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TOWER LIMITED Annual Report 2009

Nov 25, 2009

65971_rns_2009-11-25_5cb5fca0-6276-40f9-9b3f-c3f8a7c5272d.pdf

Annual Report

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26 November 2009

Market Information Company Announcements Office NZX Limited Australian Stock Exchange Limited Level 2, NZX Centre Exchange Centre 11 Cable Street Level 6, 20 Bridge Street PO Box 2959 Sydney NSW 2000 Wellington AUSTRALIA New Zealand ARBN 088 481 234 Incorporated in New Zealand

TOWER Limited - Results Information pack for year ended 30 September 2009

Further to the announcement today of TOWER’s results for the year ended 30 September 2009, attached is a Results Information pack.

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Bronwyn Walsh Company Secretary & Compliance Manager TOWER Limited

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TOWER LIMITED

Results Information

Year Ended 30 September 2009

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Contents

  1. Financial overview ..................................................................................................................... 3 2. Results summary ...................................................................................................................... 4 3. Balance sheet summary ......................................................................................................... 5-6 4. Business unit performance Health & Life ........................................................................................................................... 7-8 General Insurance ..................................................................................................................... 9 Investments ............................................................................................................................. 10 5. Appraisal value ........................................................................................................................ 11 6. Carrying value / appraisal value ............................................................................................... 12 7. Health & Life Insurance - profit summary ................................................................................. 13 8. Health & Life Insurance - Change in embedded value ............................................................. 14 9. Health & Life Insurnace - Change in value of one year’s new business ................................... 15 10. Health & Life Insurance - Embedded value and value of one year’s new business .................. 16

2 TOWER Results Information

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Financial overview 1
Half year ended
$ millions (unless stated otherwise) Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
PREMIUM AND FUNDS
Inforce premium
Funds under management / advice
Net earned premium and other revenue		 207.1
198.6
193.3
187.9
182.4
173.6
3,600.0
3,402.0
3,732.0
3,916.0
5,033.0
5,505.0
278.0
203.8
249.9
204.9
240.6
240.6
PROFIT
Net profit after tax (from continuing
operations)
Underlying profit (excludes discount rate
effect)		 23.5
26.6
20.3
20.2
19.5
15.7
25.4
21.5
18.0
20.4
20.1
16.4
EQUITY
Net assets
Shares on issue (millions)		 404.5
307.4
294.2
270.1
261.9
242.2
254.8
193.9
191.9
191.8
189.3
188.5
DIVIDEND
Cents per share
% of Earnings per share		 9.0
8.0
6.0
37.0%
39.8%
37.8%
EARNINGS RATIOS
Earnings per share (cents per share) *
Profit attributable to shareholders
Return on equity (% annualised) **
Profit attributable to shareholders
Underlying profit (excludes discount rate
effect)		 11.33
12.98
10.09
10.02
9.58
6.31
16.1%
17.7%
14.7%
15.0%
14.4%
13.4%
15.3%
14.5%
13.8%
15.3%
14.9%
13.9%
CAPITAL STRENGTH
Gearing % (total)
Gearing % (net)
Interest cover (times)
Financial strength rating ***		 16.5%
35.0%
22.9%
24.4%
25.0%
26.4%
(19.6%)
3.9%
9.0%
9.0%
8.0%
11.9%
8.3
9.2
2.1
6.3
14.2
9.2
BBB-
BBB-
BBB-
BBB-
BBB-
BBB-
EV & VNB
Embedded value
Change in embedded value (pre transfers)
Value of one year's new business		 195.0
182.1
185.6
168.3
172.2
166.5
195.0
185.6
6.1
2.7
2.7
3.4
3.6
8.9
CONTROLLABLE MANAGEMENT
EXPENSES AND COST RATIOS
Controllable management expenses
Cost to income ratio
Staff numbers		 84.3
94.7
89.2
91.8
85.0
94.8
70.7%
76.8%
95.0%
82.2%
78.0%
75.4%
773
760
793
794
799
837
  • Adjusted for bonus element of Rights Issue ** Return on equity Sept 09 before impact of Rights Issue *** Parent company (TOWER Limited)

3 TOWER Results Information

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2

Results summary

Half year ended
$ millions Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Health & Life
General Insurance
Investments
Finance & corporate expenses		 20.2
14.2
(2.5)
10.6
10.2
20.9
10.6
14.7
8.9
12.5
12.9
9.7
4.9
3.3
2.2
2.9
6.5
5.6
(5.2)
(5.5)
(6.1)
(5.9)
(5.0)
(4.7)
Profit before tax
Income tax (expense)/credit		 30.5
26.7
2.5
20.1
24.6
31.5
(5.1)
(5.2)
15.5
0.3
(4.5)
(15.1)
Underlying profit
Discount rate effect		 25.4
21.5
18.0
20.4
20.1
16.4
(1.9)
5.1
2.3
(0.2)
(0.6)
(0.7)
Profit from continuing operations 23.5
26.6
20.3
20.2
19.5
15.7
$ millions Health &
General
Investments
Corporate
Group
Health &
Group
Life
Insurance
Consolidated
Life
Shareholder
Excluding
Policyholder
Policyholder
Results to 30 September 2009
Business unit operating earnings
Corporate expenses
Shareholder investment returns
Financing costs		 23.4
14.1
5.8
43.3
3.8
47.1
(4.8)
(4.8)
(4.8)
7.2
11.2
2.4
2.5
23.3
23.3
(8.3)
(8.3)
(8.3)
Profit Before Taxation
Tax credit/(expense)		 30.6
25.3
8.2
(10.6)
53.5
3.8
57.3
1.0
(8.0)
(2.4)
2.8
(6.6)
(3.8)
(10.4)
Underlying profit after tax
Discount rate effect		 31.6
17.3
5.8
(7.8)
46.9
46.9
3.2
3.2
3.2
Profit After Taxation 34.8
17.3
5.8
(7.8)
50.1
50.1
Results to 30 September 2008
Business unit operating earnings
Corporate expenses
Shareholder investment returns
Financing costs		 14.8
10.4
4.9
30.1
(13.8)
16.3
(6.8)
(6.8)
(6.8)
6.9
11.0
0.2
2.9
21.0
21.0
(8.1)
(8.1)
(8.1)
Profit Before Taxation
Tax credit/(expense)		 21.7
21.4
5.1
(12.0)
36.2
(13.8)
22.4
4.7
(6.6)
(1.4)
5.5
2.2
13.8
16.0
Underlying profit after tax
Discount rate effect		 26.4
14.8
3.7
(6.5)
38.4
38.4
2.1
2.1
2.1
Profit After Taxation 28.5
14.8
3.7
(6.5)
40.5
40.5

4 TOWER Results Information

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3

Balance sheet summary
Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08
Health & Life 194.0 178.0 158.5 148.8
General Insurance 136.9 138.7 145.9 134.8
Investments 29.6 26.2 23.8 22.4
Group 44.0 (35.5) (34.0) (35.9)
Total Equity 404.5 307.4 294.2 270.1
Half year ended
$ millions Sep-09
Mar-09
Sep-08
Mar-08
Health & Life
General Insurance
Investments
Group		 194.0
178.0
158.5
148.8
136.9
138.7
145.9
134.8
29.6
26.2
23.8
22.4
44.0
(35.5)
(34.0)
(35.9)
Total Equity 404.5
307.4
294.2
270.1
Balance Sheet Reconciliation 2009
$ millions Health & Life
General Ins
Investments
Holdings
Companies
Group Sep-09
Group Mar-09
Cash & call deposits
Fixed interest
Equity
Property
Derivative financial instruments		 11.0
31.6
3.1
100.7
146.4
152.7
577.3
199.4
0.9
9.9
787.5
748.9
204.5
2.9
2.1
209.5
193.7
71.4
8.2
79.6
81.6
32.8
32.8
45.8
*** Total investment assets**
Policy liabilities & insurance provisions
Deferred acquisition costs
External debt
Net operational assets/(liabilities)		 897.0
242.1
4.0
112.7
1,255.8
1,222.7
(741.7)
(169.3)
(911.0)
(907.8)
24.1
12.5
8.5
45.1
47.9
(80.0)
(80.0)
(165.2)
1.5
33.9
17.1
11.3
63.8
79.0
Net tangible assets backing
shareholder capital
Excess of market value over net tangible
assets – goodwill		 180.9
119.2
29.6
44.0
373.7
276.6
13.1
17.7
30.8
30.8
Total equity attributable to
shareholders		 194.0
136.9
29.6
44.0
404.5
307.4
*** Investment assets breakdown**
Cash & call deposits
Fixed interest (NZ)
Fixed interest (AUS)
Fixed interest(International)		 11.0
31.6
3.1
100.7
146.4
574.2
122.9
0.9
9.9
707.9
50.7
50.7
3.1
25.8
28.9
577.3
199.4
0.9
9.9
787.5
50.1
50.1
2.1
2.1
154.4
2.9
157.3
204.5
2.9
0.0
2.1
209.5
71.4
8.2
79.6
32.8
32.8
897.0
242.1
4.0
112.7
1,255.8
Total fixed interest
Equities (NZ)
Equities (AUS)
Equities(International)
Total equities
Property
Derivative financial instruments
Total investment assets

5 TOWER Results Information

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Balance Sheet Reconciliation 2008

$ millions Health & Life
General Ins
Investments
Holdings
Companies
Group Sep-08
Group Mar-08
Cash & call deposits
Fixed interest
Equity
Property
Derivative financial instruments		 10.0
34.7
3.2
10.4
58.3
60.6
557.0
195.3
0.5
26.7
779.5
678.4
223.6
3.0
2.9
229.5
317.2
81.0
9.1
90.1
90.1
36.2
36.2
2.6
*** Total investment assets**
Policy liabilities & insurance provisions
Deferred acquisition costs
External debt
Net operational assets/(liabilities)		 907.8
242.1
3.7
40.0
1,193.6
1,148.9
(788.4)
(173.8)
(962.2)
(943.1)
26.4
13.9
9.5
49.8
50.1
(87.6)
(87.6)
(87.3)
(0.4)
46.0
10.6
13.6
69.8
70.7
Net tangible assets backing
shareholder capital
Excess of market value over net tangible
assets –goodwill		 145.4
128.2
23.8
(34.0)
263.4
239.3
13.1
17.7
30.8
30.8
Total equity attributable to
shareholders		 158.5
145.9
23.8
(34.0)
294.2
270.1
*** Investment assets breakdown**
Cash & call deposits
Fixed interest (NZ)
Fixed interest (AUS)
Fixed interest(International)		 10.0
34.7
3.2
10.4
58.3
512.5
116.6
0.5
26.7
656.3
48.0
48
44.5
30.7
75.2
557.0
195.3
0.5
26.7
779.5
43.4
43.4
2.9
2.9
180.2
3.0
183.2
223.6
3.0
0.0
2.9
229.5
81.0
9.1
90.1
36.2
36.2
907.8
242.1
3.7
40.0
1,193.6
Total fixed interest
Equities (NZ)
Equities (AUS)
Equities(International)
Total equities
Property
Derivative financial instruments
Total investment assets

6 TOWER Results Information

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Business unit performance 4

Health & Life
Half year ended
$ millions Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Net premiums
Incurred claims
Management and sales expenses
Movement in policyholder liabilities		 66.3
65.3
63.7
62.5
59.9
57.3
(43.5)
(39.6)
(43.0)
(34.3)
(35.7)
(30.0)
(18.3)
(18.7)
(21.9)
(19.1)
(20.1)
(20.0)
0.4
(4.7)
(5.3)
(3.2)
(2.4)
(3.7)
Underwriting profit
Investment income		 4.9
2.3
(6.5)
5.9
1.7
3.6
1.5
6.9
7.1
3.0
1.0
1.2
Profit before tax
Income tax expense		 6.4
9.2
0.6
8.9
2.7
4.8
(1.9)
(2.8)
(0.3)
(3.4)
(0.9)
(1.6)
Profit after tax 4.5
6.4
0.3
5.5
1.8
3.2

Analysis of profit - Life

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Net premiums 30.9 30.6 29.9 29.0 27.9 27.1
Incurred claims (33.6) (31.4) (36.4) (31.7) (33.9) (29.3)
Management and sales expenses (23.1) (22.0) (19.4) (17.1) (18.5) (17.2)
Movement in policyholder liabilities (14.4) 50.8 0.1 33.1 6.5 7.0
Underwriting (loss)/profit (40.2) 28.0 (25.8) 13.3 (18.0) (12.4)
Investment income 54.0 (23.0) 22.7 (11.6) 25.5 28.5
Profit before tax 13.8 5.0 (3.1) 1.7 7.5 16.1
Income tax (expense)/credit (0.5) 2.4 13.9 8.1 2.2 (6.8)
Underlying profit 13.3 7.4 10.8 9.8 9.7 9.3
Discount rate effect (1.9) 5.1 2.3 (0.2) (0.6) (0.7)
Profit after tax 11.4 12.5 13.1 9.6 9.1 8.6

7 TOWER Results Information

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Health & Life - In-force premium

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Individual & Group Health 135.6 132.2 130.1 127.8 123.5 118.8
Individual Life 51.5 47.9 45.1 43.0 42.4 41.1
Group Life 20.0 18.5 18.1 17.1 16.5 13.7
Total in-force premium 207.1 198.6 193.3 187.9 182.4 173.6

Health & Life - New business

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Individual & Group Health 3.3 3.0 3.7 3.3 3.9 4.8
Individual Life 5.7 3.8 3.3 1.8 2.1 2.0
Group Life 2.0 0.8 0.5 1.2 2.4 1.1
Total new business 11.0 7.6 7.5 6.3 8.4 7.9

Health & Life - Lapses

Half year ended
% Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Individual & Group Health lapse
Individual Life lapse		 13.4%
11.7%
12.1%
11.5%
11.4%
13.4%
12.0%
11.6%
12.5%
10.3%
11.9%
11.7%
Health & Life - Claims ratio
Half year ended
% Sep-09
Mar-09
Sep-08
Mar-08
Sep-07
Mar-07
Individual & Group Health
Individual Life
Group Life		 65.6%
60.5%
67.5%
54.9%
59.6%
48.0%
36.2%
41.8%
46.0%
35.5%
42.7%
26.4%
66.8%
59.8%
52.3%
34.2%
48.8%
36.0%
All claims 59.4%
56.6%
62.1%
49.8%
55.5%
43.9%

Health & Life - Management & sales expenses

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Management expenses 20.4 23.2 23.2 21.9 25.8 23.7
Commissions 21.0 17.5 18.1 14.3 12.8 13.5
Total expenses 41.4 40.7 41.3 36.2 38.6 37.2

8 TOWER Results Information

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General Insurance

Analysis of profit - General Insurance

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Net premiums 95.3 99.7 96.1 93.2 93.3 90.8
Incurred claims (56.7) (52.8) (59.3) (53.2) (53.8) (55.3)
Management and sales expenses (35.2) (36.2) (34.2) (32.2) (33.0) (32.4)
Underwriting profit 3.4 10.7 2.6 7.8 6.5 3.1
Investment income 7.2 4.0 6.3 4.7 6.4 6.6
Profit before tax 10.6 14.7 8.9 12.5 12.9 9.7
Income tax expense (2.7) (5.3) (1.8) (4.8) (4.1) (5.5)
Profit after tax 7.9 9.4 7.1 7.7 8.8 4.2

General Insurance - Gross written premiums (Rolling 12) & lapses

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
New Zealand 160.6 164.4 163.7 161.8 159.3 155.2
Pacific Islands 51.7 51.1 44.9 43.9 45.8 48.6
Total gross written premiums 212.3 215.5 208.6 205.7 205.1 203.8
Lapse rate 16.8% 16.4% 17.2% 18.0% 20.0% 19.0%

General Insurance - Net premiums & claims

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Net premiums 95.3 99.7 96.1 93.2
93.3		 90.8
Claims 56.7 52.8 59.3 53.2
53.8		 55.3
Claims ratio 59.5% 53.0% 61.7% 57.1% 57.7% 60.9%

General Insurance - Underwriting profits

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Underwriting profit 3.4 10.7 2.6 7.8 6.5 3.1
Claims and costs to net premium ratio 96.4% 89.3% 97.3% 91.6% 93.0% 96.6%

General Insurance - Management & sales expenses

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Management expenses 26.2 26.5 25.2 23.0 24.2 23.8
Commissions 9.0 9.7 9.0 9.2 8.8 8.6
Total expenses 35.2 36.2 34.2 32.2 33.0 32.4

9 TOWER Results Information

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Investments

Analysis of profit - Investments

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Total income 27.1 26.5 27.9 28.6 31.1 32.8
Management expenses (18.7) (19.4) (21.3) (20.9) (19.6) (22.3)
Sales expenses (3.5) (3.8) (4.4) (4.8) (5.0) (4.9)
Total expenses (22.2) (23.2) (25.7) (25.7) (24.6) (27.2)
Profit before tax 4.9 3.3 2.2 2.9 6.5 5.6
Income tax expense (1.4) (1.0) (0.8) (0.6) (2.5) (2.0)
Profit after tax 3.5 2.3 1.4 2.3 4.0 3.6

Investments - Funds under management

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Total funds under management 3,600.0 3,402.0 3,732.0 3,916.0 5,033.0 5,505.0
Total income 27.1 26.5 27.9 28.6 31.1 32.8

Investments - Management & sales expenses

Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07
Management expenses 14.0 14.1 15.7 14.2 12.6 14.3
Sales expenses 3.5 3.8 4.4 4.8 5.0 4.9
Other expenses 4.6 5.2 4.9 5.8 6.3 6.4
Kiwisaver/PIE establishment 0.1 0.1 0.7 0.9 0.7 1.6
Total expenses 22.2 23.2 25.7 25.7 24.6 27.2

Investments - Kiwisaver

Half year ended Half year ended
$ millions Sep-09 Mar-09 Sep-08 Mar-08
Funds under management 326.5 198.0 139.2 57.1
Number of members 76,957.0 67,129.0 56,084.0 37,047.0
Average funds per member 4,242.6 2,949.5 2,482.0 1,541.3

10 TOWER Results Information

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Appraisal value 5

Appraisal value
5
$ millions Investments
Health & Life
General Ins
Holdings
Companies
Group Sep-09
Group Mar-09
Net worth
Value of In-force business		 27.8
27.8
27.4
167.2
167.2
154.7
Embedded value
Value of 1 years new business
Value of Future new business		 195.0
0.0
0.0
0.0
195.0
182.1
6.1
6.1
2.7
24.6
24.6
10.6
Appraisal value (enterprise value)
Fair value of net tangible assets
External debt		 219.6
0.0
0.0
0.0
219.6
192.7
104.6
165.7
29.6
124.0
423.9
404.9
(80.0)
(80.0)
(165.2)
Appraisal value 324.2
165.7
29.6
44.0
563.5
432.4

  • The life companies’ embedded values grew by a combined $12.9m over the 6 months or 7.1%, whilst the appraisal values grew by $26.9m or 14.0%.

  • The primary driver of the increase in appraisal value has been the increased assessed value of future new business within TOWER Health & Life.

  • The fair values of TOWER Medical Insurance and TOWER Insurance have increased by a combined $19.0m or 4.7%. Allowing for the $16.0m internal dividend paid by TOWER Insurance the combined return is 8.6% over the 6 months.

11 TOWER Results Information

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Carrying value / appraisal value 6

$ millions Sep-09
Mar-09
Sep-08
Mar-08
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value		 Sep-09
Mar-09
Sep-08
Mar-08
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value
Carrying Value
Appraisal
Value
Health & Life
TOWER Health & Life
TOWER Medical
TOWER Life (NZ)		 115.2
156.9
107.0
136.2
94.5
130.0
84.2
117.3
48.6
104.6
44.1
95.8
37.7
89.8
37.3
82.6
30.2
62.7
26.9
56.5
26.3
66.4
27.3
64.7
General Insurance
TOWER Insurance		 194.0
324.2
178.0
288.5
158.5
286.2
148.8
264.6
136.9
165.7
138.7
153.2
145.9
160.3
134.8
175.1
Investment business
TOWER Asset Management
TOWER Managed Funds		 136.9
165.7
138.7
153.2
145.9
160.3
134.8
175.1
6.4
6.4
6.4
6.4
5.8
5.8
6.8
6.8
23.2
23.2
19.8
19.8
18.0
18.0
15.6
15.6
Other
TOWER Group head office
External debt		 29.6
29.6
26.2
26.2
23.8
23.8
22.4
22.4
124.0
124.0
129.7
129.7
53.6
53.6
51.4
51.4
(80.0)
(80.0)
(165.2)
(165.2)
(87.6)
(87.6)
(87.3)
(87.3)
Total capital employed 404.5
563.5
307.4
432.4		 294.2
436.3
270.1
426.2

 The appraisal valuations are all comfortably in excess of the companies’ carrying values.

12 TOWER Results Information

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Health & Life Insurance - profit summary 7

$ millions Sep-09
Mar-09
Sep-08
Mar-08
Life insurance operating earnings
Planned profits
Experience profit (loss)		 8.3
8.6
7.6
7.3
2.4
(1.8)
1.0
(0.3)
Operating earnings from Life
Earnings from Health		 10.7
6.8
8.6
7.0
3.8
5.6
(0.4)
4.9
Operating earnings from Life (net of
tax)
Net investment return on shareholders
funds
Discount rate changes		 14.5
12.4
8.2
11.9
3.3
1.4
2.9
3.4
(1.9)
5.1
2.3
(0.2)
Profit after taxation from continuing
operations		 15.9
18.9
13.4
15.1

  • Planned profits have leveled off in the past 6 months after growing strongly over the previous 2 half year periods.

  • Year on year earnings from health have increased by $4.2m in the 2[nd] half, primarily as a result of premium increases in response to emerging claims inflation.

13 TOWER Results Information

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Health & Life Insurance - Change in embedded value 8

$ millions
TOWER Life TOWER Health
& Life
Embedded value as at 1 October 2008 63.6
122.0
Expected increase in value of in-force
Experience:
- Investment earnings
- Other
Changes in assumptions:
- Investment earnings
- Other
Value from new business
Miscellaneous:
- Other		 6.3
12.9
(5.5)
(2.0)
(1.1)
(5.0)
(0.4)
0.5
(0.2)
1.0
2.7
0.1
0.1
Embedded value as at 30 September
2009		 59.0
136.0

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==> picture [10 x 13] intentionally omitted <==

==> picture [10 x 13] intentionally omitted <==

The decrease in TLNZ’s embedded value over the year is nearly all a result of lower investment earnings and lower assumed future investment earnings. Other experience items have been broadly in line with expectation.

  • The loss from experience items for TOWER Health & Life almost entirely related to lower than expected returns on assets supporting the company’s premium payback policy liability.

  • The value of new business written over the year has improved strongly from the -$0.4m of 2008.

14 TOWER Results Information

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Health & Life Insurance - Change in value of one year's new business 9

$ millions
TOWER Life TOWER Health
& Life
Value of one year’s new business as at
1 October 2008
Change in one year’s volumes and mix of
business
Changes in assumptions:
- Discount rate
- Economic
- Other
Product changes
Model changes and other		 0.7
2.0
0.2
2.6
0.6
Value of one year’s new business as at
30 September 2009		 0.9
5.2

Refer to page 16 for assumptions used

  • The assessed value of one year’s new business has increased significantly over the year.

  • For TOWER Life (N.Z.) a small value increase has resulted from an expectation of higher sales volumes.

  • TOWER Health & Life’s value of one year’s new business has increased markedly, primarily as a result of higher volumes, which has the flow on impact of lower expected unit costs of acquisition.

15 TOWER Results Information

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Health & Life Insurance - Embedded value and value of one year's new business 10

$ millions TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
Sep-09
Mar-09
Sep-08
Mar-08
Net worth
Value of in-force business		 19.2
8.6
17.7
9.7
17.6
7.4
12.6
6.7
39.8
127.4
36.4
118.3
46.0
114.6
46.9
102.1
Embedded value 59.0
136.0
54.1
128.0
63.6
122.0
59.5
108.8
Value of one year’s new business 0.9
5.2
0.6
2.1
0.7
2.0
1.3
2.1

Assumptions & Sensitivity Analysis

Assumptions TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
Sep-09
Mar-09

TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
Sep-08
Mar-08
Inflation
Discount rate
Earnings assumption (net of tax) varies
from
Expenses inflation		 11.5%
11.5%
11.5%
11.5%
3.5% to 6.1%
4.1%
3.9% to 6.1%
3.9%
2.0%
2.0%
2.0%
2.0%		 11.5%
11.5%
11.5%
11.5%

4.0% to 6.2%
4.4%
4.5% to 6.2%
5.1%

2.0%
2.0%
2.0%
2.0%
Sensitivity analysis TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
Sep-09
Mar-09

TOWER Life TOWER Health
& Life
TOWER Life TOWER Health
& Life
Sep-08
Mar-08
Base appraisal value
Appraisal value assuming:
Discount rate 1% higher
Investment returns 1% higher
Discontinuance rate 10% higher
Renewal expenses 10% higher		 62.7
156.9
56.5
136.2
59.9
144.7
54.0
126.4
71.7
162.8
65.5
137.6
61.7
138.4
55.8
126.4
60.6
147.7
54.5
131.5		 66.4
130.0
64.7
117.3

63.0
120.6
61.4
107.6

76.3
132.4
74.7
119.2

65.5
121.2
63.9
105.8

64.4
125.9
62.7
112.6

16 TOWER Results Information

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