been available to that Director.

Directors’ trading in TOWER securities

TOWER Limited Directors disclosed the following acquisitions and disposals of relevant interests in TOWER shares during the financial year, pursuant to section 148 of the Companies Act 1993.

Disclosure of Trading in TOWER shares for the year ended 30 September 2007

Denis Wood 30,000 shares purchased Consideration $60,600 11 December 2006

Directors’ holdings of TOWER shares at 30 September 2007

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Ordinary Shares
Director Beneficial Associated Persons
Bill Falconer 5,509
Tony Gibbs 582 37,785,486
Mike Jefferies 2,115 37,785,486
John Spencer 3,626
Susie Staley 5,424
Denis Wood 50,960
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At the time of separation of TOWER’s New Zealand and Australian businesses, 47.6% of shares previously held by all shareholders were cancelled. The holdings shown above are the remaining shares after this adjustment together with other purchases or sales as detailed.

TOWER Annual Report 2007

Corporate Governance

TOWER SUBSIDIARY COMPANY DIRECTOR DISCLOSURES

In relation to TOWER Limited’s subsidiary companies the Companies Act 1993 requires TOWER to disclose, during the year to 30 September 2007, particulars of entries in the Interests Register, the total remuneration and value of other benefits paid to subsidiary Directors, the number of employees who received more than $100,000, donations made by the subsidiaries and amounts paid to the auditors.

Apart from some overseas subsidiaries, which are required to have local residents as Directors, no whollyowned subsidiary has Directors who are not employees of TOWER. No employee appointed as a Director of a subsidiary receives any remuneration or other benefits in his/her role as a Director. The number of such employees who are paid more than $100,000, as a result of employee remuneration, is included in the remuneration table on page 18. Auditor fees are paid on behalf of the Group as disclosed in the financial statements.

During the financial year there were no entries in any TOWER subsidiary company Interest Register pursuant to section 140 of the Companies Act 1993.

OTHER MATTERS

Limits on Acquisition of Securities under New Zealand law

regulations determine certain Investments in New Zealand by overseas persons. Generally the Overseas Investment Office’s consent is required if an ‘overseas person’ acquires TOWER shares or an interest in TOWER shares of 25% or more of the shares on issue or, if the overseas person already holds 25% or more, the acquisition increases that holding.

The New Zealand Commerce Act is likely to prevent a person from acquiring TOWER shares if the acquisition would or would be likely to, substantially lessen competition in a market.

Corporations Act 2001 (Australia)

TOWER is not subject to Chapters 6, 6A, 6B or 6C of the Corporations Act 2001 (Australia) dealing with the acquisition of shares (such as substantial holdings and takeovers).

Annual Meeting of Shareholders

TOWER Limited’s Annual Meeting of Shareholders will be held at the Ellerslie Events Centre, 80-100 Ascot Avenue, Greenlane East, Auckland, New Zealand on Tuesday 12 February 2008 at 10am.

Donations

During the financial year TOWER Group in New Zealand did not make any donations to charities (2006 NZ$11,981).

TOWER undertook to the ASX, at the time it granted TOWER a full listing (July 2002), to include the following information in its Annual Report. Except for the limitations detailed as follows TOWER securities are freely transferable under New Zealand law.

The New Zealand Takeovers’ Code imposes a general rule by which an acquisition of more than 20% of the voting rights in TOWER or an increase of an existing holding to 20% or more can only occur in certain permitted ways. These include a full or partial takeover offer in accordance with the Takeovers Code, an acquisition or an allotment approved by an ordinary resolution of shareholders, a creeping acquisition (in defined circumstances and compulsory acquisition once a shareholder owns or controls 90% or more of the voting rights in TOWER).

The New Zealand Overseas Investment Act and related

24 TOWER Annual Report 2007

Financial Statements

For the year ended 30 September 2007

Table of Contents	Table of Contents
Audit Report		26–27
Income statements		28
Balance sheets		29
Statements of changes in equity		30
Statements of cash fows		31
Notes to the fnancial statements
1	Summaryof signifcant accounting policies	32–36
2	Critical accounting judgements and estimates	37
3	Premium revenue	38
4	Investment revenue	38
5	Fee and other revenue	38
6	Claims expense	38
7	Other expenses	39
8	Taxation	40–42
9	Receivables	42
10	Financial assets at fair value throughproft or loss	42
11	Investmentproperty	43
12	Intangible assets	43–44
13	Investments in subsidiaries	44
14	Deferred acquisition costs for non-life insurance contracts45
15	Property, plant and equipment	45
16	Payables	46
17	Provisions	46
18	Interest bearingliabilities	47
19	Insurance liabilities	47
20	Other liabilities	47
21	Contributed equity	47–48
22	Retainedprofts/ (Accumulated losses)	48
23	Reserves	48

24	Distributions to shareholders	49
25	Segmental reporting	49
26	Life insurance business	50–56
27	General and health insurance business	57–60
28	Risk management and fnancial
	instrument information	61–63
29	Operatingleases	63
30	Cash and cash equivalents	63
31	Contingent liabilities	64
32	Capital commitments	64
33	Share basedpayments	64
34	Transactions with relatedparties	65
35	Disclosures on asset restrictions and managed assets	66
36	Guaranteed returns on funds invested -
	life insurance companies	66
37	Investment linked and non-investment linked business
	of life insurance companies	66
38	Earningsper share	67
39	Discontinued operations	67–72
40	Acquisition	72–73
41	Impact of amended NZ IFRS	73
42	Subsequent events	73
43	Companyinformation	73

TOWER Annual Report 2007

Audit Report

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Auditors’ Report

To the shareholders of TOWER Limited

PricewaterhouseCoopers 188 Quay Street Private Bag 92162 Auckland, 1142 New Zealand Telephone +64 9 355 8000 Facsimile +64 9 355 8001 www.pwc.com/nz

We have audited the financial statements on pages 28 to 73. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 30 September 2007and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 32 to 36.

Directors’ Responsibilities

The Company’s Directors are responsible for the preparation and presentation of the financial statements which give a true and fair view of the financial position of the Company and Group as at 30 September 2007 and their financial performance and cash flows for the year ended on that date.

Auditors’ Responsibilities

We are responsible for expressing an independent opinion on the financial statements presented by the Directors and reporting our opinion to you.

Basis of Opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:

(a) the significant estimates and judgements made by the Directors in the preparation of the financial statements; and

(b) whether the accounting policies are appropriate to the circumstances of the Company and Group, consistently applied and adequately disclosed.

We conducted our audit in accordance with generally accepted auditing standards in New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as auditors.

26 TOWER Annual Report 2007

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Auditors’ Report TOWER Limited

Unqualified Opinion

We have obtained all the information and explanations we have required.

In our opinion:

(a) proper accounting records have been kept by the Company as far as appears from our examination of those records; and
(b) the financial statements on pages 28 to 73:
(i) comply with generally accepted accounting practice in New Zealand;
(ii) comply with International Financial Reporting Standards; and
(iii) give a true and fair view of the financial position of the Company and Group as at 30 September 2007 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 28 November 2007 and our unqualified opinion is expressed as at that date.

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Chartered Accountants Auckland

TOWER Annual Report 2007 27

Income Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
Note NZ$000 NZ$000 NZ$000 NZ$000
Revenue from continuing operations
Premium revenue from insurance contracts 388,651 363,840 - -
Less: Outwards reinsurance expense (29,590) (28,199) - -
Net premium revenue 3 359,061 335,641 - -
Investment revenue 4 74,583 87,783 157 122
Fee and other revenue 5 47,573 48,912 - -
Net operating revenue 481,217 472,336 157 122
Claims expense 257,167 249,971 - -
Less: Reinsurance recoveries revenue (9,781) (7,612) - -
Net claims expense 6 247,386 242,359 - -
Change in health and life insurance contract liabilities (10,164) (6,119) - -
Change in life investment contract liabilities 26(a) 4,183 3,524 - -
Management and sales expenses 7 178,223 177,384 11,182 3,265
Net claims and operating expenses 419,628 417,148 11,182 3,265
Amortisation expense 12 1,187 1,131 - -
Financing costs 7 5,574 15,258 - 1,558
Profit / (Loss) before taxation 54,828 38,799 (11,025) (4,701)
Income tax expense / (credit) 8(a) 19,598 23,645 (611) (1,643)
Profit / (Loss) from continuing operations 35,230 15,154 (10,414) (3,058)
(Profit) attributable to minority interests (628) (1,064) - -
Profit / (Loss) from continuing operations attributable to
shareholders 34,602 14,090 (10,414) (3,058)
Profit from discontinued operations 39 198,030 49,404 - -
Profit / (Loss) for the year attributable to shareholders 232,632 63,494 (10,414) (3,058)
Cents Cents
Basic Earnings per share [(1)] 38 110.16 17.66
Basic Earnings per share continuing operations [(1)] 38 16.39 3.92
Basic Earnings per share discontinued operations [(1)] 38 93.77 13.74
Diluted Earnings per share continuing operations [(2)] 16.37 3.92
Alternative Earnings per share continuing operations [(3)] 38 18.27 7.47
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Notes

(1) Basic earnings per share for 30 September 2007 and 30 September 2006 are based on the weighted average number of ordinary shares outstanding during the year.

(2) Diluted earnings per share for 30 September 2007 and 30 September 2006 are based on the weighted average number of ordinary shares outstanding during the year, adjusted for the effects of all dilutive potential ordinary shares.

(3) Alternative earnings per share for 30 September 2007 is based on 189.3 million fully paid ordinary shares on issue. Earnings per share for 30 September 2006 is based on 188.5 million shares to facilitate comparison.

The above statements should be read in conjunction with the accompanying notes

28 TOWER Annual Report 2007

Balance Sheets

As at 30 September 2007

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Group Company
2007 2006 2007 2006
Note NZ$000 NZ$000 NZ$000 NZ$000
Assets
Cash and cash equivalents 30 64,237 53,484 2,304 2,018
Receivables 9 136,413 123,800 259,351 259,433
Financial assets at fair value through profit or loss 10 1,130,081 1,283,281 - -
Assets of disposal group classified as held for sale 39(a) 3,148 4,371,696 - -
Investments in subsidiaries 13 - - 188,871 188,871
Investment property 11 2,158 2,114 - -
Deferred acquisition costs 14 51,567 53,275 - -
Other assets - 231 - -
Property, plant and equipment 15 5,375 4,311 - -
Assets arising from reinsurance contracts 26 21,887 32,240 - -
Non current tax asset 8(b) 50,274 50,163 -
Deferred tax asset 8(c) 47,340 53,279 10,555 9,914
Intangible assets 12 33,714 34,264 - -
Total Assets 1,546,193 6,062,138 461,081 460,236
Liabilities
Payables 16 68,127 251,644 583,064 5,665
Current tax liabilities 10,634 16,206 - -
Liabilities of disposal group classified as held for sale 39(a) 342 3,792,936 - -
Provisions 17 8,092 8,436 - -
Interest bearing liabilities 18 87,151 198,434 - -
Insurance liabilities 19 243,602 240,868 - -
Deferred tax liabilities 8(c) 50,940 44,164 30 -
Other liabilities 20 21,128 21,927 - -
Life insurance contract liabilities 26 749,185 811,725 - -
Life investment contract liabilities 26 45,095 46,425 - -
Total Liabilities 1,284,296 5,432,765 583,094 5,665
Net Assets / (Liabilities) 261,897 629,373 (122,013) 454,571
Equity
Contributed equity 21 460,595 913,368 460,595 913,368
Retained profits / (accumulated loss) 22 (91,680) (349,716) (472,280) (461,866)
Reserves 23 (110,735) 61,804 (110,328) 3,069
Total equity attributed to shareholders 258,180 625,456 (122,013) 454,571
Minority interests 3,717 3,917 - -
Total Equity/ (Deficit) 261,897 629,373 (122,013) 454,571
NZ $ NZ $
Net asset backing per share 1.38 1.75
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The financial statements were approved for issue by the Board on 28 November 2007.

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Tony Gibbs Chairman

John Spencer Director

TOWER Annual Report 2007 29

Statements of Changes in Equity

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
Note NZ$000 NZ$000 NZ$000 NZ$000
Total equity at the beginning of the financial year 629,373 546,938 454,571 455,423
Profit / (loss) for the year 232,632 63,494 (10,414) (3,058)
Movements in retained profits:
Post acquisition retained earnings of disposed subsidiaries 22 - (2,661) - -
Realisation of foreign currency translation reserve on liquidated 22 26,175 - - -
subsidiaries recognised in equity
Other 22 (771) - - -
Total movements in retained profits 258,036 60,833 (10,414) (3,058)
Movements in reserves:
Exchange differences on translation of foreign operations 23 (59,142) 19,501 - -
Separation reserve on demerger of TOWER Australia 23 (113,000) - (113,000) -
Realisation of foreign currency translation reserve on liquidated 23 - (529) - -
subsidiaries recognised in profit
Movement in share based payments reserve 23 (397) 610 (397) 610
Movement in asset revaluation reserve 23 - (328) - -
Total movements in reserves (172,539) 19,254 (113,397) 610
Total recognised income and expense for the year 85,497 80,087 (123,811) (2,448)
Transactions with equity holders in their capacity as equity holders:
Shares issued 21 1,227 1,596 1,227 1,596
Shares cancelled on demerger of TOWER Australia 21 (454,000) - (454,000) -
Change in minority interest (200) 752 - -
Movements in equity for the financial year (367,476) 82,435 (576,584) (852)
Total equity / (deficit) at the end of the financial year 261,897 629,373 (122,013) 454,571
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The above statements should be read in conjunction with the accompanying notes

30 TOWER Annual Report 2007

Statements of Cash Flows

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
Note NZ$000 NZ$000 NZ$000 NZ$000
Cash flows from operating activities
Premiums received 388,608 142,450 - -
Reinsurance paid (29,291) (27,708) - -
Interest received 34,443 28,055 157 122
Dividends received 19,623 36,523 - -
Investment income / (loss) (13,240) 100,313 - -
Non-life company fee income 38,875 88,202 14 -
Claims expenses (321,860) (255,444) - -
Reinsurance received 20,464 9,848 - -
Payments to suppliers and employees (158,254) (139,935) - 291
Interest paid (3,423) (2,263) - -
Income taxation received / (paid) (11,278) (14,907) - -
Net cash inflow / (outflow) from operating activities 30(b) (35,333) (34,866) 171 413
Cash flows from investing activities
Net proceeds / (payments) for financial assets (14,075) (133,387) - -
Proceeds from disposal of business 176,052 - - -
Net proceeds / (payments) for purchase of property, plant and (3,711) (667) - -
equipment
Net cash inflow / (outflow) from investing activities 158,266 (134,054) - -
Cash flows from financing activities
Proceeds from issue of equity share capital 21 1,227 1,596 1,227 1,596
Proceeds from borrowings 85,000 - - -
Repayment of borrowings (197,806) - - -
Net advances to subsidiaries - - (1,112) (121)
Net cash inflow / (outflow) from financing activities (111,579) 1,596 115 1,475
Net increase / (decrease) in cash and cash equivalents 11,354 (167,324) 286 1,888
Cash and cash equivalents at beginning of year 52,856 701,077 2,018 135
Less: Cash and cash equivalents of discontinued operations 39 - (480,897) - -
Effect of exchange rate change on cash and cash equivalents - - - (5)
Cash and cash equivalents at end of year 30(a) 64,210 52,856 2,304 2,018
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Note

The Statements of Cash Flow presents the net changes in cash flow for both financial assets and property, plant and equipment. TOWER considers that knowledge of gross receipts and payments is not essential to understanding certain activities of TOWER and it is considered acceptable to report only the net changes in cash flow for these items. This is based on the fact that either the turnover of these items is quick, the amounts are large, and the maturities are short or, in the case of property, plant and equipment, the value of the sales are immaterial.

The above statements should be read in conjunction with the accompanying notes

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been applied to all the periods presented, unless otherwise stated.

BASIS OF PREPARATION

This financial report has been prepared in accordance with New Zealand Equivalents to International Reporting Standards (NZ IFRS), the Companies Act 1993 and the Financial Reporting Act 1993. The financial statements were authorised for issue by the Board of Directors on 28 November 2007.

Compliance with International Financial Reporting Standards (IFRS)

Compliance with NZ IFRS ensures that the consolidated financial statements and notes of TOWER Limited comply with IFRS. The financial statements have been prepared on a fair value basis with any exceptions noted in the accounting policies below.

SPECIFIC ACCOUNTING POLICIES

(A) PREMIUM REVENUE

Life insurance contracts

Premiums on life insurance contracts are separated into their revenue and deposit components. Where it is not practicable to split out the two components all premiums have been recognised as revenue. Where policies provide for the payment of amounts of premiums on specific due dates, such premiums are recognised as revenue when due. Unpaid premiums are recognised as revenue only during the days of grace or where secured by the surrender values of the policies concerned. Other premiums are recognised as revenue on a cash received basis.

Life investment contracts

Under life investment contracts the life companies receive deposits from policyholders which are then invested on behalf of the policyholders. No premiums are recognised as revenue. Fees deducted from members accounts are accounted for as fee revenue.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of TOWER Limited (“Company” or “parent entity”) as at 30 September 2007 and the results of all subsidiaries for the year then ended. TOWER Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities over which the consolidated entity has control, being the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the consolidated entity controls another entity.

The results of any subsidiaries acquired during the year are consolidated from the date on which control is transferred to the consolidated entity and the results of any subsidiaries disposed of during the year are consolidated up to the date control ceases.

The acquisition of controlled entities is accounted for using the purchase method of accounting.

The share of net assets of controlled entities attributable to minority interests is disclosed separately in the balance sheet and income statement.

Intercompany transactions and balances between Group entities are eliminated on consolidation.

PRINCIPLES UNDERLYING THE CONDUCT OF LIFE INSURANCE BUSINESS

The life insurance operations of the Group comprise the selling and administration of contracts which are classified as either life insurance contracts or life investment contracts. Contracts that include both investment and insurance elements are separated into these two elements and reported accordingly.

Life insurance contracts involve the acceptance of significant insurance risk. Insurance risk is defined as significant if and only if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance. Insurance contracts include those where the insured benefit is payable on the occurrence of a specified event such as death, injury or disability caused by accident or illness. The insured benefit is either not linked or only partly linked to the market value of the investments held by the life insurer, and the financial risks are substantially borne by the life insurer. Any products that do not meet the definition of a life insurance contract are classified as life investment contracts.

Life investment contracts include investment-linked contracts where the benefit amount is directly linked to the market value of the investments held. While the underlying assets are registered in the name of the life insurer and the investment-linked policy owner has no direct access to the specific assets, the contractual arrangements are such that the investment-linked policy owner bears the risks and rewards of the investment performance. The life insurer derives fee income from the administration of investment-linked policies.

Participating policyowner benefits, both vested and unvested, are treated as expenses when incurred and liabilities until paid.

General insurance

Premium revenue is recognised in the period in which the premiums are earned during the term of the contract.

The proportion of premiums not earned in the income statement at the reporting date is recognised in the balance sheet as unearned premium liability.

Premiums on unclosed business are brought to account using estimates based on the previous year’s actual unclosed business with due allowance made for any changes in the pattern of new business and renewals.

(B) FEE AND OTHER REVENUE

Fee revenue on investment contracts and other services provided by the Group is recognised in the period the services are provided.

(C) INVESTMENT REVENUE

Investment revenue is recognised as follows:

Dividends and distributions

Revenue is recognised when the right to receive payment is established. Dividends are recorded as income at the date the shares become “ex-dividend”.

Property income

Property income is recognised on an accrual basis.

Interest income

Interest income is recognised on an effective interest method.

Fair value gains and losses

Fair value gains and losses on financial assets at fair value are recognised through the income statement.

(D) CLAIMS EXPENSE

Life insurance contracts

Claims are recognised when the liability to a policyholder under a life insurance contract has been established or upon notification of the insured event. Claims are separated into their expense and withdrawal components. Claims on risk business are treated as an expense and are recognised when a liability to the policyholder is established.

Life investment contracts

There is no claims expense in respect of investment contracts. Surrenders and withdrawals which relate to life investment contracts are treated as a movement in life investment contract liabilities. Other claim amounts are similar to withdrawals and as such do not relate to the provision of services or the bearing of risk. Accordingly, they are not expenses and are treated as movements in life insurance contract liabilities.

General insurance contracts

Claims expenses are recognised when claims are notified with the exception of claims incurred not reported for which a provision is estimated (discussed in note 2(b)).

TOWER Annual Report 2007

(E) BASIS OF EXPENSE APPORTIONMENT

All operating expenses in respect of life insurance or life investment contracts have been apportioned between policy acquisition, policy maintenance and investment management expenses with regard to the objective when incurring the expense and the outcome achieved.

The apportionment process is adopted by applying the following methodology:

(i) Expenses that can be directly identifiable and attributable to a particular class of business are not apportioned.
(ii) Commission expenses that cannot be allocated to a class of business, for example volume bonuses, are apportioned on the basis of new business and renewal commissions of each class, allowing for limits implied by the basis of adviser remuneration.
(iii) Investment expenses are apportioned to the classes of business on the mean balance of assets under management.
(iv) Other expenses that cannot be allocated to a particular class of business are apportioned to the classes of business based on appropriate cost drivers, including number of new policies issued and related premiums, number of new units issued, mean balances of assets under management, average number of policies in-force and time and activity based allocations.

(F) POLICY ACQUISITION COSTS

Life insurance contracts

The actuary, in determining the life insurance contract liabilities, takes account of the deferral and future recovery of acquisition costs which are capitalised by way of movement in life insurance contract liabilities, then amortised over the period in which they will be recoverable.

Other contracts

Policy acquisition costs comprise the costs of acquiring new business, including commission, advertising, policy issue and underwriting costs, agency expenses and other sales costs. Acquisition costs are initially recorded in the income statement, with any amounts to be deferred then taken to the balance sheet as a deferred acquisition cost (DAC).

Deferred acquisition costs are recognised for the products noted below.

Superannuation and medical products

The acquisition costs of establishing contracts for certain superannuation and medical products are deferred. These costs are amortised over the periods of expected future benefit. A comparison to recoverable value is carried out annually, with any variance below carrying value taken to the income statement in that year.

General insurance products

Acquisition costs incurred in obtaining general insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in subsequent reporting periods.

Deferred acquisition costs are amortised systematically in accordance with the expected pattern of the incidence of risk under the general insurance contracts to which they relate. This pattern of amortisation corresponds to the earning pattern of the corresponding premium revenue.

(G) OUTWARDS REINSURANCE

Premiums ceded to reinsurers under reinsurance contracts are recorded as an outwards reinsurance expense and are recognised over the period of indemnity of the reinsurance contract. Accordingly, a portion of outwards reinsurance premium is treated at balance date as a prepayment.

(H) FINANCING COSTS

Financing costs include interest on external debt (borrowing costs), the impact from hedging borrowing costs and amortisation of transaction costs.

(I) TAXATION

Current tax

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by reporting date. Current tax for current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

Deferred tax

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base of those items.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities settled, based on the tax rates enacted or substantively enacted for each jurisdiction. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences or unused tax losses can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of the other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are not recognised for temporary differences arising on investments in controlled entities where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Income tax for investment contracts and life insurance contracts

business

The income tax expense recognised in the income statement reflects tax imposed on shareholders as well as policyholders.

Income tax for other business

The income tax expense for all other business is the tax payable on taxable income for the current period, based on the income tax rate for each jurisdiction and adjusted for changes in deferred tax assets and liabilities attributable to temporary differences and unused tax losses.

Tax Consolidation

TOWER Limited and its New Zealand wholly-owned subsidiaries comprise a New Zealand tax consolidated group of which TOWER Limited is the head entity.

Under tax consolidation the head entity assumes the following balances from subsidiaries within the tax consolidated Group:

current tax balances arising from external transactions recognised by entities in the tax-consolidated Group which occurred after implementation date; and
deferred tax assets arising from unused tax losses and unused tax credits recognised by entities in the tax-consolidated Group which occurred after implementation date.

Assets and liabilities which arise as a result of balances transferred from entities within the tax consolidated Group to the head entity are recognised as related party balances receivable and payable in the balance sheet. The recoverability of balances arising from tax funding agreements is based on the ability of the tax-consolidated Group to utilise the amounts recognised by the head entity.

GST

All revenues, expenses and assets are recognised net of goods and services taxes (GST) except where the GST is not recoverable. In these circumstances the GST is included in the related asset or expense. Receivables and payables are reported inclusive of GST. The net GST payable to or recoverable from the tax authorities as at balance date is included as a receivable or payable in the balance sheet.

Cash flows are included in the statements of cash flow on a gross basis and the GST component of cash flows arising from investing

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

(J) FOREIGN CURRENCY

Functional and presentation currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates. The consolidated Group financial statements are presented in New Zealand dollars.

Transactions and balances

In preparing the financial statements of the individual entities transactions denominated in foreign currencies are translated into the reporting currency using the exchange rates in effect at the transaction dates. Monetary items receivable or payable in a foreign currency, including forward exchange contracts, are translated at reporting date at the closing exchange rate.

Translation differences on non-monetary items such as financial assets held at fair value through profit or loss are reported as part of their fair value gain or loss.

Exchange differences arising on the settlement or retranslation of monetary items at year end exchange rates are recognised in the income statement.

Consolidation

For the purpose of preparing consolidated financial statements the assets and liabilities of subsidiaries with a functional currency different to the Company are translated at the closing rate at the balance sheet date. Income and expense items for each subsidiary are translated at a weighted average of exchange rates over the period, as a surrogate for the spot rates at transaction dates. Exchange differences are taken to the Foreign Currency Translation Reserve and recognised in the statement of changes in equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and are translated at the closing rate with movements recorded through the Foreign Currency Translation Reserve in the statement of changes in equity.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

(K) CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes cash on hand and deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within interest bearing liabilities on the balance sheet.

(L) RECEIVABLES

Receivables are recognised initially at fair value. Due to the short term nature of these assets the recoverable value, i.e. allowing for doubtful debts, will be the fair value.

(M) PROPERTY, PLANT AND EQUIPMENT

Plant and equipment is initially recorded at cost including transaction costs and subsequently measured at cost less any subsequent accumulated depreciation and impairment losses. Depreciation is calculated using the straight line method to allocate their cost or revalued amounts, net of any residual amounts, over their useful lives.

The assets’ useful lives are reviewed and adjusted if appropriate at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if it is considered that the carrying amount is greater than its recoverable amount.

Computer Equipment	3–5 years
Furniture & Fittings	5 years
Motor Vehicles Leasehold Property Improvements	5 years Over the term of the lease

(N) FINANCIAL ASSETS BACKING INSURANCE BUSINESS

The Group has determined that:

all assets of the life insurance companies are assets backing the policy liabilities of the life insurance business;
all assets within the general insurance companies are held to back general insurance liabilities, with the exception of property, plant and equipment and investments in operating subsidiaries; and
all assets within the health insurance company are held to back health insurance liabilities, with the exception of property, plant and equipment and investments in operating subsidiaries.

As these assets are managed under the Group’s Risk Management Statement on a fair value basis and are reported to the Board on this basis, they have been valued at fair value through profit or loss wherever the applicable standard allows.

Fair value is determined as follows:

Cash assets and bank overdrafts are carried at face value which approximates fair value;
Shares, fixed interest securities, options and units in trusts listed on stock exchanges are valued at the quoted bid price of the instrument at balance sheet date;
Unlisted fixed interest securities are recorded at amounts based on valuations using rates of interest equivalent to the yields obtainable on comparable traded investments at balance date;
Unlisted unit trusts are recorded at fund managers’ quoted redemption prices;
Receivables are carried at book value, which is the best estimate of fair value as they are settled within a short period;
Directly held investment property, which is property held to earn rentals and/or for capital appreciation and is not occupied by the Group, is carried at fair value supported by valuations carried out every three years.

(P) INTANGIBLES

Goodwill

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the entity acquired, at the date of acquisition.

Following initial recognition, goodwill on acquisition of a business combination is not amortised but is tested for impairment biannually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated:

represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
is not larger than a segment based on either the Group’s primary or the Group’s secondary reporting format determined in accordance with NZ IAS 14 Segment Reporting.

Any impairment is recognised immediately.

On disposal of an entity the carrying value of any associated goodwill is included in the calculation of the gain or loss on sale.

Software

Application software is recorded at cost less accumulated amortisation and impairment. Amortisation is charged on a straight line basis over the estimated useful life of the software.

Computer software 3–5 years

Present value of in-force business (PVIF)

Present value of in-force business represents the amount paid by the Group to purchase in-force life policies within a business combination. The present value of in-force business has a finite useful life and is carried at cost less accumulated amortisation and

34 TOWER Annual Report 2007

impairment. Amortisation is calculated to allocate the cost of in-force business over the estimated useful lives which vary from 8 to 20 years from date of acquisition.

(Q) IMPAIRMENT OF NON FINANCIAL ASSETS

Assets that have an indefinite useful life are not subject to amortisation and are tested bi-annually for impairment. Assets with a definite useful life are subject to amortisation and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

(R) ACQUISITION OF ASSETS

Identifiable assets acquired and liabilities assumed in business combination are measured at fair value at acquisition date with any excess of cost over the fair value of the net assets acquired recognised as goodwill on the balance sheet.

If there is negative goodwill then this is recognised directly in the income statement.

(S) DERIVATIVE AND OTHER FINANCIAL INSTRUMENTS

All derivatives and other financial instruments are recognised at fair value through profit or loss (refer note 28).

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available for sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categories as held for trading unless they are designated as hedges. Assets in this category are classified as current assets.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables” and cash and cash equivalents in the balance sheet.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

(T) LEASED ASSETS

As lessor

Rental income on operating leases is recognised as income in the periods the services are provided and the amounts are receivable. Initial direct costs incurred in initiating the lease are added to the carrying value of the leased asset and amortised on a straight line basis over the term of the lease.

As lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the periods the services are received over the period of the lease. Benefits received and receivable for entering into an operating lease are recognised on a straight line basis over the term of the lease.

(U) BORROWINGS

Interest bearing debt and overdrafts are initially measured at fair value, net of transaction costs incurred and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings.

(V) PAYABLES

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year which are unsettled.

(W) PROVISIONS

Provisions are only recognised when the Group has a present legal or constructive obligation as a result of a past event or decision, and it is more likely than not that an outflow of resources will be required to settle the obligation. Provisions are recognised at the best estimate of future cash flows discounted to present value where the effect is material.

(X) EMPLOYEE ENTITLEMENTS

Provision is made for employee entitlements for services rendered up to the balance date. This includes salaries, wages, bonuses, annual leave and long service leave, but excludes share-based payments. Liabilities arising in respect of employee entitlements expected to be settled within 12 months of the reporting date are measured at their nominal amounts. All other employee entitlements are measured at the present value of the estimated future cash outflows to be made in respect of services provided up to the balance date. In determining the present value of future cash outflows, discount rates used are based on the interest rates attaching to government securities which have terms to maturity approximating the terms of the related liability.

(Y) CAPITAL GUARANTEES

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not measured at fair value with changes in fair value recognised in the income statement.

TOWER provides capital guarantees to certain funds. Where these are assessed to be embedded derivatives, a financial liability is recognised in the value of such liabilities.

(Z) LIFE INVESTMENT CONTRACT LIABILITIES

These contracts are recognised and subsequently measured at fair value with any change in value being recognised in the income statement. Fair value is the current account balance plus investment fluctuation reserves subject to a minimum of current surrender value.

(AA) LIFE INSURANCE CONTRACT LIABILITIES

The financial reporting methodology used to determine the value of life insurance contract liabilities is referred to as Margin on Services (MoS).

Under MoS the excess of premium received over claims and expenses (‘the profit margin’) is recognised over the life of the contract in a manner that reflects the pattern of risk accepted from the policyholder (‘the service’), hence the term Margin on Services. The movement in life insurance contract liabilities recognised in the income statement reflects the planned release of this margin.

Life insurance contract liabilities are ordinarily determined using a projection method, whereby estimates of policy cash flows (premiums, benefits, expenses and profit margins to be released in future periods) are projected into the future. The policy liability is calculated as the net present value of these projected cash flows using best estimate assumptions about the future. When the benefits under the life insurance contract liability are linked to the assets backing it, the discount rate applied is based on the expected future earnings rate on those assets. Where the benefits are not linked to the performance of the backing assets, a risk free discount rate is used. The risk free discount rate is determined by the Chief Actuary based on the zero couponswap rates, depending on the nature, structure and term of the contract liabilities.

The assumptions used in the calculation of the policy liabilities are reviewed at each reporting date.

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

(AB) GENERAL INSURANCE LIABILITIES

Outstanding claims are measured at the central estimate of the present value of expected future payments after allowing for inflation and superimposed inflation and discounted at the risk free rate.

The expected future payments include those in relation to claims reported but not yet paid, claims incurred but not yet reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated claims handling costs. Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees, and costs that can only be indirectly associated with individual claims, such as claims administration costs. In addition a risk margin is added to the claims provision to recognise the inherent uncertainty of the central estimate.

Provision has been made for the estimate of claim recoveries from third parties in respect of general insurance business.

Liability adequacy testing is performed in order to recognise any deficiencies in the income statement arising from the carrying amount of the unearned premium liability less any related deferred acquisition costs and intangible assets not meeting the estimated future claims under current insurance conditions. Liability adequacy testing is performed at a portfolio level of contracts that are subject to broadly similar risks and are managed together as a single portfolio.

(AC) CONTRIBUTED EQUITY

Ordinary shares issued by the Group are classified as equity and are recognised at fair value less direct issue costs.

(AF) NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Non-current assets are classified as held for sale and stated at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use.

An impairment loss is recognised for any initial or subsequent writedown of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an asset, but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the date of the sale of the non-current asset is recognised at the date of derecognition.

Non-current assets are not depreciated or amortised while they are classified as held for sale.

Non-current assets classified as held for sale are presented separately from the other assets in the balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately on the face of the income statement for 2007 and 2006 has been restated for comparative purposes. The assets and liabilities of the discontinued operations are presented separately from other assets and liabilities on the face of the balance sheet.

(AD) SHARE BASED PAYMENTS

The Group issues share-based compensation packages to senior executives as part of their remuneration packages.

Share options vesting before 1 October 2004

No expense is recognised in respect of the options or shares issued to employees for nil consideration. Shares issued following the exercise of options are recognised at that time and the proceeds received allocated to share capital.

Share options vesting on or after 1 October 2004

These options are measured at fair value at grant date and expensed on a straight-line basis over the period during which the employee becomes unconditionally entitled to the options, based on the estimate of shares that will eventually vest. Fair value at grant date is measured using a binomial model, taking into account the specific conditions of the options issued. The determination of fair value excludes the impact of any non-market vesting conditions which are allowed for in assumptions about the number of options that are expected to be exercisable. When an expense is recognised there is an equal and opposite entry made to the share option reserve in equity. When the options are exercised the receipt of the exercise price is transferred to share capital.

Where there is a tax deduction allowable in relation to the share option scheme this is recognised in the income statement, to the extent of the tax credit commensurate to the expense recognised in the income statement, with the balance reported through the share option reserve in equity.

Where terms are changed during the period that increase the cost of the options then this is recognised over the remaining vesting period. Where terms are changed during the period that decrease the cost of the options then there is no change to the expense recognised.

(AE) SEGMENT REPORTING

(AG) EARNINGS PER SHARE

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(iii) Alternative earnings per share

Alternative earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the number of ordinary shares outstanding as at the 20 November 2006, the date of the TOWER Australia separation, adjusted for bonus elements in ordinary shares issued during the year.

(AH) CODE OF CONDUCT DISCLOSURE - CHIEF ACTUARY

TOWER’s chief actuary’s remuneration includes bonuses that are, in part, dependent upon the reported profits of the Group. The policy liabilities as assessed by him therefore impact his total remuneration.

Comparatives

Where necessary, comparative information has been reclassified to achieve consistency in disclosure with the current year.

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different to those of segments operating in other economic environments.

TOWER Annual Report 2007

2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The Group makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas where critical accounting estimates are applied are noted below.

(A) POLICY LIABILITIES

Policy liabilities for life insurance contracts are computed using statistical or mathematical methods, which are expected to give approximately the same results as if an individual liability was calculated for each contract. The computations are made by suitably qualified personnel on the basis of recognised actuarial methods, with due regard to relevant actuarial principles. The methodology takes into account the risks and uncertainties of the particular classes of life insurance business written. Deferred policy acquisition costs are connected with the measurement basis of life insurance liabilities and are equally sensitive to the factors that are considered in the liability measurement.

The key factors that affect the estimation of these liabilities and related assets are:

the cost of providing benefits and administering these insurance contracts;
mortality and morbidity experience on life insurance products, including enhancements to policyholder benefits;
discontinuance experience, which affects the Group’s ability to recover the cost of acquiring new business over the lives of the contracts; and
the amounts credited to policyholders’ accounts compared to the returns on invested assets through asset-liability management and strategic and tactical asset allocation.

In addition, factors such as regulation, competition, interest rates, taxes, securities market conditions and general economic conditions affect the level of these liabilities. In some contracts, the Group shares experience on mortality, morbidity, persistency and investment results with its customers, which can offset the impact of these factors on profitability from those products. Details of specific actuarial policies and methods are set out in note 26.

movements in industry benchmarks;
medical and technological developments.

A component of these estimation techniques is usually the estimation of the cost of notified but not paid claims. In estimating the cost of these the Group has regard to the claim circumstances as reported, any information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous periods.

Large claims impacting each relevant business class are generally assessed separately, being measured on a case by case basis or projected separately in order to allow for the possible distortive effect of the development and incidence of these large claims.

Where possible the Group adopts multiple techniques to estimate the required level of provisions. This assists in giving greater understanding of the trends inherent in the data being projected. The projections given by the various methodologies also assist in setting the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year.

Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based on the gross provisions.

Details of specific assumptions used in deriving the outstanding claims liability at year end are detailed in note 27.

(C) ASSETS ARISING FROM REINSURANCE CONTRACTS

Assets arising from reinsurance contracts are also computed using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the Company may not receive amounts due to it and these amounts can be reliably measured.

(D) PREPAID TAX LOSSES

Refer to note 8 for an explanation on assumptions supporting the carrying value of prepaid tax assets.

(B) CLAIMS LIABILITIES UNDER GENERAL INSURANCE CONTRACTS

Provision is made at the end of the year for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported to the Group.

The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected value of salvage and other recoveries. The Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.

The estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Group, where more information about the claim event is generally available. IBNR claims may often not be apparent to the insured until many years after the events giving rise to the claims has happened. In calculating the estimated cost of unpaid claims the Group uses a variety of estimation techniques, generally based on statistical analyses of historical experience, which asssumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which may cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims including:

changes in Group processes which might accelerate or slow down the development and / or recording of paid or incurred claims, compared with statistics from previous periods;
changes in the legal environment;
the effects of inflation;
changes in the mix of business;
the impact of large losses;

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
3. PREMIUM REVENUE NZ$000 NZ$000 NZ$000 NZ$000
Life insurance contract premiums 77,344 80,518 - -
Less: Deposits recognised as an increase in policy liabilities (6,740) (11,489) - -
Life insurance contract premiums recognised as revenue 70,604 69,029 - -
General insurance premiums 200,873 194,963 - -
Health insurance premiums 117,174 99,848 - -
388,651 363,840 - -
Less: Reinsurance ceded (29,590) (28,199) - -
Total net premium revenue 359,061 335,641 - -
4. INVESTMENT REVENUE
Interest income 34,443 29,725 157 122
Dividend income 19,622 37,025 - -
Property income 109 1,975 - -
Net fair value gains on financial assets at fair value through profit or loss 20,409 19,058 - -
Total investment revenue 74,583 87,783 157 122
5. FEE AND OTHER REVENUE
Investment and management fees 47,573 47,980 - -
Other revenue - 932 - -
Total fee and other revenue 47,573 48,912 - -
6. CLAIMS EXPENSE
Life insurance claims 114,044 88,311 - -
Life investment contract payments 6,300 4,794 - -
Total life claims and payments 120,344 93,105 - -
Less: Withdrawals recognised as a decrease in policy liabilities (48,272) (21,815) - -
Life insurance claims recognised as expense 72,072 71,290 - -
General insurance claims 119,279 120,441 - -
Health insurance claims 65,816 58,240 - -
257,167 249,971 - -
Less: Reinsurance proceeds received (9,781) (7,612) - -
Total net claims expense 247,386 242,359 - -
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38 TOWER Annual Report 2007

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Group Company
2007 2006 2007 2006
7. OTHER EXPENSES NZ$000 NZ$000 NZ$000 NZ$000
(A) MANAGEMENT AND SALES EXPENSES
Life insurance contracts
Policy acquisition expenses:
Commission 5,237 4,112 - -
Other acquisition expenses 6,740 4,931 - -
Policy maintenance expenses:
Commission 4,685 4,309 - -
Other maintenance expenses 10,257 9,585 - -
Investment management expenses 558 - - -
Total life insurance expenses 27,477 22,937 - -
Life investment contracts
Policy maintenance expenses:
Commission 66 132 - -
Total life investment expenses 66 132 - -
Other non-life expenses 150,680 154,315 11,182 3,265
Total management and sales expenses 178,223 177,384 11,182 3,265
Included in total management and sales expenses are the following:
Amortisation of deferred acquisition costs 11,765 17,252 - -
Bad debts written off 688 186 - -
Change in provision for doubtful debts - 434 - -
Depreciation:
Office equipment and furniture 1,198 1,298 - -
Motor vehicles 75 68 - -
Computer hardware and software 736 1,744 - -
Directors’ fees 625 682 625 682
Donations 9 12 - -
Employee benefits expense 61,405 54,909 - -
Net foreign exchange loss / (gain) 2,957 (124) - (124)
Auditors remuneration
Fees paid to parent auditors:
Audit of financial statements 1,044 2,507 - 220
Audit of trust accounts - 214 - -
Other assurance related services 308 803 - 77
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The audit fees for the year ended 30 September 2006 include those incurred by both the New Zealand and Australian businesses.

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NZ$000 NZ$000 NZ$000 NZ$000
(B) FINANCING COSTS
Interest expense 5,574 17,425 - 1,558
Other costs - (2,167) - -
Total financing costs 5,574 15,258 - 1,558
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TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
8. TAXATION NZ$000 NZ$000 NZ$000 NZ$000
(A) CURRENT TAX EXPENSE
Analysis of taxation expense
Current taxation 6,687 13,747 (1,100) (1,643)
Deferred taxation 12,715 6,505 489 -
Under/(over) provided in prior years 196 3,393 - -
Income tax expense for the year from continuing operations 19,598 23,645 (611) (1,643)
Analysis of taxation expense - continuing and discontinued operations
Continuing operations 19,598 23,645 (611) (1,643)
Discontinued operations - operating profit (6,575) 40,385 - -
Income tax expense for the year 13,023 64,030 (611) (1,643)
The tax expense recognised can be reconciled to the accounting profit as follows:
Profit before taxation
Continuing operations 54,828 38,799 (11,025) (4,701)
Discontinued operations 191,455 89,789 - -
Total profit before taxation 246,283 128,588 (11,025) (4,701)
Income tax at the current rate of 33% (2006: 33%) 81,273 42,434 (3,639) (1,551)
Taxation effect of non-deductible expenses / non-assessable revenue:
Life insurance companies permanent differences (1,858) 24,508 - -
Change in tax rates (495) (2,694) - -
Recognition of prior period current tax 196 3,393 - -
Non life insurance companies permanent differences 3,662 (8,936) 3,028 -
Permanent differences arising from transactions with discontinued businesses (69,755) 5,325 - (92)
Income tax expense 13,023 64,030 (611) (1,643)
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The Group taxation expense includes both tax on shareholder profits and on returns attributed to policyholders.

(B) NON CURRENT TAX ASSET

Prepaid life company tax

Under New Zealand life insurance tax rules the Group is required to pay tax in relation to its own profits and on behalf of policyholders. Tax paid by the Group on its taxable profits can be used to satisfy the policyholder tax liability. Due to tax on policyholder liabilities exceeding tax on Group taxable profits it has been necessary to prepay income tax resulting in a prepaid tax asset.

This prepaid tax can be used to satisfy tax liabilities on future Group taxable profits in excess of policyholder tax liabilities and is not affected by shareholder continuity requirements. The directors undertook an exercise last year to assess the appropriateness of the carrying value of the asset including the likely period over which the Group was expected to utilise this prepaid tax asset using the following assumptions:

Based on the above assumptions the Directors estimated the prepaid asset would be recovered in full against future Group tax liabilities by 2013. The review performed this year confirms this is still likely to be the case. Changes in the above assumptions could impact on the timeframe in which the prepaid tax asset would be utilised by the Group. If the actual taxable income of the trading companies were below Directors’ estimates by 20% the prepaid tax asset would be fully utilised by 2015.

While the Directors have considered the timeframe for realisation of the prepaid tax asset based on future profits from the Group’s existing business activities, the timeframe for realising the prepaid tax asset can also be affected by future actions such as business acquisitions or further changes in tax legislation.

Growth in TOWER operating profits 3.0% to 7.0% (per annum)
Investment returns 3.6% to 5.7% (net of taxation)
Tax rate 33%, and from Financial Year beginning 1 October 2008, 30%.

The assumptions were consistent with those used in calculating the embedded values of the life companies and fair values of the nonlife companies. This material was reviewed again this year to ensure that there were no significant changes to the outcome as a result of recent changes to the taxation of investments and the proposed changes to the taxation of the life insurance.

40 TOWER Annual Report 2007

				Group
		*Assets /*	*Charged/*				*Closing*
(C) DEFERRED TAX ASSETS AND	*Opening* *balance at*	*Liabilities* *held for*	*(credited)* *to proft*	*Charged to*	*Acquisition/* *disposal of*	*Exchange*	*balance* *at 30*
LIABILITIES	*1 October*	*sale*	*and loss*	*equity*	*subsidiary*	*differences*	*September*
2007	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
Movements in deferred taxation assets
Provisions and accruals	3,087	-	1,733	-	-	-	4,820
Unrealised losses	17,439	-	(4,571)	-	-	-	12,868
Policyholder reserves	12,678	-	1,819	-	-	-	14,497
Tax losses	17,458	-	(5,573)	-	-	-	11,885
Other	2,617	-	653	-	-	-	3,270
Total deferred tax assets	53,279	-	(5,939)	-	-	-	47,340
Movements in deferred taxation liabilities
Deferred costs	20,060	-	(3,929)	-	-	-	16,131
Unrealised gains	23,876	-	3,265	-	-	-	27,141
Other	228	-	7,440	-	-	-	7,668
Total deferred taxation liabilities	44,164	-	6,776	-	-	-	50,940
2006
Movements in deferred taxation assets
Deferred revenue liability	24,152	(24,152)	-	-	-	-	-
Provisions and accruals	8,556	(4,961)	(515)	7	-	-	3,087
Unrealised losses	26,581	-	(9,142)	-	-	-	17,439
Policyholder reserves	17,933	(7,134)	1,879	-	-	-	12,678
Tax losses	7,474		9,984	-	-	-	17,458
Other	22,760	(16,615)	(3,528)	-	-	-	2,617
Total deferred tax assets	107,456	(52,862)	(1,322)	7	-	-	53,279
Movements in deferred taxation liabilities
Deferred costs	44,556	(24,350)	(146)	-	-	-	20,060
Fair value	32,065	(32,065)	-	-	-	-	-
Unrealised gains	18,098	-	5,778	-	-	-	23,876
Other	592	83.75	(448)	-	-	-	228
Total deferred taxation liabilities	95,311	(56,331)	5,184	-	-	-	44,164

Utilisation of deferred tax assets

The Group has a deferred tax asset (DTA) of $47.3m (2006: $53.3m) and a deferred tax liablity (DTL) of $50.9m (2006: $44.2m). Included in the DTA are tax losses relating to the Group. These losses are available to carry forward provided the required continuity of shareholders is maintained. A benefit of $11.9m attributable to the tax losses of $36m has been recognised as an asset that is expected to be recoverable against future taxable income of the Group.

In May 2007 legislation was passed to reduce the company tax rate from 33% to 30%. This is effective for the Group from 1 October 2008.

The financial effect of the change in tax rate had an effect on deferred tax assets and liabilities and reduced net tax by $495,079. The parent company is part of a consolidated group for tax purposes.

Deferred tax on policy liabilities

Life insurance policy liabilities represent the net present value of estimated future cash flows and planned profit margins. Using the margin on services methodology, planned after tax profit margins are recognised in the income statement over the period services are provided to policyholders.

Under NZ IFRS taxable temporary differences implicitly embedded within life insurance policy liabilities should be disclosed separately. Because of the complexity of reliably calculating any taxable temporary differences the Group has not disclosed these separately. If the taxable temporary differences embedded within policyholder liabilities could be calculated reliably, it would result in a reclassification between life insurance policy liabilities and deferred tax liabilities rather than an impact on the net profit, total assets or total liabilities of the Group.

Deferred tax on policy liabilities for general insurance has been recognised to the extent that timing differences exist and have been disclosed as part of the deferred tax note.

TOWER Annual Report 2007 41

Notes to the Financial Statements

For the year ended 30 September 2007

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Group
8. TAXATION (CONT.) 2007 2006
(D) IMPUTATION CREDIT ACCOUNT NZ$000 NZ$000
Opening balance 1,928 586
Attached to dividends received 10,797 17,037
Taxation paid 43 1,246
Other including transfers to Policyholder Credit Account (3) (16,941)
Closing balance 12,765 1,928
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The Group Imputation Credit Account reflects the imputation credits held by the Parent as the representative member.

(E) POLICYHOLDER CREDIT ACCOUNT

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Opening balance 23,064 24,000
Previous year’s policyholder tax liability (12,983) (20,936)
Transfer from Imputation Credit Account - 20,000
Closing balance 10,081 23,064
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The Policyholder Credit Account enables TOWER Life (NZ) Limited to satisfy the income tax liability on Policyholder income for the year. The company does this by electing to transfer imputation credits from the Imputation Credit Account to the Policyholder Credit Account subject to a number of tax rules.

The policyholder tax liability is based on actuarial calculations which are finalised after year end. The balance in the Policyholder Credit Account is available to meet any policyholder tax liability.

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Group Company
2007 2006 2007 2006
9. RECEIVABLES NZ$000 NZ$000 NZ$000 NZ$000
Reinsurance recoveries receivable 10,602 9,840 - -
Outstanding premiums and trade receivables 97,568 97,525 - -
Unsettled investment sales 3,539 92 - -
Unearned comission 8,718 9,394 - -
Related party receivables - - 259,351 258,258
Other 15,986 6,949 - 1,175
Total receivables 136,413 123,800 259,351 259,433
Analysed as:
Current 131,853 113,414 259,351 -
Non current 4,560 10,386 - 259,433
136,413 123,800 259,351 259,433
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Fixed interest securities 559,593 688,572 - -
Equity securities 435,079 473,243 - -
Property securities 135,409 121,466 - -
Total financial assets at fair value through profit or loss 1,130,081 1,283,281 - -
Analysed as:
Current 433,041 353,405 - -
Non current 697,040 929,876 - -
1,130,081 1,283,281 - -
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42 TOWER Annual Report 2007

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Group Company
11. INVESTMENT PROPERTY 2007 2006 2007 2006
At fair value NZ$000 NZ$000 NZ$000 NZ$000
Opening balance at 1 October 2,114 21,395 - -
Transferred to assets of discontinued group classified as held for sale - (19,221) - -
Net gain / (loss) from fair value adjustment 312 (60) - -
Other adjustments (268) -
Closing balance at 30 September 2,158 2,114 - -
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All properties directly held are held under freehold interests. Properties are held at fair value and valuations are performed annually by Rolle Associates. The last valuation was performed in September 2007.

The rental from directly held property amounted to $0.2m during the period (2006: $0.2m). Direct operating expenses recognised during the period amounted to $0.1m (2006: $0.1m).

period amounted to $0.1m (2006: $0.1m).
		Group
	Goodwill	Software	PVIF1	Total
12. INTANGIBLE ASSETS	NZ$000	NZ$000	NZ$000	NZ$000
At 30 September 2005
Cost	160,013	7,717	-	167,730
Accumulated amortisation and impairment losses	-	(3,440)	-	(3,440)
Net book amount at 30 September 2005	160,013	4,277	-	164,290
Year ended 30 September 2006
Acquisition of subsidiary	19,623	-	31,732	51,355
Transferred to assets of disposal group classifed as held for sale	(149,083)	-	(29,565)	(178,648)
Additions at cost	258	307	-	565
Amortisation expense	-	(1,131)	(2,167)	(3,298)
Closing net book amount at 30 September 2006	30,811	3,453	-	34,264
At 30 September 2006
Cost	30,811	8,024	-	38,835
Accumulated amortisation and impairment losses	-	(4,571)	-	(4,571)
Net book amount at 30 September 2006	30,811	3,453	-	34,264
Year ended 30 September 2007
Additions at cost	-	637	-	637
Amortisation expense	-	(1,187)	-	(1,187)
Closing net book amount at 30 September 2007	30,811	2,903	-	33,714
At 30 September 2007
Cost	30,811	8,661	-	39,472
Accumulated amortisation and impairment losses	-	(5,758)	-	(5,758)
Net book amount at 30 September 2007	30,811	2,903	-	33,714

1 Present value of in-force business

TOWER Annual Report 2007 43

Notes to the Financial Statements

For the year ended 30 September 2007

12. INTANGIBLE ASSETS (CONT.)	TOWER	TOWER
Impairment testing for goodwill	Medical	Insurance	Total
The amount of goodwill is subject to annual impairment testing at the business unit level.	NZ$000	NZ$000	NZ$000
2007
Carrying amount of goodwill	13,067	17,744	30,811
2006
Carrying amount of goodwill	13,067	17,744	30,811

Key financial indicators are considered when testing the Group’s goodwill for impairment. These include cash flows, growth in written premium volumes and the net assets of the business units. Group business units’ valuations have been conducted on assumptions consistent with actuarial assumptions in notes 26 and 27.

An analysis of these key indicators and other valuations performed for the current year confirm that at 30 September 2007 there is no impairment of the value of goodwill (2006: Nil).

ment of the value of goodwill (2006: Nil).
	Group Company
	2007 2006 2007	2006
13. INVESTMENTS IN SUBSIDIARIES	NZ$000 NZ$000 NZ$000	NZ$000
Investments in controlled entities carried at cost	- - 188,871	188,871

TOWER Limited holds its subsidiary companies under a holding company, TOWER Financial Services Group Limited. All subsidiary companies have a balance sheet date of 30 September, with the exception of National Pacific Insurance Limited which has a balance sheet date of 30 June. Principal trading subsidiary companies at 30 September 2007 and 2006 are as follows:

Name of Company	Holdings		Nature of Business
	2007	2006
Incorporated in New Zealand
TOWER Asset Management Limited	100%	100%	Investment management services
TOWER Corporation Holdings Limited	100%	100%	Management services
TOWER Finance Limited	100%	100%	Holding company for bank loan
TOWER Health & Life Limited	100%	100%	Term, disability and medical insurance
TOWER Insurance Limited	100%	100%	Fire and general insurance
TOWER Insurance (Fiji) Limited	100%	100%	Fire and general insurance
TOWER Insurance (Cook Islands) Limited	100%	100%	Fire and general insurance
TOWER Insurance (PNG) Limited	100%	100%	Fire and general insurance
National Pacifc Insurance Limited	70%	70%	Fire and general insurance
TOWER Life Limited	100%	100%	Holding company
TOWER Life (N.Z.) Limited	100%	100%	Life insurance and superannuation management
TOWER Managed Funds Limited	100%	100%	Life insurance administration and personal
			superannuation management
TOWER Medical Insurance Limited	100%	100%	Medical insurance
TOWER Option Scheme Limited	100%	100%	Trustee for executive share options
Incorporated in Australia
Beacon Investment Management Services Limited	-	100%	Investment fund distributor
PrefSure Holdings Ltd	-	100%	Life insurance and superannuation provider
PrefSure Life Limited	-	100%	Life insurance
TOWER Australia Group Limited	-	100%	Holding company
TOWER Managed Funds Limited (Australia)	-	100%	Life insurance
TOWER Risk & Investment Management Limited	-	100%	Service company
TOWER Asset Management Limited (Australia)	-	100%	Investment management services
TOWER Australia Limited	-	100%	Life insurance and superannuation provider

On 20 November 2006, TOWER separated the Australian and New Zealand businesses of the Group. For more details refer to note 39. On 31 March 2006 TOWER acquired 100% of the share capital of PrefSure Holdings Limited, a specialist life insurance business. For more details refer to note 40.

44 TOWER Annual Report 2007

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Group Company
2007 2006 2007 2006
14. DEFERRED ACQUISITION COSTS FOR NON-LIFE INSURANCE CONTRACTS NZ$000 NZ$000 NZ$000 NZ$000
Opening balance 53,275 133,700 - -
Transferred to assets of disposal group classified as held for sale - (82,772) - -
Acquisition costs deferred during the period 10,211 19,599 - -
Current period amortisation (11,919) (17,252) - -
Closing balance 51,567 53,275 - -
Analysed as:
Current 14,343 13,617 - -
Non current 37,224 39,658 - -
51,567 53,275 - -
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		Group
	Offce
	equipment	Motor	Computer
	and furniture	vehicles	equipment	Total
15. PROPERTY, PLANT AND EQUIPMENT	NZ$000	NZ$000	NZ$000	NZ$000
Year ended 30 September 2006
Opening net book amount	5,565	200	4,831	10,596
Transferred to assets of disposal group classifed as held for sale	(1,958)	-	(1,934)	(3,892)
Additions	479	67	156	702
Disposals	(46)	(4)	(60)	(110)
Foreign exchange movements	125	-	-	125
Depreciation charge	(1,298)	(68)	(1,744)	(3,110)
Net book amount 30 September 2006	2,867	195	1,249	4,311
At 30 September 2006
At cost	12,759	748	27,161	40,668
Accumulated depreciation	(9,892)	(553)	(25,912)	(36,357)
Net book amount 30 September 2006	2,867	195	1,249	4,311
Year ended 30 September 2007
Opening net book amount	2,867	195	1,249	4,311
Additions	2,776	-	362	3,138
Disposals	(189)	-	7	(182)
Foreign exchange movements	117	-	-	117
Depreciation charge	(1,198)	(75)	(736)	(2,009)
Net book amount 30 September 2007	4,373	120	882	5,375
At 30 September 2007
At cost	12,577	622	27,429	40,628
Accumulated depreciation	(8,270)	(476)	(26,507)	(35,253)
Net book amount 30 September 2007	4,307	146	922	5,375

The parent company does not hold any property, plant and equipment.

TOWER Annual Report 2007 45

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
16. PAYABLES NZ$000 NZ$000 NZ$000 NZ$000
Trade payables 37,395 43,432 - -
Unsettled investment purchases 3,091 195,375 - -
Other payables 27,641 12,837 1,834 1,477
Related party payables - - 581,230 4,188
Total payables 68,127 251,644 583,064 5,665
Analysed as:
Current 59,774 251,633 582,722 5,665
Non current 8,353 11 342 -
68,127 251,644 583,064 5,665
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As at 30 September 2007 unsettled investment purchases were made up of a $3.09m balance of the NZ brokers account for NZ equities (As at 30 September 2006 unsettled investment purchases were made up of $195.3m contracted forward settlement of Government stock). The asset is recognised under fixed interest securities in note 10.

17. PROVISIONS

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Employee benefits 7,368 7,600 - -
Other 724 836 - -
Total provisions 8,092 8,436 - -
Analysed as:
Current 8,092 8,284 - -
Non current - 152 - -
8,092 8,436 - -
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Movements in provisions

Movements in each class of provision other than employee benefits during the financial year are set out below:

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Other provisions
Opening balance at 1 October 836 6,324 - 391
Transfer to liabilities held for sale - (4,661)
Additions - 71 - -
Amount used (112) (39) - -
Reversal of unused amount - (859) - (391)
Closing balance at 30 September 724 836 - -
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46 TOWER Annual Report 2007

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Group Company
2007 2006 2007 2006
18. INTEREST BEARING LIABILITIES NZ$000 NZ$000 NZ$000 NZ$000
Overdraft 27 628 - -
Bank loan 87,124 - - -
Capital bonds - 124,337 - -
Capital notes - 73,469 - -
Total interest bearing liabilities 87,151 198,434 - -
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Bank Loan

The above interest bearing liability is unsecured, and is subject to floating interest rates. The loan matures in August 2009.

Capital bonds

The capital bonds were non-cumulative debt securities of TOWER Finance Limited, and were convertible into TOWER Limited shares in certain circumstances. TOWER Limited provided a subordinated guarantee for these bonds. These bonds were repaid on 19 December 2006 as part of the separation of the Australia and New Zealand businesses.

Capital notes

The capital notes were non-cumulative debt securities of TOWER Finance Limited, and were convertible into TOWER Limited shares in certain circumstances. TOWER Limited provided a subordinated guarantee for these notes. These notes were repaid on 19 December 2006.

19. INSURANCE LIABILITIES

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Unearned premiums – general insurance 98,229 95,978 - -
Unearned premiums – health and disability 15,260 14,662 - -
Outstanding claims – general and health insurance 72,815 75,395 - -
Outstanding claims – life 57,298 54,833 - -
243,602 240,868 - -
Analysed as:
Current 168,357 168,530 - -
Non current 75,245 72,338 - -
243,602 240,868 - -
20. OTHER LIABILITIES
FuturePlan Debenture 20,927 19,588 - -
Other 201 2,339 - -
21,128 21,927 - -
Analysed as:
Current 201 2,339 - -
Non current 20,927 19,588 - -
21,128 21,927 - -
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TOWER Life (NZ) Limited has issued a debenture to the TOWER FuturePlan. The debenture is maintained in a separate fund within TOWER Life (NZ) Limited. Interest on the debenture is directly linked to the investment earnings of this fund. The debenture has no fixed repayment term.

21. CONTRIBUTED EQUITY

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Ordinary share capital
Fully paid 460,595 913,368 460,595 913,368
Movements in ordinary share capital
Opening balance at 1 October 913,368 911,772 913,368 911,772
Shares issued during the year 1,227 1,596 1,227 1,596
Cancellation of TOWER shares (454,000) - (454,000) -
Closing balance at 30 September 460,595 913,368 460,595 913,368
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TOWER Annual Report 2007 47

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
21. CONTRIBUTED EQUITY (CONT.) 2007 2006 2007 2006
Represented by: Number of shares Number of shares
Ordinary shares (no par value) 189,348,179 359,765,609 189,348,179 359,765,609
Movements in ordinary share capital
Opening balance 359,765,609 358,468,109 359,765,609 358,468,109
New issues 831,000 1,297,500 831,000 1,297,500
Cancelled shares on Demerger of TOWER Australia (171,248,430) - (171,248,430) -
Closing balance 189,348,179 359,765,609 189,348,179 359,765,609
All shares rank equally with one vote attached to each share.
Group Company
2007 2006 2007 2006
22. RETAINED PROFITS / (ACCUMULATED LOSSES) NZ$000 NZ$000 NZ$000 NZ$000
Retained profits
Opening balance at 1 October (349,716) (410,549) (461,866) (458,808)
Post acquisition retained earnings of liquidated subsidiaries - (2,661) - -
Net profit / (loss) for the year 232,632 63,494 (10,414) (3,058)
Realisation of foreign currency translation reserve on liquidated 26,175 - - -
subsidiaries recognised in equity
Other (771) - - -
Closing balance at 30 September (91,680) (349,716) (472,280) (461,866)
23. RESERVES
Foreign currency translation reserve (FCTR)
Opening balance at 1 October 58,735 39,763 - -
FCTR on TOWER Victoria Ltd taken to profit on liquidation - (529) - -
Currency translation differences arising during the year (59,142) 19,501 - -
Closing balance at 30 September (407) 58,735 - -
Exchange differences arising on translation of foreign controlled entities are taken to the FCTR as described in note 1(j). The reserve is recognised in
profit and loss when the net investment is disposed of.
Share based payments reserve
Opening balance at 1 October 3,069 2,459 3,069 2,459
Movement in share option reserve during the year (397) 610 (397) 610
Closing balance at 30 September 2,672 3,069 2,672 3,069
The share based payments reserve is used to recognise the fair value of options issued but not exercised.
Asset revaluation reserve
Opening balance at 1 October - 328 - -
Revaluation during the year - (328) - -
Closing balance at 30 September - - - -
The revaluation reserve recognises revaluations of assets that are reported directly through equity rather than through the income statement.
Separation reserve
Opening balance at 1 October - - - -
Movement during the year (113,000) - (113,000) -
Closing balance at 30 September (113,000) - (113,000) -
The separation reserve was created at the time of the demerger in November 2006 and will be carried forward indefinitely as a non equity style reserve.
Total reserves (110,735) 61,804 (110,328) 3,069
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TOWER Annual Report 2007

24. DISTRIBUTIONS TO SHAREHOLDERS

No dividends were paid during the year ended 30 September 2007 or 30 September 2006.

25. SEGMENTAL REPORTING

Description of segments

TOWER Health & Life includes all health, life and disability insurance in New Zealand. TOWER General Insurance includes all general insurance in New Zealand and Pacific Islands. TOWER Investments includes all wealth management services in New Zealand. Other includes head office expenses, financing costs and eliminations, and TOWER Australia.

				Other
	TOWER Health	TOWER General	TOWER	(Holding companies, Australia and
	& Life	Insurance	Investments	eliminations)	Total
Business Segments	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
2007
Proft from operations
Proft from continuing operations	22,664	12,336	7,562	(7,960)	34,602
Proft from discontinued operations	(363)	(143)	(301)	198,837	198,030
Proft for the year	22,301	12,193	7,261	190,877	232,632
Revenue
Revenue - external	221,123	197,337	51,211	11,546	481,217
Revenue - internal	-	-	9,428	(9,428)	-
Total revenue	221,123	197,337	60,639	2,118	481,217
Total assets	1,083,705	333,896	53,915	74,677	1,546,193
Total liabilities	(937,060)	(225,313)	(33,741)	(88,182)	(1,284,296)
Acquisition of property, plant and equipment, intangibles and	316	815	2,006	-	3,137
other non current assets
Depreciation and amortisation	1,219	1,215	747	15	3,196
2006
Proft from operations
Proft from continuing operations	19,192	7,925	6,784	(19,811)	14,090
Proft from discontinued operations	-	-	-	49,404	49,404
Proft for the year	19,192	7,925	6,784	29,593	63,494
Revenue
Revenue - external	231,332	188,997	50,773	1,234	472,336
Revenue - internal	2,128	-	9,913	(12,041)	-
Total revenue	233,460	188,997	60,686	(10,807)	472,336
Total assets	1,314,834	313,567	55,475	4,378,262	6,062,138
Total liabilities	1,188,774	218,808	42,791	3,982,392	5,432,765
Acquisition of property, plant and equipment, intangibles and	-	12,640	502	1	13,143
other non current assets
Depreciation and amortisation	5,542	12,783	3,143	25	21,493
			New Zealand
			and Pacifc	Australia	Total
Geographical Segments			NZ$000	NZ$000	NZ$000
2007
Revenue - external			479,475	1,742	481,217
Total assets			1,499,143	47,050	1,546,193
Acquisition of property, plant and equipment, intangibles and other non current assets			3,137	-	3,137
2006
Revenue - external			470,168	2,168	472,336
Total assets			1,645,354	4,416,784	6,062,138
Acquisition of property, plant and equipment, intangibles and other non current assets			20,608	-	20,608

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
26. LIFE INSURANCE BUSINESS NZ$000 NZ$000 NZ$000 NZ$000
(A) POLICY LIABILITIES
Life insurance contract liabilities
Value of policy liabilities – Projection Method
Future policy benefits 731,637 837,069 - -
Future bonuses 177,952 155,666 - -
Future expenses 129,825 137,284 - -
Reinsurance 11,092 (21,597) - -
Future profit margins 152,368 171,568 - -
Future premiums (549,010) (605,770) - -
653,864 674,220 - -
Value of policy liabilities – Accumulation Method
Future policy benefits 50,320 82,362 - -
50,320 82,362 - -
Unvested policy benefits 23,114 22,903 - -
Net policy liabilities - life insurance contracts 727,298 779,485 - -
Reconciliation of movements in life insurance contract policy liabilities
Gross life insurance liabilities at 1 October 811,725 1,260,627 - -
Transferred to liabilities of disposal group classified as held for sale - (443,918) - -
Increase/ (decrease) in liabilities ceded under reinsurance (10,353) 9,444 - -
Increase / (decrease) in life insurance contract liabilities recognised in the income (16,168) (6,119) - -
statement
Deposits recognised as an increase in policy liabilities 5,953 10,575 - -
Withdrawals recognised as a decrease in policy liabilities (41,972) (17,021) - -
Other adjustments including foreign exchange - (1,864) - -
Gross life insurance liabilities at 30 September 749,185 811,725 - -
Life investment contract liabilities
- - - -
Value of policy liabilities – Accumulation Method
Future policy benefits 45,095 46,425 - -
Net policy liabilities - life investment contracts 45,095 46,425 - -
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Liabilities ceded under reinsurance and life insurance contract liabilities recognised in the income statement for 2006 were restated to achieve consistency with disclosure in the current year.

50 TOWER Annual Report 2007

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Group Company
2007 2006 2007 2006
NZ$000 NZ$000 NZ$000 NZ$000
(A) POLICY LIABILITIES (CONT.)
Reconciliation of movements in investment contract policy liabilities
Gross life investment contract liabilities at 1 October 46,425 2,320,503 - -
Transferred to liabilities of disposal group classified as held for sale - (2,273,722) - -
Increase / (decrease) in life investment contract liabilities recognised in the income 4,183 3,524 - -
statement
Deposits recognised as an increase in policy liabilities 788 914 - -
Withdrawals recognised as a decrease in policy liabilities (6,301) (4,794) - -
Gross life investment contract liabilities at 30 September 45,095 46,425 - -
Total gross policy liabilities 794,280 858,150 - -
Liabilities ceded under reinsurance
At 1 October 32,240 39,819 - -
Transferred to assets of disposal group classified as held for sale - (17,250) - -
Movement in income statement (10,353) 9,671 - -
At 30 September 21,887 32,240 - -
Net policy liabilities 772,393 825,910 - -
Analysed as:
- - - -
Payable within 12 months
Payable in more than 12 months 772,393 825,910 - -
772,393 825,910 - -
(B) ANALYSIS OF LIFE INSURANCE AND LIFE INVESTMENT CONTRACT RESULTS
Life insurance contracts
Planned profit margins 16,642 14,449 - -
Experience profits/(losses) (1,786) (2,038) - -
Capitalised loss/(reversal) (82) 2 - -
Other movement (363) 25,302 - -
Investment earnings on assets in excess of policy liabilities of life companies 9,252 2,753 - -
Operating profit after tax attributable to shareholders arising from the life 23,663 40,468 - -
insurance contracts
Life investment contracts
Planned profit margins 240 250 - -
Experience profits/(losses) 191 (30) - -
Operating profit after tax attributable to shareholders arising from life 431 220 - -
investment contracts
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TOWER Annual Report 2007 51

Notes to the Financial Statements

For the year ended 30 September 2007

26. LIFE INSURANCE BUSINESS (CONT.)

(C) SOLVENCY REQUIREMENTS OF LIFE FUNDS

The minimum equity required to be retained to meet solvency requirements over and above the policy liabilities for each of the life insurance companies in the Group is shown below. The shareholder equity retained in each of the life insurance companies exceeds these minimum requirements (see note 26(d)(iv)).

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TOWER Life (NZ) TOWER Life TOWER Health & Life
2007 2006 2007 2006 2007 2006
New Zealand NZ$000 NZ$000 NZ$000 NZ$000 NZ$000 NZ$000
Solvency requirement A 799,321 834,140 1,561 369,139 86,746 86,903
Represented by:
Policy liabilities 757,862 804,921 - 8,905 (8,583) (10,819)
Other liabilities 41,459 28,667 1,561 2,140 9,503 15,459
Solvency reserve B - 552 - 358,094 85,826 82,263
Solvency requirement 799,321 834,140 1,561 369,139 86,746 86,903
Assets available to meet solvency reserve C 56,510 56,085 415,815 411,399 98,267 93,480
Solvency reserve B - 552 - 358,094 85,826 82,263
Excess assets above required 56,510 55,533 415,815 53,305 12,441 11,217
Required solvency reserve % (B/(A-B))x100 0.0% 0.1% 0.0% 3242.2% 9327.5% 1772.7%
Coverage of required solvency reserve C/B n/a 101.5 n/a 1.1 1.1 1.1
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(D) SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS - LIFE INSURANCE

The effective date of the policy liabilities and solvency reserves calculation is 30 September 2007. The Chief Actuary, Herwig Raubal, FIAA, FNZSA has calculated policy liabilities for TOWER Life (NZ) Ltd and TOWER Health & Life Ltd. The actuary is satisfied as to the accuracy of the data from which the policy liabilities have been determined.

This note summarises the assumptions made and the methods adopted for the calculations of Policy Liabilities and Solvency Requirements.

(i) Policy liabilities

Policy liabilities for life insurance business have been determined in accordance with Professional Standard No.3 “Determination of Life Insurance Policy Liabilities” issued by the New Zealand Society of Actuaries for TOWER Life (NZ) Ltd and TOWER Health & Life Ltd. This standard requires that policy liabilities be calculated on the basis of best estimate assumptions and in a way that allows for the release of planned margins as services are provided to policyholders.

Valuation of policy liabilities

Policy liabilities comprise the amount required to pay the expected future benefits and expenses after receiving expected future premiums and investment earnings.

Methods used to value policy liabilities

(i) Projection method

The projection method uses expected cash flows (premiums, investment income, redemptions or benefit payments, expenses and profits) to establish the value of policy liabilities. The value of expected future premiums is deducted from the value of expected benefit and expense payments to arrive at the obligation to policy owners.

(ii) Accumulation method

Under the accumulation method for risk policies the policy liability is the sum of the unearned premiums, outstanding claims plus an allowance for claims incurred but not yet reported. For investment policies, the policy liability is determined as the policy account balance including accrued interest to the balance date, plus investment fluctation reserves subject to a minimum of the current surrender value.

Methods used

Where the policy liability is determined by the projection method, actuarial standards require profit to be related to one or more financially measurable indicators of the provision of service (or related income) called “profit carriers”. The profit carriers adopted for the major product groups are shown in the table opposite:

The value of policy liabilities may also include a component for profit margins on existing business that will be earned as services are provided to policy owners over the time the relevant policies are held with the company.

The company incurs costs in selling new policies. Any costs not recovered by specific charges received from the policy owner at inception are normally deferred. New business selling costs (or acquisition costs) related to the acquisition of new business are deferred as long as the underlying policies are expected to be profitable. Where costs are deferred, they are recovered from premiums or charges receivable in the future.

52 TOWER Annual Report 2007

MAJOR PRODUCT GROUPS	METHOD	PROFIT CARRIERS(for business valued using projection method)
Traditional participating	Projection	Cost of supportable bonuses
Traditional non-participating, renewal and level term and mortgage repayment insurance	Projection	Expected death claims
Annuities	Projection	Expected annuity payments
Individual lump sum life insurance risk (life, temporary and
permanent disability and trauma) and disability income	Projection	Expected claims
protection insurance
Non-participating investment account	Accumulation
Investment linked	Accumulation
Group risk insurances and renewable insurances	Accumulation

(ii) Disclosure of assumptions

The following table summarises the key assumptions used in the calculation of policy liabilities, together with notes on any significant changes in the assumptions:

REQUIRED ASSUMPTION	BASIS OF ASSUMPTION (By product Group)	SIGNIFICANT CHANGES	SIGNIFICANT CHANGES
Discount rates for	As the value of benefts is contractually linked to the performance	The discount rates used are as follows:
participating business	of assets, a discount rate based on the market return on the asset backing policy liabilities is used. The discount rate assumed in	September 2007	5.2% to 5.4%
	calculating policyholder liabilities was derived from the expected long term average rates of return for the asset pool backing this	September 2006	4.9%
	business, based on the benchmark asset mix. Discount rates
	assumed are net of taxation and investment expenses.
Discount rates for non-	Risk free discount rates have been adopted for life insurance	The discount rates used are as follows:
participating life insurance contracts	contracts where the benefts are not contractually linked to the performance of backing asset pools. The risk free discount rates	September 2007	4.0% to 5.1%
	have been determined based on government bond rates (in 2006 only), or the zero coupon swap rates, depending on the nature	September 2006	3.6% to 4.5%
	structure and term of the contract liabilities.
Infation	Beneft indexation is before allowance for the proportion of	Beneft Indexation
	policyholders who take up indexation.	September 2007	2.0%
		September 2006	2.0%
Future expenses	Future maintenance expenses have been set based on experience	None
	analyses conducted by the various companies as well as the
	actuary’s expectation of future expense levels, with an allowance
	for future infation.
	Future investment expenses have been set based on the actual
	costs of the Companies’ investment managers.
Rates of taxation	Rates of taxation have been set with regard to current tax laws and	Allowance has been made for the following
	changes substantively enacted at balance date.	items:
		- introduction of reduced corporate tax rate
		(30%) from the income year beginning in
		2008 and the corresponding change to the tax
		rate on policyholder funds.
		- allowance for taxation under the Portfolio
		Investment Entity	Rules on relevant investment
		assets.
		– allowance for the Fair Dividend Rate
		of taxation on certain overseas equity
		investments.
Mortality – risk products	Standard mortality tables, primarily NZ97. These are adjusted for	Mortality assumptions for smokers have been
	company experience.	increased by up to	20%.
Mortality – annuities	Standard mortality tables (PML80C10) adjusted for company	None
	experience.
Disability – lump sum	Based upon recent company and reinsurer experience adjusting for	None
	different product defnitions. Some wholesale schemes use specifc
	company experience.
Disability income	Standard morbidity tables (IAD89-93) adjusted for company	None
	experience. Specifc company experience is used for certain
	wholesale schemes.

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

26. LIFE INSURANCE BUSINESS (CONT.)

(D) SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS - LIFE INSURANCE (CONT.)

REQUIRED ASSUMPTION	BASIS OF ASSUMPTION (By product Group)	SIGNIFICANT CHANGES
Discontinuances	Discontinuance rates have been assumed to be consistent with the	Discontinuance rates have been adjusted in
	experience of recent years.	line with experience. For Whole of Life and
	Assumed discontinuance rates vary by sub-grouping within a class and vary according to the length of time tranches of business have been in-force and other relevant factors.	endowment policies the relationship of the discontinuance rates by duration inforce has been adjusted to more closely align with recent experience.
		Endowment durations 10 - 35 have been
		increased and other rates decreased.
		Whole of Life durations 10 - 24 have been
		reduced and durations 25 to 34 increased.
		The assumption for regular premium level term
		has been reduced by 1%. No other assumptions
		have been changed from Sep 06.
Surrender values	Surrender values are based on current practice.	None
Rates of future supportable	Assumed future supportable bonus rates included in policyholder	None
participating benefts	liabilities were set such that the present value of policyholder
	liabilities, allowing for the shareholders’ right to participate in
	distributions, equals the value of assets supporting the business.
	The rate of shareholder participation assumed is the maximum	None
	allowable of 25% of the value of bonuses distributed to
	participating policyholders subject to policy conditions.
	Additional policy bonuses will emerge from the assets representing	None
	policyholders’ unvested benefts.

Effect of changes in actuarial assumptions during the reporting period

The liabilities for life insurance contracts include the value of future profit margins that are to be released over future reporting periods. The impact of assumption changes on non participating business are absorbed by the future profit margins, provided sufficient future margins exist, such that there is no change in the contract liability in the current period. For participating business, the impact of assumption changes is absorbed by the value of future supportable bonus. The current period contract liability is impacted by the change in cost of current period supportable bonus.

The impact of the assumption changes in the current period on future profit margins in respect of life insurance contracts (excluding new business contracts which are measured using assumptions at the valuation date) are shown below.

The life insurance contract liability calculations include the use of published market yields, such as government bond rates. The changes in these yields do not represent actuarial assumption changes and they impact both life insurance contract liabilities and asset values as at the balance sheet date.

The impact of assumption changes for life insurance contracts made during the year is shown below.

		Change in next
	Change in future	Financial Year’s	Change in Current	Change in
	shareholder	Shareholder	Period Contract	Current Period
	proft margins	Planned Proft	Liability	Shareholder Proft
	NZ$000	NZ$000	NZ$000	NZ$000
Assumption change
Non-market related economic assumptions	(17,353)	(398)	(85)	85
Mortality and Morbidity	(3,104)	(211)	-	-
Discontinuances	(192)	(40)	(44)	9
Expenses	(4,228)	(231)	(64)	13
Other	3,032	280	(2,061)	427

54 TOWER Annual Report 2007

Where the value of future profit margins are insufficient to absorb the assumption changes, the resulting losses are recognised in the current year via a change in the contract liability. These losses may be reversed in subsequent periods should experience improve. There were no material changes in the life insurance contract liabilities due to assumption changes for the year ending 30 September 2007.

VARIABLE	IMPACT OF MOVEMENT IN UNDERLYING VARIABLE
Expense risk	An increase in the level or infationary growth of expenses over assumed levels will decrease proft and shareholder equity.
Interest rate risk	Depending on the profle of the investment portfolio, the investment income of the Group will decrease as interest rates
	decrease. This may be offset to an extent by changes in the market value of fxed interest investments. The impact on proft
	and shareholder equity depends on the relative profles of assets and liabilities, to the extent that these are not matched.
Mortality rates	For insurance contracts providing death benefts, greater mortality rates would lead to higher levels of claims, increasing
	associated claims cost and therefore reducing proft and shareholder equity.
Morbidity rates	The cost of health-related claims depends on both the incidence of policyholders becoming temporarily or totally and
	permanently disabled and, in the case of temporary disablement, the duration which they remain temporarily disabled. Higher
	than expected incidence and duration would be likely to increase claim costs, reducing proft and shareholders equity.
Discontinuance	The impact of the discontinuance rate assumption depends on a range of factors including the type of contract, the surrender
	value basis (where applicable) and the duration in force. For example, an increase in discontinuance rates at earlier durations
	of life insurance contracts usually has a negative effect on proft and shareholder equity. However, due to the interplay
	between the factors, there is not always an adverse outcome from an increase in discontinuance rates.
Market risk	For benefts which are not contractually linked to the underlying assets, the Group is exposed to market risk.

(iii) Sensitivity analysis

The liabilities included in the reported results are calculated using certain assumptions about key variables as disclosed above. Sensitivity analysis is conducted to assess the impact of actual experience being different to that assumed in the calculation of liabilities. Movements in any key variable will impact the profit and shareholder equity of the Group. The tables below describe how a change in actual experience relative to that expected will effect next financial year’s expected shareholder profit.

New Zealand		Change in next fnancial year’s shareholder proft
VARIABLE	MOVEMENT	NET OF REINSURANCE (NZ$000)
Mortality	Worsening by 10%	(653)
Morbidity Claims Costs	Worsening by 10%	(305)
Annuitant Mortality	Worsening by 10%	(117)
Lapses and Surrenders	Worsening by 10%	(431)
Renewal Expenses	Worsening by 10%	(891)

(iv) Solvency requirements

Separate to the policy liabilities recognised in the Balance Sheet, the life insurance companies maintain sufficient capital to meet solvency requirements. These are amounts required to provide protection against the impact of fluctuations and unexpected adverse circumstances on the life insurance companies.

The methodology and bases for determining the Solvency Requirement are in accordance with the requirements of “Professional Standard No. 5 Solvency Reserving for Life Insurance Business“ issued by the New Zealand Society of Actuaries.

(v) Life insurance risk

The life insurance business of the Group involves a number of non-financial risks concerned with the pricing, acceptance and management of the mortality, morbidity and longevity risks accepted from policyholders. Financial risks involving the Group are in note 28.

Insurance risks are controlled through the use of underwriting procedures and adequate premium rates and policy charges, all of which are approved by the Chief Actuary. Tight controls are also maintained over claims management practices to ensure the correct and timely payment of insurance claims.

Claim management procedures

Claims are managed through a dedicated claims team, with appropriate training and development of staff to ensure procedures are adhered to. Claims are managed to ensure timely and correct payment in accordance with policy conditions. Claims experience is reviewed regularly and appropriate actuarial reserves are established.

Reinsurance management procedures

The company holds appropriate reinsurance arrangements to limit exposure to individual and catastrophe risks. All reinsurance arrangments are approved by the Chief Actuary.

Terms and conditions of life insurance contracts

The nature of the terms of the insurance contracts written by the Group is such that certain external variables can be identified on which related cash flows for claim payments depend. The tables below provide an overview of the key variables upon which the amount of related cash flows are dependent.

Underwriting management procedures

Underwriting is managed by a separate department with underwriting limits in place to enforce appropriate risk selection criteria. The Group provides appropriate training and development of underwriting staff. Individual policies carrying insurance risk are underwritten on their merits and are generally not issued without having been examined and underwritten individually. Group risk insurance policies are underwritten on the merits of an employee group as a whole, subject to certain limits for individual members.

TOWER Annual Report 2007 55

Notes to the Financial Statements

For the year ended 30 September 2007

26. LIFE INSURANCE BUSINESS (CONT.)

(D) SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS - LIFE INSURANCE (CONT.)

	DETAILS OF CONTRACT	NATURE OF COMPENSATION	KEY VARIABLES AFFECTING
TYPE OF CONTRACT	WORKINGS	FOR CLAIMS	FUTURE CASH FLOWS
Non-participating life insurance	Guaranteed benefts paid on	Benefts, defned by the insurance	Mortality, morbidity, lapses,
contracts with fxed and	death, permanent and temporary	contract are determined by the	expenses and market earnings on
guaranteed terms (Term Life and	disablement or maturity that are	contract and not directly affected	assets backing the liabilities
Disability including renewable	fxed and guaranteed and not at	by the performance of underlying
term)	the discretion of the issuer.	assets or the performance of the
		contracts as whole.
Life annuity contracts	These policies provide a guaranted	The amount of the guaranteed	Longevity, beneft infation,
	regular income for the life of	regular income is set at inception	expenses and market earnings on
	the insured for a initial single	of the policy including any	assets backing the liabilities
	premium.	indexation.
Traditional life insurance contracts	These policies include a clearly	Benefts arising from the	Mortality, morbidity, lapses,
with discretionary participating	defned initial guaranteed sum	discretionary participation feature	expenses and market earnings on
benefts (endowment and whole	assured that is payable on death.	are based on the performance	assets backing the liabilities
of life)	The guarantee amount is increased	of a specifed pool of contracts
	throughout the duration of the	or a specifed type of contract.
	policy by the addition of bonuses	Operating proft arising from
	annually that once added are not	these contracts is allocated
	removed. An additional (terminal)	between the policyholders
	bonus is payable on claims paid	and shareholders. The amount
	as a result of death or maturity.	allocated to policyholders is held
	Terminal bonus amounts are not	as an unvested policy liability
	guaranteed.	until it is distributed to specifc
		policyholders via bonuses.
Investment account contracts with	The gross value of the premiums	The payment of the account	Fees, lapses, expenses and market
discretionary participating features	received is invested in the	balance is generally guaranteed,	earnings on assets backing the
	investment account with fees	although it may be subject	liabilities
	and premiums for any associated	to certain penalties on early
	insurance cover being deducted	termination. On certain contracts
	from the account balance. Interest	withdrawals can be deferred over
	is credited regularly.	limited time periods.

(vi) Concentration of insurance risk

The Group aims to maintain a porftolio of policyholders with a broad spread of insurance risk types, ages, sexes, occupation classes and geographical locations for the individual and group risk business. The Group uses reinsurance to limit the insurance risk exposure for any one individual. The group risk business unit offers insurance in respect of groups of employees. The Group is exposed to a greater risk of loss from events affecting a location where groups of insured employees work. The Group has purchased catastrophe reinsurance to limit the exposure from any one group event.

TOWER Annual Report 2007

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Group Company
2007 2006 2007 2006
27. GENERAL AND HEALTH INSURANCE BUSINESS NZ$000 NZ$000 NZ$000 NZ$000
(A) ANALYSIS OF GENERAL AND HEALTH INSURANCE OPERATING RESULT
Premium revenue 318,047 294,811 - -
Outward reinsurance expense (16,757) (16,449) - -
Net premium income 301,290 278,362 - -
Claims expense 184,934 178,681 - -
Reinsurance recoveries (1,794) (3,309) - -
Net claims incurred 183,140 175,372 - -
Acquisition costs 31,558 38,673 - -
Other underwriting expenses 71,926 60,181 - -
Underwriting result 14,666 4,136 - -
Investment income from general insurance business:
Investment revenue 19,491 16,462 - -
Investment expenses 210 - - -
Investment income 19,701 16,462 - -
Operating surplus before income tax 34,367 20,598 - -
Analysis of general and health underwriting result
Profit from direct insurance 34,367 20,598 - -
2007 2006
Risks borne Risks borne Risks borne Risks borne
in current in prior in current in prior
year years TOTAL year years TOTAL
(B) NET CLAIMS INCURRED NZ$000 NZ$000 NZ$000 NZ$000 NZ$000 NZ$000
Gross claims expense
Direct claims - undiscounted 182,293 7,723 190,016 182,481 (2,518) 179,963
Discount (274) (4,808) (5,082) (109) (1,173) (1,282)
Gross claims expense 182,019 2,915 184,934 182,372 (3,691) 178,681
Reinsurance and other recoveries
Reinsurance and other recoveries (2,573) 848 (1,725) (5,272) 1,900 (3,372)
revenue - undiscounted
Discount 58 (75) (17) 11 52 63
Reinsurance recoveries (2,515) 773 (1,742) (5,261) 1,952 (3,309)
Net claims incurred 179,504 3,688 183,192 177,111 (1,739) 175,372
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Current year amounts relates to risks borne in the current financial year. Prior period amounts relate to a reassessment of the risks borne in all previous financial years.

TOWER Annual Report 2007 57

Notes to the Financial Statements

For the year ended 30 September 2007

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Group Company
2007 2006 2007 2006
27. GENERAL AND HEALTH INSURANCE BUSINESS (CONT.) NZ$000 NZ$000 NZ$000 NZ$000
(C) OUTSTANDING CLAIMS
Central estimate of expected present value of future payments for claims incurred 82,345 80,510 - -
Risk margin 5,978 5,540 - -
Claims handling costs 4,529 4,230 - -
92,852 90,280 - -
Discount (20,037) (14,885) - -
Outstanding claims liability 72,815 75,395 - -
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Assumptions adopted in calculation of general and health insurance provisions

Estimates of the outstanding claims as at 30 September 2007 have been carried out by the following Actuaries General Insurance – P. Davies, B.Bus.Sc, FIA, FNZSA, AIA, AIAA.

Health Insurance - H Raubal, BEc, FIAA, FNZSA

The actuarial assessments are in accordance with the standards of the Society of Actuaries of New Zealand and the Institute of Actuaries of Australia. The Actuaries were satisfied as to the nature, sufficiency and accuracy of the data used to determine the outstanding claims. The following assumptions have been made in determining net outstanding claims liabilities:

2007	2006
- Infation rates varied from 1.5% to 6%	0.0% to 6.0%
- Discount rates varied from 4% to 6.5%	4.5% to 5.4%
- Claims handling expense ratio 1% to 6.8%	5.3%
- Risk margin 15% to 20%	15% to 20%
The weighted average expected term to settlement of outstanding claims based on historical trends is:
- Short tail claims 0.3 years	0.3 years
- Long tail claims in the Pacifc Islands 1.6 to	1.6 to
2.9 years	2.6 years
- Australian long tail claims 6.9 to	6.9 to
8.1 years	7.6 years
- Inwards reinsurance in excess of	in excess of
10 years	10 years

Inflation Rate

Insurance costs are subject to inflationary presures. Inflation assumptions for all general insurance classes of business are based on current economic indicators.

For motor, property and health classes, for example, claim costs are related to the inflationary pressures of the materials and goods insured as well as labour costs to effect repairs. These costs are expected to increase at a level between appropriate Consumer Price Index (CPI) indices and wage inflation.

Discount rate

General insurance outstanding claims liabilities are discounted at a rate equivalent to that inherent in a portfolio of riskless fixed interest securities with coupon and redemption cash flows exactly matching the projected inflation claim cash flows.

Claims handling expense

The estimate of outstanding claims liabilities incorporates an allowance for the future cost of administrating the claims. This allowance is determined after analysing historical claim related expenses incurred by the classes of business.

Risk margin

The overall risk margin is determined allowing for diversification between classes of business and the relative uncertainty of the outstanding claims estimate for each class.

The assumptions regarding uncertainty for each class were applied to the net central estimates and the results were aggregated allowing for diversification in order to arrive at an overall provision which is intended to have a 75% probability of sufficiency.

General insurance outstanding claims liabilities are discounted to present value using a risk free rate based on ten year government bond rate in New Zealand.

58 TOWER Annual Report 2007

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2007 2006
Gross Reinsurance Net Gross Reinsurance Net
Reconciliation of movements in discounted
outstanding claims liability NZ$000 NZ$000 NZ$000 NZ$000 NZ$000 NZ$000
Balance brought forward 83,312 (7,917) 75,395 75,176 (7,343) 67,833
Effect of change in foreign exchange rates (3,791) 1,180 (2,611) 3,490 (1,409) 2,081
Effect of changes in assumptions 381 6 387 257 21 278
Increase in claims incurred/ (recoveries) anticipated (161) - (161) 121,275 (3,310) 117,965
over year
Incurred claims recognised in the income 119,279 (1,794) 117,485 200,198 (12,041) 188,157
statement
Claim payment / (recoveries) during the year (120,509) 2,830 (117,679) (116,886) 4,124 (112,762)
Balance carried forward 78,511 (5,695) 72,815 83,312 (7,917) 75,395
Reconciliation of undiscounted claims to liability
for outstanding claims
Outstanding claims undiscounted 52,398 (1,515) 50,883 49,149 (1,683) 47,466
Discount (20,573) 536 (20,037) (15,491) 606 (14,885)
Outstanding claims 31,825 (979) 30,846 33,658 (1,077) 32,581
Short tail outstanding claims 41,969 42,814
Total outstanding claims as per balance sheet 72,815 75,395
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Sensitivity analysis

The impact of change in key variables on the outstanding claims liability is set out below. Each change has been calculated in isolation to other changes.

changes.
		IMPACT
VARIABLE	MOVEMENT	NZ$000
Claim settlement period	+ 0.5 years	(366)
	- 0.5 years	366
Claims expenses ratio	increase of 1%	(75)
	decrease of 1%	75
Infation rates	increase of 1%	(1,081)
	decrease of 1%	942
Discount rates	increase of 1%	1,027
	decrease of 1%	(1,196)

(D) RISK MANAGEMENT POLICIES AND PROCEDURES

The financial condition and operations of the general insurance business are affected by a number of key risks including insurance risk, interest rate risk, currency risk, market risk, financial risk, compliance risk, fiscal risk and operational risk. Notes on the policies and procedures employed in managing these risks in the general insurance business are set out below.

(i) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks

The risk management activities include prudent underwriting, pricing, and management of risk, together with claims management, reserving and investment management. The objective of these disciplines is to enhance the financial performance of the insurance operations.

The key policies in place to mitigate risk arising from writing general insurance contracts include:

 comprehensive managament information systems and actuarial models using historical information to calculate premiums and monitor claims;

 monitoring natural disasters such as earthquakes, floods, storms and other catastrophes using models;

 the use of reinsurance to limit the Group’s exposure.

(ii) Terms and conditions of insurance contracts that have a material effect on amount timing and uncertainty of cash flows

The term and conditions attaching to insurance contracts affect the level of insurance risk accepted by the Group. Certain policies within the health insurance business have premium payback clauses that allow for the return of premiums after claim payments. These liabilities are matched with suitable assets.

(iii) Concentration of insurance risk

*(iii) Concentration of insurance risk*
RISK	SOURCE OF CONCENTRATION	RISK MANAGEMENT MEASURES
An accumulation of risks arising from a natural	Insured property concentrations	Accumulation risk modeling, reinsurance
peril		protection
A large property loss	Fire or collapse affecting one building or a	Maximum acceptance limits, property risk
	group of adjacent buildings	grading, reinsurance protection
Inclusion of multiple classes of casualty business	Response by a multitude of the Group’s policies	Purchase of reinsurance clash protection
in the one event	to the one event, for example a construction
	liability and professional indemnity policy

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

27. GENERAL AND HEALTH INSURANCE BUSINESS (CONT.)

(iv) Development of claims

The following table shows the development of net undiscounted outstanding claims relative to the current estimate of ultimate claims costs for the five most recent years.

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INCIDENT YEAR
Prior 2003 2004 2005 2006 2007 Total
Ultimate claims cost estimate NZ$000 NZ$000 NZ$000 NZ$000 NZ$000 NZ$000 NZ$000
At end of accident year - 134,591 153,683 168,815 181,194 189,458
One year later - 133,561 152,802 167,592 178,809 -
Two years later - 132,968 152,634 167,126 - -
Three years later - 132,480 152,251 - - -
Four years later - 132,216 - - - -
Current estimate of ultimate - 132,216 152,251 167,126 178,809 189,458
claims cost
Cumulative payments - (131,267) (150,663) (165,834) (175,210) (145,129)
Undiscounted central estimate 30,904 949 1,588 1,292 3,599 44,329 82,661
Discount to present value (19,168) (56) (270) (57) (219) (583) (20,353)
Discounted central estimate 11,736 893 1,318 1,235 3,380 43,746 62,308
Claims handling expense 4,530
Risk margin 5,978
Net outstanding claims liabilities 72,816
Reinsurance recoveries on outstanding claims
5,696
liabilities and other recoveries
Gross outstanding claims liabilities 78,512
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(E) LIABILITY ADEQUACY TEST

The liability adequacy test has identified a surplus for each portfolio of contracts that are subject to broadly similar risks and are managed together as a single portfolio.

The risk margin adopted in performing the liability adequacy test is 75%. The outstanding claims liability is set at a level that is appropriate and sustainable to cover the Group’s claims obligations after having regard to the prevailing market environment and prudent industry practice.

(F) INSURER FINANCIAL STRENGTH RATING

TOWER Insurance Limited has an insurer financial strength rating of “A-” (Excellent) issued by AM Best Company Limited.

TOWER Medical Insurance Limited is not required to obtain a credit rating.

(G) REINSURANCE PROGRAMME

Reinsurance programmes are structured to adequately protect the general insurance companies’ solvency and capital positions. The adequacy of reinsurance cover is based on assessing TOWER Limited’s exposure in the worst possible scenario. The worst possible scenario for TOWER Limited is a major Wellington earthquake. Each year, as part of setting the coming year’s reinsurance premium, comprehensive modelling of the event probability and amount of the Group’s exposure is undertaken.

60 TOWER Annual Report 2007

28. RISK MANAGEMENT AND FINANCIAL INSTRUMENT INFORMATION

The financial condition and operating results of the Group are affected by a number of key financial and non-financial risks. Financial risks include market risk, financing risk and liquidity risk. The non-financial risks are insurance risk, compliance risk and operational risk. The Group’s objectives and policies in respect of non-financial risk are in notes 26 and 27, while the managing of financial risk is set out in the remainder of this section.

TOWER’s objective is to satisfactorily manage these risks in line with the Group’s risk management policy and guidance which are approved by the Board. Various procedures are put in place to control and mitigate the risks faced by the Group depending on the nature of the risk. The consolidated entity’s exposure to all risks is monitored by the Risk Executive Manager and this exposure is reported monthly to the executive management and the Group Audit and Compliance Committee.

The Board has delegated to the Group Audit and Compliance Committee the responsibility to review the effectiveness and efficiency of management processes, group risk management and internal financial controls and systems as part of their duties.

Financial risks are generally monitored and controlled by selecting appropriate assets to back policy liabilities. The assets are regularly monitored to ensure that there are no material asset and liability mismatching issues and other risks such as liquidity risk and credit risk are maintained within acceptable limits. For those life insurance and life investment contracts where the benefits paid are directly impacted by the value of the underlying assets, the Group is exposed to the risk of future decreased asset management fees as a result of a decline in assets under management.

The Board has delegated to the Group Investment Committee the responsibility for:

reviewing investment policy for TOWER shareholder and policyholder funds;
reviewing the risk management policy and statements in respect of investment management, including the derivative policy;
considering the establishment, adjustment or deletion of limits and counter-party approvals, and the scope of financial instruments to be used in the management of TOWER’s investments;
reviewing the appointment of external investment managers;
monitoring compliance with investment policies and client mandates.

Compliance risk and operational risk are both monitored by internal committees and report regularly to the Board.

(A) MARKET RISK

Market risk is the risk of change in the fair value of financial instruments from fluctuations in the foreign exchange rates (currency risk), market interest rates (interest rate risk) and market prices (price risk), whether such change in price is caused by factors specific to an individual financial instrument or its issuer or factors affecting all financial instruments traded in a market.

The Group Investment Committee determines the levels of market risk it accepts by reviewing:

what constitutes market risk for the Group
the basis used to fair value financial assets and liabilities
asset allocation and portfolio limit structures
diversification benchmarks by type of instrument and geographical areas; and
sets out reporting of market risk exposures and the monitoring thereof.

TOWER generally elects to not hedge the capital invested in overseas entities, thereby accepting the foreign currency translation risk on invested capital.

The Group Investment Committee sets limits for the management of currency risk arising from its investments based on prudent international asset management practice. Regular reviews are conducted to ensure that these limits are adhered to. In accordance with this policy, TOWER does not hedge the currency risk arising from translation of the financial statements of foreign operations.

Foreign currency denominated asset and liabilities:

		Group
			Net
Assets and liabilities not hedged	Assets NZ$000	Liabilities NZ$000	Exposure NZ$000
As at 30 September 2007 Exposure to Australian dollars	47,050	13,522	33,528
Exposure to other currencies	91,235	62,129	29,106
As at 30 September 2006
Exposure to Australian dollars	222,839	-	222,839
Exposure to other currencies	84,836	-	84,836

(ii) Interest rate risk

Interest rate risk is the risk that the value/future value cash flows of a financial instrument will fluctuate because of changes in interest rates.

The TOWER Board is responsible for the management of the interest risk arising from external borrowings. As at 30 September 2007 and 30 September 2006 there were no interest rate swaps in place in relation to external borrowings.

TOWER manages interest risk arising from its interest bearing investments in accordance with Group Investment Committee approved policies.

General insurance

Interest rate risk arises in general insurance to the extent that there is a mismatch between the fixed interest portfolios used to back the outstanding claims liabilities and those outstanding claims. The interest rate risk is managed by matching the duration profiles of the investment assets and the outstanding claims liabilities.

Life insurance

Interest rate risk and market risk arise in life insurance to the extent that there is a mismatch between the policyholder liabilities and the assets backing those liabilities. The impact of these mismatches impact current period operating profits. The primary areas of mismatch for TOWER’s life insurance business are:

For non-participating life insurance contracts, the mismatch between the risk free discount rates used in the policy liability calculations and the backing asset values.
For a portion of the life investment contract business, the mismatch between the value of the financial instrument liabilities (including the discount rates used in their calculation, if applicable) and the backing asset values.

Interest rate and other market risks are managed by the Group through a strategic asset allocation policy and an investment management policy that has regard to policyholder expectations and risks and to target surplus for both capital adequacy and solvency as advised by the Chief Actuary.

(i) Currency risk

Currency risk is the risk of loss resulting from changes in exchange rates.

TOWER’s principal transactions are carried out in New Zealand Dollars and its exposure to foreign exchange risk arises primarily with respect to the Pacific Island General Insurance business, this does not form a significant part of the Group’s operations.

TOWER Annual Report 2007 61

Notes to the Financial Statements

For the year ended 30 September 2007

28. RISK MANAGEMENT AND FINANCIAL INSTRUMENT INFORMATION (CONT.)

The following tables provide information on the financial assets and financial liabilities which are subject to interest rate changes. They show the weighted average effective interest rate. The weighted average interest rates are based on carrying amounts and rates applicable at balance date, net of the impact of derivatives. Where applicable, the rates are net of directly attributable transactions costs.

Maturity analysis of financial assets and liabilities – Group

	Effective Interest	0-12 months	12-24 months	24-36 months	36-48 months	48-60 months	Over 60 months	Total
	Rate	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
2007
Fixed interest securities	7%	433,041	14,623	6,030	5,295	13,009	87,595	559,593
Other borrowings	9%	27	-	87,124	-	-	-	87,151
Total liabilities		27	-	87,124	-	-	-	87,151
2006
Fixed interest securities	5%	353,405	6,330	10,969	3,778	110	313,980	688,572
Capital bonds	9%	124,337	-	-	-	-	-	124,337
Capital notes	9%	73,469	-	-	-	-	-	73,469
Other borrowings	10%	628	-	-	-	-	-	628
Total liabilities		198,434	-	-	-	-	-	198,434

All other financial assets and liabilities are non-interest bearing.

(iii) Fair value of financial instruments

All financial assets and liabilities, other than investments in subsidiaries and the bonds and notes in the prior year, are recorded at values which approximate fair value. The bonds and notes were repaid in full in the current year.

Capital bonds were carried on the balance sheet as at 30 September 2006 at $124.3 million, being the cost of $125 million less establishment costs that are amortised over the life of the bond. The fair value of the capital bonds was $127.5 million. Capital notes were carried on the balance sheet as at 30 September 2006 at $73.5 million, being the cost of $75 million less unamortised establishment costs. The fair value of the capital notes was $76.5 million.

(B) CREDIT RISK

Credit risk is the risk of loss that arises from a counter party failing to meet their contractual commitment in full and on time, or from losses arising from the change in value of a trading financial instrument as a result in changes in credit risk on that instrument.

The maximum exposure to credit risk at balance date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the balance sheet.

The only significant concentrations of credit risk are outlined below.

	Group Company
	2007 2006 2007	2006
	Carrying Carrying Carrying	Carrying
	value value value	value
	NZ$000 NZ$000 NZ$000	NZ$000
Australian government	- 30,545 -	-
New Zealand government	69,360 246,355 -	-
Other government	5,834 - -	-
Receivables from subsidiaries	- - 259,351	258,258

Additionally, TOWER has normal clearing house exposures associated with dealings through recognised exchanges and financial intermediaries.

(C) FINANCING AND LIQUIDITY RISK

Financing and liquidity risk is the risk that the Group will not be able to refinance debt obligations or may not be able to raise cash when required and on acceptable terms.

The Group treasury function maintains sufficient liquid assets to cover obligations and unforeseen expenses from the Group.

(D) FAIR VALUES

Fair value is the amount for which an asset could be exchanged, or a liability settles, between knowledgeable, willing parties in an arm’s length transaction.

All assets shown on the Balance Sheet are at fair value unless otherwise noted.

62 TOWER Annual Report 2007

(E) DERIVATIVE FINANCIAL INSTRUMENTS

The Group utilises derivative financial instruments to reduce investment risk. Specifically, derivatives are used to achieve cost effective shortterm reweightings of asset class, sector and security exposures and to hedge portfolios when a market is subject to significant short-term risk. Derivative financial instruments used include interest rate swaps.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value.

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Group Company
2007 2006 2007 2006
29. OPERATING LEASES NZ$000 NZ$000 NZ$000 NZ$000
As lessee
Rent paid under non-cancellable operating leases during the year 3,686 6,189 - -
Rent payable under non-cancellable operating leases to the end of the lease terms are:
– Not later than one year 4,216 5,324 - -
– Later than one year and not later than five years 13,039 18,032 - -
– Later than five years 2,873 7,693 - -
20,128 31,049 - -
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Operating lease payments represent the future rentals payable for office space under current leases. Leases are for an average of seven years with rental rates reviewed every three years.

30. CASH AND CASH EQUIVALENTS

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Cash at bank and in hand 17,397 13,958 2,304 2,018
Deposits at call 46,840 39,526 - -
Total cash and cash equivalents 64,237 53,484 2,304 2,018
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The effective interest rate for deposits at call is 8.25% (2006: 5.4%) and primarily mature within 3 months of balance date.

(A) RECONCILIATION TO CASH AT THE END OF THE YEAR

The above figures are reconciled to cash at the end of the financial year as shown in the Statement of Cash Flows as follows:

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Balances as above 64,237 53,484 2,304 2,018
Bank overdrafts (note 18) (27) (628) - -
Balances per Statements of Cash Flow 64,210 52,856 2,304 2,018
(B) RECONCILIATION OF PROFIT FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES
Profit / (loss) from continuing operations 35,230 15,154 (10,414) (3,058)
Add/(less) non cash items
Depreciation 2,009 1,037 - -
Amortisation of intangibles 1,187 1,130 - -
Change in life insurance and life investment contract liabilities (50,782) (214,265) - -
Unrealised (gain)/loss on investments (32,139) 101,089 - -
Share based payments expense (397) 610 (54) 610
(Increase)/decrease in deferred tax 24,600 13,169 489 (251)
Intercompany expenses - - 10,060 5,385
(20,292) (82,074) 81 2,686
Add/(less) movements in working capital relating to operating activities
(Increase)/decrease in receivables (7,529) (52,466) 1,175 (1,175)
Increase/(decrease) in payables 7,893 103,073 14 293
(Increase)/decrease in taxation (17,556) (3,399) (1,099) (1,391)
(17,192) 47,208 90 (2,273)
Add / (less) other items classified as investing / financing activities
Interest on borrowings 2,151 - - -
Net cash inflows/(outflows) from operating activities (35,333) (34,866) 171 413
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TOWER Annual Report 2007 63

Notes to the Financial Statements

For the year ended 30 September 2007

31. CONTINGENT LIABILITIES

Taxation - over paid tax

In February 2004, the Inland Revenue Department (IRD) refunded TOWER $30 million in respect of over paid tax. The IRD now believes it ought not to have paid this refund and have written to TOWER disputing TOWER’s entitlement to this refund. The IRD has not issued demand for payment. TOWER has received strong legal advice that it is fully entitled to the refund.

TOWER has commenced IRD’s formal dispute resolution process in relation to the refund paid plus potential use of money interest and penalty amounts. The IRD has agreed that no tax in respect of this matter will be payable until this process is complete which is expected to take up to two years. In the unlikely event that TOWER is unsuccessful, the $30 million could be repaid to the IRD. Such a payment would reinstate a tax asset representing prepaid taxes that would be available to offset future tax liabilities.

Taxation - use of money interest

The IRD has advised TOWER it is considering TOWER’s entitlement to use of money interest paid to TOWER for the income tax years 1996 to 2005 in respect of some prepaid assets at that time. The amount of interest involved is NZ$12m. TOWER has received independent advice supporting the position taken by TOWER and will defend its position if the matter is formally challenged by the IRD.

Group Company 2007 2006 2007 2006	Group Company 2007 2006 2007 2006
32. CAPITAL COMMITMENTS NZ$000 NZ$000 NZ$000	NZ$000
Commitments for capital expenditure not otherwise provided for in the fnancial statements: Computer, software and support services Within one year - 614 -	-
Property, plant and equipment Within one year - 2,513 -	-

33. SHARE BASED PAYMENTS

The company has five executive share option schemes. Each is equity settled and has differing conditions which are set out in the tables below. The exercise prices are set at the average of the share price for the 5 days before grant date. Subject to the discretion of the Board, options are forfeited if an employee leaves the Group before the options vest.

The fair value for options was estimated by using a binomial pricing model. The main inputs to the model were as follows:

Terms of share schemes	Tranche A	Tranche B	Tranche C	Tranche D	Tranche E
Exercise price (in NZ$)	$1.40	$2.13	$2.13	$2.55	$2.03
Grant date	31-Mar-04	9-Aug-05	9-Aug-05	4-Apr-06	1-Oct-06
Vesting date	1-Apr-07	9-Aug-08	9-Aug-09	3-Apr-09	3-Apr-09
Expiry date	31-Mar-10	9-Aug-11	9-Aug-12	4-Apr-12	4-Apr-12
Expected volatility	20%	20%	20%	20%	20%
Risk free rate	5.71%	5.71%	5.71%	5.71%	5.71%
Fair value of the plan ($000)	353	305	325	702	1,421
Amount expensed during the year ($000)	-	(11)	(18)	104	404

Expected volatility was determined by looking at the performance of the share price over a number of periods ranging from 6 month to two years adjusted to remove significant impacts arising from one off events.

The expected life is based on best estimates of management allowing for non-transferability, exercise restrictions and behavioural considerations.

64 TOWER Annual Report 2007

Details of the share options outstanding as at 30 September were as follows:

			Number of options			Weighted
						average
	Tranche A	Tranche B	Tranche C	Tranche D	Tranche E	exercise price
2007
Outstanding at start of year	3,599,000	2,671,500	1,350,000	5,800,000	-	$2.07
Granted	-	-	-	-	3,000,000	$2.03
Forfeited	-	(400,000)	(400,000)	(900,000)	-	$2.35
Exercised	(831,000)	-	-	-	-	$1.40
Lapsed	(905,828)	(1,771,500)	(450,000)	(4,000,000)		$0.00
Outstanding at the end of the year	1,862,172	500,000	500,000	900,000	3,000,000	$2.07
Exercisable at the end of the year	1,862,172	-	-	-	-	$1.40
2006
Outstanding at start of year	6,401,000	3,096,500	1,775,000	-	-	$1.62
Granted	-	-	-	6,100,000	-	$2.55
Forfeited	(1,270,500)	-	-	-	-	$1.23
Exercised	(1,297,500)	-	-	-	-	$1.23
Lapsed	(234,000)	(425,000)	(425,000)	(300,000)	-	$0.00
Outstanding at the end of the year	3,599,000	2,671,500	1,350,000	5,800,000	-	$2.07
Exercisable at the end of the year	-	-	-	-	-	-

34. TRANSACTIONS WITH RELATED PARTIES

The majority of TOWER’s related party transactions result solely from normal dealings of entities in their capacity as a financial services provider or asset manager and are therefore not recorded in this note. Shares and other financial securities have been traded between TOWER, its subsidiaries, unit trusts and superannuation funds where TOWER or its subsidiaries have an interest. Trade amounts owing between related parties are payable under normal commercial terms.

(A) SUBSIDIARIES AND ASSOCIATES

During the year there have been transactions between TOWER Limited, its subsidiaries and associates which have been conducted on a commercial basis. The transactions from the Parent’s perspective comprise:

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Company
2007 2006
NZ$000 NZ$000
Operating costs 1,979 2,852
For balances outstanding at year end refer to Notes 9 and 16. These balances are non-interest bearing.
(B) KEY MANAGEMENT PERSONNEL COMPENSATION
The remuneration of directors and other members of key management during the year was as follows:
Group Company
2007 2006 2007 2006
NZ$000 NZ$000 NZ$000 NZ$000
Salaries and other short-term employee benefits 3,884 6,092 935 2,936
Termination benefits 356 417 - 417
Post-employment benefits - 153 - 47
4,240 6,662 935 3,400
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Information regarding individual directors and executives compensation is provided in the Corporate Governance section of the Annual Report.

(C) LOANS TO KEY MANAGEMENT PERSONNEL

There have been no loans made to directors of the Company and other key management personnel of the Group, including their personally related parties. (2006: nil).

(D) OTHER TRANSACTIONS WITH KEY MANAGEMENT PERSONNEL

Key management also hold various policies and accounts with TOWER Group companies. These are operated in the normal course of business on normal customer terms.

TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

35. DISCLOSURES ON ASSET RESTRICTIONS AND MANAGED ASSETS

Restrictions on assets

Investments and other assets held in each of the life insurance companies can only be used to meet the liabilities and expenses of that company, to acquire investments to further the business of the company or as distributions to shareholders. Distributions may be made to shareholders only when regulatory capital requirements are met and sufficient equity remains for the ongoing operation of the business.

Managed assets

TOWER conducts investment and other fiduciary activities that result in the holding or placing of assets on behalf of individuals, managed funds, trusts, retirement benefit plans and other institutions. These assets are not the property of TOWER and accordingly are not included in these financial statements.

The value of assets subject to funds management and other fiduciary activities were:

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Group
2007 2006
NZ$000 NZ$000
Superannuation funds 817,867 1,070,901
Unit trust and group investment funds 3,379,520 3,171,768
4,197,387 4,242,669
Assets per Balance sheet 1,546,193 6,062,138
Total Assets Under Management/Advice 5,743,580 10,304,807
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Arrangements are in place to ensure that the asset management activities of these funds continue to be managed separately from TOWER’s financial services and life insurance operations.

36. GUARANTEED RETURNS ON FUNDS INVESTED – LIFE INSURANCE COMPANIES

TOWER or its subsidiaries guarantee capital contributed by policyholders together with any declared dividends for the following funds. At balance date the policy liabilities of these funds were:

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2007 2006
NZ$000 NZ$000
TOWER Life (NZ)
Capital Preservation Fund 30,304 63,298
Capital Protected Plan 10,649 11,443
VITAL 1,957 2,050
Total 42,910 76,791
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INVESTMENT LINKED AND NON-INVESTMENT LINKED BUSINESS OF LIFE INSURANCE COMPANIES

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Group
Non- Non-
Investment investment Investment investment
linked linked linked linked
2007 2007 2006 2006
NZ$000 NZ$000 NZ$000 NZ$000
Investment assets 45,095 880,142 46,425 1,279,215
Other assets - 30,853 - 83,843
Policyholder liabilities (45,095) (744,465) (46,425) (785,995)
Other liabilities - (32,652) - (38,963)
Net assets - 133,878 - 538,100
Retained earnings - (95,606) - (166,921)
Net premium revenue - 57,770 - 57,279
Investment revenue 5,994 46,994 4,343 93,065
Net claims expense - (65,518) - (67,083)
Other operating expenses (478) (22,912) (496) (32,841)
Change in policyholder liabilities (4,183) 4,702 (3,524) 7,349
Operating surplus/(deficit) before taxation 1,333 21,036 323 57,769
Taxation expense/(credit) (902) (3,949) (103) (17,301)
Operating surplus/(deficit) after taxation 431 17,087 220 40,468
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66 TOWER Annual Report 2007

38. EARNINGS PER SHARE

38. EARNINGS PER SHARE
	Group
	2007	2006
Basic Earning per Share	NZ$000	NZ$000
Earnings per Share has been calculated as follows:
Proft from continuing business (after minority earnings)	34,602	14,090
Proft from discontinued business	198,030	49,404
Proft after minority earnings	232,632	63,494
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share	211,176,400	359,582,910
	NZ cents	NZ cents
Basic earnings per share	110.16	17.66
Basic earnings per share on continuing activities	16.39	3.92
Basic earnings per share on discontinued activities	93.77	13.74

Earnings per share for 30 September 2007 and 30 September 2006 is based on the weighted average number of ordinary shares outstanding during the year.

during the year.
Alternative Earnings per Share
Alternative Earnings per Share has been calculated as follows:
Fully paid equivalent shares	189,348,179	188,517,179
	NZ cents	NZ cents
Alternative earnings per share on continuing activities	18.27	7.47

Alternative earnings per share for 30 September 2007 is based on 189.3 million fully paid ordinary shares on issue at the end of the year, which represents the number of shares on issue immediately after the demerger adjusted for the movement in the shareholding during the year. Alternative earnings per share for 30 September 2006 have been calculated the same way, including 188.5 million share on issued immediately after the de-merger to facilitate comparison.

39. DISCONTINUED OPERATIONS

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Group
2007 2006
NZ$000 NZ$000
Profit from discontinued operations comprises
Operating profit / (loss) from TOWER Australia (4,560) 49,404
Profit on sale from TOWER Australia 202,590 -
198,030 49,404
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(A) SEPARATION OF AUSTRALIAN AND NEW ZEALAND BUSINESSES

On 8 August 2006, TOWER announced its plan to separate the Australian and New Zealand businesses of the Group. TOWER Limited remains listed on the Australian and New Zealand stock exchanges and continues to own the New Zealand and Pacific Island businesses. The Australian business is now called TOWER Australia Group Limited (TAL) and is listed on the Australian Stock Exchange. The following transactions occurred for the separation:

 all 234.3 million shares in TAL were transferred to TOWER shareholders on a pro-rata basis of 0.6511 TAL shares for every TOWER share held; and

 in return for that transfer, cancelled 0.4760 TOWER shares for every TOWER share held as a capital reduction.

TAL then issued TAL shareholders entitlements to buy a further 100 million TAL shares at A$1.60 each. TAL shareholders then received 0.4269 entitlements for every TAL share held. The additional TAL shares issued pursuant to the Entitlements Offer raised A$160 million for TAL.

The Proposal was approved at a meeting of shareholders on 6 November 2006. Final court approval was received on 10 November 2006. The separation was effective on 20 November 2006.

TOWER Annual Report 2007 67

Notes to the Financial Statements

For the year ended 30 September 2007

39. DISCONTINUED OPERATIONS (CONT.)

As a result of the separation, the Australian business has been disclosed as a discontinued operation on the face of the Consolidated Income Statement for the year ended 30 September 2007 and 2006. Assets of the Australian business are classified in total as ‘Assets of disposal group classified as held for sale’ and liabilities are classified as ‘Liabilities of disposal group classified as held for sale’ in the consolidated Balance Sheet as at 30 September 2006.

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2007 2006
NZ$000 NZ$000
Revenue 216,568 746,439
Expenses (223,516) (656,650)
Pre tax operating profit / (loss) (6,948) 89,789
Tax on operating profit / (loss) 2,388 (40,385)
After tax operating profit /(loss) (4,560) 49,404
Gain on sale 198,403 -
Tax on discontinued operations 4,187 -
Profit from discontinued operations 198,030 49,404
Cash flows generated by discontinued operations:
Net operating cash flows (13,009) (74,270)
Investing activities (71,288) (151,182)
Financing activities (20,533) 113,427
Net cash flows (104,830) (112,025)
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Cash and cash equivalents of discontinued operations is reconciled as follows:

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2007 2006
NZ$000 NZ$000
Opening cash balance (transferred to discontinued operations) 389,357 480,897
Other cash balances from TOWER Ltd (transferred to discontinued operations) 30,727 -
420,084 480,897
Movement in cash for the period TOWER Australia (74,103) (112,025)
Movement in cash for the period TOWER Limited (30,727) -
Total Net Cashflows (104,830) (112,025)
Cash transferred to TOWER Australia (319,168) -
FX movement on cash balances 3,914 20,485
Closing cash of discontinued operations - 389,357
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68 TOWER Annual Report 2007

	2007	2006
The carrying amount of assets and liabilities as at 30 September are:	NZ$000	NZ$000
Assets Cash and cash equivalents Receivables Financial assets at fair value through proft or loss Deferred acquisition costs Other assets Property, plant and equipment Assets arising from reinsurance contracts Deferred tax asset Intangible assets	- - 3,148 - - - - - -	389,357 188,687 3,282,741 77,614 3,677 4,960 189,382 58,978 176,300
Total assets classifed as held for sale	3,148	4,371,696
Liabilities Payables Current tax liabilities Provisions Interest bearing liabilities Insurance liabilities Deferred tax liabilities Other liabilities Deferred revenue liability Life insurance contract liabilities Life investment contract liabilities	- - - - - - 342 - - -	220,092 17,273 19,910 114,325 59,015 74,904 1,902 115,115 683,347 2,487,053
Total liabilities classifed as held for sale	342	3,792,936
Net assets of disposal group	2,806	578,760
(B) DISPOSAL OF SUBSIDIARIES
On 20 November 2006 TOWER Limited disposed of the following controlled entities:
Andric Pty Limited
TOWER Holdings (Australia) Limited
On 30 March 2006 TOWER Limited disposed of the following controlled entities:
TOWER Adelaide Pty Limited
Lymquoir Pty Limited
TOWER Life Properties Pty Limited
TOWER Victoria Pty Limited
TOWER Direct Pty Limited
AdviserBLUE Pty Limited
TOWER eCommerce Pty Limited
TOWER Group Network (Australia) Pty Limited
TOWER Staff Superannuation Limited
FAI Life Limited
TOWER Rollover Services Pty Limited
Pacifc Developments Pty Limited
All of these controlled entities were dormant at the time of disposal.

On the date of sale the value of each of the companies sold was $1.00. Consideration received on the sale was $1.00 per company. The profit and net cashflow of these companies was not material in the current or prior periods.

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(C) NOTES RELATING TO DISCONTINUED OPERATIONS Group
Prior Year Note (Provisions) 2007 2006
Stamp duty NZ$000 NZ$000
Opening balance at 1 October - 5,752
Liabilities held for sale - (5,752)
- -
Closing balance at 30 September
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TOWER Annual Report 2007 69

Notes to the Financial Statements

For the year ended 30 September 2007

39. DISCONTINUED OPERATIONS (CONT.)

This provision relates to stamp duty liabilities in Australia which may arise once the resolution of various issues with the stamp duty authorities have been reached.

Prior Year Note (Solvency requirements of life funds)

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TOWER Australia PrefSure Life
2007 2006 2007 2006
AUSTRALIA NZ$000 NZ$000 NZ$000 NZ$000
Solvency requirement A n/a 2,806,563 n/a 229,775
Represented by:
Policyholder liabilities [1] n/a 2,578,257 n/a 148,095
Other liabilities n/a 150,423 n/a 74,423
Solvency reserve B n/a 77,883 n/a 7,257
Solvency requirement n/a 2,806,563 n/a 229,775
Assets available to meet solvency reserve C n/a 224,425 n/a 23,315
Solvency reserve B n/a 77,883 n/a 7,257
Excess assets above required n/a 146,542 n/a 16,058
Required solvency reserve % (B/(A-B))x100 n/a 2.9% n/a 3.3%
Coverage of required solvency reserve C/B n/a 2.9 n/a 3.2
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1 Minimum termination value and not policy liabilities has been used for TOWER Australia and PrefSure Life.

(D) SUMMARY OF SIGNIFICANT ACTUARIAL METHODS AND ASSUMPTIONS - LIFE INSURANCE

The Appointed Actuary, Megan Beer, FIAA has calculated policyholder liabilities for the Australian life companies TOWER Australia Limited and PrefSure Life Limited.

(i) Policy liabilities

Policy liabilities for life insurance business have been determined in accordance with Actuarial Standard 1.04 issued by the Life Insurance Actuarial Standards Board for TOWER Australia and PrefSure Life.

MAJOR PRODUCT GROUPS	METHOD	PROFIT CARRIERS (for business valued using projection method)
Both Australia and New Zealand
Traditional participating	Projection	Cost of supportable bonuses
Traditional non-participating, renewal and level term and	Projection	Expected death claims
mortgage repayment insurance
Annuities	Projection	Expected annuity payments
Individual lump sum life insurance risk (life, temporary and	Projection	Expected claims
permanent disability and trauma) and disability income
protection insurance
Australia
Participating investment account	Projection	Cost of supportable bonuses
Group risk insurances	Accumulation
Group salary continuance – open claims	Projection

70 TOWER Annual Report 2007

(ii) Disclosure of assumptions

The following table summarises the key assumptions used in the calculation of policyholder liabilities, together with notes on any significant changes in the assumptions:

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REQUIRED ASSUMPTION BASIS OF ASSUMPTION (By product Group) SIGNIFICANT CHANGES
Discount rates for participating business As the value of benefits is contractually linked to the The discount rates used are as follows:
performance of assets, a discount rate based on the
market return on the asset backing policy liabilities Australia
is used. The discount rate assumed in calculating September 2007 3.8% to 5.5%
policyholder liabilities was derived from the expected
long term average rates of return for the relevant asset September 2006 3.0% to 6.1%
pools backing this business, based on a neutral asset
mix for each pool. Discount rates assumed are net of
taxation and investment expenses.
Discount rates for non-participating life Risk free discount rates have been adopted for life The discount rates used are as follows:
insurance contracts insurance contracts where the benefits are not
contractually linked to the performance of backing Australia
asset pools. The risk free discount rates have been September 2007 5.6% to 6.2%
determined based on government bond rates, or the
inter bank mid swap rates, depending on the nature September 2006 5.3% to 5.8%
structure and term of the contract liabilities.
Inflation A specific allowance for each country reviewed Benefit Indexation
annually.
Australia
Benefit indexation is before allowance for the
proportion of policyholders who take up indexation. September 2007 3.4%
September 2006 2.8%
Future expenses Future maintenance expenses have been set based None
on experience analyses conducted by the various
companies as well as the actuaries’ expectations of
future expense levels, with an allowance for future
inflation.
‘Future investment expenses have been set based
on the actual costs of the Company’s investment
managers.
Rates of taxation Rates of taxation have been assumed to remain at None
current levels.
Mortality – risk products Australia: Standard mortality tables, primarily Australia: No change
IA90-92. These are adjusted for company experience.
Mortality – annuities Standard mortality tables (Australia use IM/IF80) None
adjusted for company experience.
Disability – lump sum Based upon recent company and reinsurer experience None
adjusting for different product definitions. Some
wholesale schemes use specific company experience.
Disability income Standard morbidity tables (Australia use IAD89-93) None
adjusted for company experience. Specific company
experience is used for certain wholesale schemes.
Discontinuances Discontinuance rates have been assumed to be For TOWER Australia, there were some
consistent with the experience of recent years. structural changes to the discontinuance
assumptions to better reflect the dynamics of
Assumed discontinuance rates vary by sub-grouping the business but there was no change to the
within a class and vary according to the length of time overall level of assumed discontinuances.
tranches of business have been in-force and other
relevant factors.
Surrender values Surrender values are based on current practice. None
Rates of future supportable participating Assumed future supportable bonus rates included None
benefits in policyholder liabilities were set such that the
present value of policyholder liabilities, allowing for
the shareholders’ right to participate in distributions,
equals the value of assets supporting the business.
Distributions are split between policyholders None
and shareholders with the valuation allowing for
shareholders to share in distributions. The rate of
shareholder participation assumed is generally at the
maximum allowable of 25% of the value of bonuses
distributed to participating policyholders subject to
policy conditions.
Additional policy bonuses will emerge from the assets None
representing policyholders’ unvested benefits.
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TOWER Annual Report 2007

Notes to the Financial Statements

For the year ended 30 September 2007

39. DISCONTINUED OPERATIONS (CONT.)

(iii) Sensitivity analysis

Sensitivity analysis is conducted to quantify the exposure to risk of change in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the profit and shareholder equity of the Group. The tables below describe how the change in each assumption will effect the insurance liabilities and show an analysis of the sensitivity of the profit/(loss) and equity to changes in assumptions net of reinsurance.

		Increase in Life Insurance	Decrease in Shareholder Proft
Australia		Contract Liabilities	After Tax and Equity
VARIABLE	MOVEMENT	NET OF REINSURANCE (NZ$000)	NET OF REINSURANCE (NZ$000)
Mortality	Worsening by 10%	4,016	2,753
Morbidity Claims Costs	Worsening by 10%	23,996	10,763
Annuitant Mortality	Worsening by 10%	3,113	2,179
Lapses and Surrenders	Worsening by 10%	1,474	993
Renewal Expenses	Worsening by 10%	3,714	2,880

(iv) Solvency requirements

The methodology and bases for determining the Solvency Requirement is in accordance with the requirements of AS2.04 “Solvency Standard” issued by the Life Insurance Actuarial Standards Board of Australia for TOWER Australia and PrefSure Life Limited.

(v) Life insurance risk

Insurance risks are controlled through the use of underwriting procedures and adequate premium rates and policy charges, all of which are approved by the Appointed Actuary. Tight controls are also maintained over claims management practices to ensure the correct and timely payment of insurance claims.

40. ACQUISITION

There were no acquisitions in 2007.

On 31 March 2006 TOWER acquired 100% of the share capital of PrefSure Holdings Limited (PrefSure), a specialist life insurance business. The acquired business contributed revenues of NZ$115.0 million and net profit of NZ$8.3 million (excluding integration and amortisation costs) to the Group during the six months from 1 April 2006 to 30 September 2006.

Details of net assets acquired and goodwill were as follows:	Group
	2006
Purchase consideration:	NZ$000
Cash paid (excluding direct acquisition costs)	132,263
Direct costs related to acquisition paid in cash	2,462
Cash paid	134,725
Fair value of net assets acquired	94,520
Intangibles	40,205

The intangible assets comprised goodwill and the value of in-force business over and above the fair value of the other net assets acquired. The goodwill was attributable to the profitability of the acquired business and the synergies expected to arise as a result of the acquisition. The value of in-force business was the present value of the future profits on the life insurance policies in-force at the date of acquisition (see note 13).

Value of in-force business	22,606
Goodwill	17,599
Total intangibles	40,205

72 TOWER Annual Report 2007

		Acquirees
		Carrying
	Fair Value	amount
The assets and liabilities arising from the acquisition were as follows:	NZ$000	NZ$000
Cash	15,374	15,374
Accounts receivable	55,228	55,228
Assets classifed as held for sale	2,912	2,912
Fixed interest securities	178,030	178,030
Assets arising from reinsurance contracts	134,707	134,707
Investments accounted for using the equity method	657	657
Property, plant and equipment	982	2,780
Deferred tax beneft	14,556	14,556
Intangibles	14,214	14,214
Total assets	416,660	418,458
Accounts payable	79,119	79,119
Taxation payable	3,474	3,387
Provisions	6,665	6,665
Deferred tax liability	16,048	16,023
Policyholder liabilities - insurance contracts	197,008	195,517
Policyholder liabilities - investment contracts	19,826	19,826
Total liabilities	322,140	320,537
NET ASSETS	94,520	97,921
Purchase consideration settled in cash		(134,725)
Cash and cash equivalents in subsidiary acquired		15,374
Cash outfow on acquisition		(119,351)

41. IMPACT OF AMENDED NZ IFRS

Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group.

The following standards, amendments and interpretations to existing standards have been published and are mandatory for the Group’s accounting periods beginning on or after 1 January 2008 or later periods, but the Group has not early adopted them:

IFRS 7, ‘Financial instruments: Disclosures’, and the complementary amendment to IAS 1, ‘Presentation of financial statements – Capital disclosures’, introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuation of the Group’s financial instruments, or the disclosures relating to taxation and trade and other payables.
IFRS 8, ‘Operating segments ‘ (effective from 1 January 2009). IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements of the US standard SFAS 131, ‘Disclosures about segments of an enterprise and related information’. The new standard requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. The Group will apply IFRS 8 from 1 October 2009.
NZ IAS 23 (Amendment) ‘Borrowing Costs’ (effective from annual periods beginning on or after 1 January 2009). NZ IAS 23 is not relevant to the Group’s operations.
NZ IAS 1 (Amendment) ‘Presentation of financial statements (effective for annual periods beginning on or after 1 January 2009). The revised NZ IAS 1 requires an entity to present all owner changes in equity, separately from non-owner changes in equity, in a statement of changes in equity.

All non-owner changes in equity (i.e. comprehensive income) are required to be presented in one statement of comprehensive income or two statements (an income statement and a statement of comprehensive income). Components of comprehensive income are not permitted to be presented in the statement of changes in equity. This is not expected to have a material impact on the Group.

NZ IFRIC 14, NZ IAS 19 ‘Employee Benefits’ (effective from annual periods beginning on or after 1 January 2008). The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their Interaction. This is not expected to have a material impact on the Group.

42. SUBSEQUENT EVENTS

On 28 November 2007 the directors declared a dividend of 6 cents per share. The dividend will be paid on 5 February 2008.

43. COMPANY INFORMATION

For the purposes of complying with Generally Accepted Accounting Practice in New Zealand (NZ GAAP), TOWER Limited is a profitoriented entity.

TOWER Limted is a publicly listed company, incorporated and domiciled in New Zealand. Its registered office and principal place of business is:

Level 11

TOWER Centre 22 Fanshawe Street Auckland Central New Zealand

TOWER Annual Report 2007

2007 TOWER Directory

TOWER Limited ARBN 088 481 234 Incorporated in New Zealand

REGISTERED OFFICE Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Facsimile: +64 9 369 2160 Website: www.towerlimited.com

AUDITOR PricewaterhouseCoopers

BANKERS ANZ National Bank Limited

SOLICITORS DLA Phillips Fox

TOWER INSURANCE LIMITED

Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Freephone: 0800 808 808 Facsimile: +64 9 369 2129 Website: www.tower.co.nz

TOWER HEALTH & LIFE LIMITED Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Freephone: 0800 754 754 Facsimile: +64 9 369 2129 Website: www.tower.co.nz

SHAREHOLDER ENQUIRIES

Shareholders with enquires regarding share transactions and change of address should contact the TOWER Share registry:

COMPUTERSHARE INVESTOR SERVICES LIMITED

New Zealand Telephone: +64 9 488 8777

Australia

Telephone: +61 3 9415 5000

Enquiries regarding TOWER’s operating and financial performance should be addressed to:

Investor Relations TOWER Limited PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 or emailed to: [email protected]

TOWER MANAGED FUNDS LIMITED 50-64 Customhouse Quay PO Box 590 Wellington New Zealand Telephone: +64 4 439 4300 Freephone: 0800 486 937 Facsimile: +64 4 473 2669 Website: www.tower.co.nz

TOWER ASSET MANAGEMENT LIMITED 50-64 Customhouse Quay PO Box 590 Wellington New Zealand Telephone: +64 4 439 4300 Freephone: 0800 486 937 Facsimile: +64 4 473 2669 Website: www.tower.co.nz

The TOWER Limited Annual Report for the year ended 30 September 2007 is available on the TOWER website: www.towerlimited.com

TOWER Annual Report 2007

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TOWER LIMITED — Annual Report 2007

65971_rns_2007-12-23_7aaf663b-e4d8-4156-a30e-196392e75469.pdf

TOWER Limited – Company Announcement

TOWER Limited Annual Report for the year ended 30 September 2007

Yours faithfully

Contents

TOWER Group

Dear Shareholder

Summary Of Results

HEALTH & LIFE

Health & Life

GENERAL INSURANCE

General Insurance

OUTLOOk

INVESTMENTS

Investments

Tower Group Senior Management

COMPLIANCE WITH GOVERNANCE REQUIREMENTS AND RECOMMENDATIONS

HOW TOWER’S BUSINESS PRACTICES REFLECT CORPORATE GOVERNANCE BEST PRACTICE

Role of the TOWER Board of Directors

BOARD COMPOSITION, NOMINATIONS AND APPOINTMENTS

Board composition

Role of Chairman

Nominations, appointments and ongoing education

Director Independence

Retirement and re-election

Board and Committee Performance Review

Director share ownership

Indemnities and Insurance

Attendance at Board and Committee Meetings

Directors’ Profiles

TONY GIBBS

Chairman. Non-Executive.

Not independent

Non-Executive Director

Independent

Non–Executive Director

Not independent

Non-Executive Director

Independent

Non-Executive Director

Independent

DENIS WOOD

Non-Executive Director

Independent

Board Committees

AUDIT AND COMPLIANCE COMMITTEE

MEMBERS: JOHN SPENCER (CHAIRMAN), BILL FALCONER AND MIKE JEFFERIES.

REMUNERATION AND APPOINTMENTS COMMITTEE

MEMBERS: TONY GIBBS (CHAIRMAN) AND SUSIE STALEY.

INVESTMENT COMMITTEE

MEMBERS: DENIS WOOD (CHAIRMAN), MIKE JEFFERIES AND SUSIE STALEY.

Attendance and Remuneration

2006/2007 TOWER LIMITED DIRECTORS’ ATTENDANCE RECORD

REMUNERATION

The Remuneration and Appointments Committee role

Non-executive Directors

2006/2007 Directors’ Remuneration and Benefits

2006/2007 Staff Remuneration

Audit and Risk Management at TOWER

RISk MANAGEMENT

Internal audit

EXTERNAL AUDIT

GROUP CORPORATE GOVERNANCE POLICIES AND PROCEDURES

Regulatory Disclosures

Ethical and Responsible Behaviour

Insider Trading

Compliance Policy

Market and Shareholder Communication

Announcements

Credit Rating

Shareholder Analysis

Total Voting Securities

Substantial Security Holders

Principal Shareholders

Shareholder Statistics (as at 30 November 2007)

TOWER LIMITED DISCLOSURES

Interests Register

Disclosure of Interest by TOWER Limited Directors

TOWER LIMITED Annual Report 2007