TOWER LIMITED — Annual Report 2009

Nov 25, 2009

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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 for year ended 30 September 2009

Please find attached the following documents in relation to the financial year ended 30 September 2009:

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• Media release

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• NZX Appendix 1

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• ASX Appendix 4E

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• Audited Financial Statements for year ended 30 September 2009

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• Full Year Results Presentation

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Bronwyn Walsh Company Secretary & Compliance Manager TOWER Limited

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For immediate release 26 November 2009

TOWER’S PROFIT GROWS MORE THAN 23%

(Auckland – NZ) TOWER Limited (TOWER) today reported a net profit after tax of $50.08 million for the year to 30 September 2009, a 23.8% increase over the 2008 result.

The result includes a non-cash movement in the discount rate which added $3.15 million (2008: $2.07 million) to net profit after tax. The underlying profit increased by 22.3%.

This strong result has been underpinned by growth across every one of TOWER’s three businesses – Health & Life, General Insurance and Investments.

The Health & Life division reported an underlying profit of $31.6 million, up by $5.2 million over last year – a 19.7% increase. The General Insurance division performed strongly, up $2.5 million or 16.9% to $17.3 million. Investments showed a good turnaround with a 56.8% increase in net profit after tax to $5.8 million.

TOWER’s earnings per share continued its rise to 24.31 cents which was 21.2% up on the previous year.

As a result of this very strong performance, the TOWER Board has declared a dividend of 9 cents per share, fully imputed and payable on the recently increased capital. The dividend is an increase on the 8 cents per share paid for the previous year and when the new shares issued following the September 2009 rights issue are taken into account, it is an effective increase of 49%. It is intended to pay the dividend on 2 February 2010.

TOWER Group Managing Director Rob Flannagan said:

“This result is a particularly strong performance with the background of a difficult financial environment. Uncertainty has continued to dominate international and domestic markets during the 12 months to September 2009 however TOWER stood tall through all of this and has delivered an excellent result.

“The tough financial conditions did not distract us from our drive to enhance and strengthen our core businesses. Our priorities were to improve customer service, maintain a high level of professionalism and achieve excellence in all key areas across our three businesses. This is a great result, particularly for TOWER’s shareholders,” Mr Flannagan said.

TOWER Chairman Tony Gibbs added:

“I am delighted with this year’s result. The TOWER team has been singularly focused on enhancing shareholder returns – keeping in mind the need to secure TOWER’s future through strategic investment.

“The outlook for TOWER is positive – we have withstood the economic downturn and have delivered a first rate profit, and a sustainable one at that, in the Board’s view. TOWER remains competitive in all of its business operations. Our liquidity has been further improved as a result of the recent share issue and at the September financial year end our cash balances exceeded $146 million. There will be opportunities which TOWER is now in a position to take advantage of. We are very much looking forward to the next 12 months.”

ENDS

For further information please contact:

Rob Flannagan Tel: 09 369 2057

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APPENDIX 1

FULL YEAR PRELIMINARY ANNOUNCEMENTS AND FULL YEAR RESULTS

RESULTS FOR ANNOUNCEMENT TO THE MARKET

TOWER LIMITED

ReportingPeriod	12 months to 30 September 2009
PreviousReportingPeriod	12 months to 30 September 2008

	Amounts (000s)	Percentage change
Revenue from ordinary activities	NZ$ 517,222	6.7% increase
Net profit after tax from ordinary activities	NZ$ 50,085	23.8% increase
Net profit from ordinary activities aftertaxattributable to shareholders	NZ$ 49,537	22.4% increase
Net profit attributable to shareholders	NZ$49,537	22.4%increase
Final Dividend	Amount per security	Imputed amount per security
	NZ 9 cents
RecordDate	15 January2010
DividendPaymentDate	2 February2010
Comments	Net profit from ordinary activities in the year to 30 September 2009 includes a gain of NZ$3.148 million which has arisen as a result of changes in the global investment market, which in turn affect the discount rate applied under the relevant accounting standards in valuing individual life risk policy liabilities. If this gain is eliminated in order to show the underlying net profit, that amount becomes NZ$46.937 million which is an increase of 22.3% over the comparable result the previous year.
Additional Information	1. Basic earnings per share was 24.31 cents on weighted average capital including the September 2009 Rights Issue. This is an increase of 21.2% from 2008 when calculated ona comparable basis.
	2. The dividend is an effective increase of 49% over the previous year when new shares resulting from the September 2009 rights issue are taken into account. The dividend reinvestment plan operates for the final dividend. The last date for receipt of the election notice for participation is the record date stated above.
	3. Net assets per share as at 30 September 2009 was NZ$1.59 (2008: NZ$1.53)
	4. Net tangible assets per share as at 30 September 2009 was NZ$1.46 (2008: NZ$1.36)

Refer attached 2009 audited Financial Statements for TOWER Limited and its subsidiaries and Presentation for more detailed analysis and explanation

TOWER Limited APPENDIX 4E PRELIMINARY FINAL REPORT 26 November 2009 ASX LISTING RULES 4.3A

TOWER LIMITED PRELIMINARY FINAL REPORT

Current Reporting Period 12 Months ended 30 September 2009 Previous Reporting Period 12 Months ended 30 September 2008

RESULTS FOR ANNOUNCEMENT TO THE MARKET

Net profit after tax from ordinary activities increased by NZ$9.617 million (+23.8%) to NZ$50.085 million. Allowing for minority interest, the net profit after tax attributable to shareholders increased by 22.4% to NZ$49.537 million.

Net profit from ordinary activities in the 2009 year to 30 September includes a gain of NZ$3.148 million which has arisen as a result of changes in the global investment market, which in turn affect the discount rate applied under the relevant accounting standards in valuing individual life risk policy liabilities. If this gain is eliminated in order to show the underlying net profit, that amount becomes NZ$46.937 million which is an increase of 22.3% over the comparable result for the previous year.

Basic earnings per share was 24.31 cents on weighted average capital including the September 2009 Rights Issue. This is an increase of 21.2% from 2008 when calculated on a comparable basis.

A dividend of NZ 9 cents per share payable on the increased capital has been declared. The dividend is an effective increase of 49% over the previous year when new shares resulting from the September 2009 rights issue are taken into account. The record date is 15 January 2010 and the dividend will be paid net of tax on 2 February 2009. TOWER’s dividend reinvestment plan will operate for the final dividend. The last date for receipt of the election notice for participation is 15 January 2010.

Total revenue from ordinary activities was NZ$517.2 million, an increase of 6.7%.

Net asset backing as at 30 September 2009 was NZ$1.59 per share (2008: NZ$1.53).

Net tangible asset backing was NZ$1.46 per share in 2009 (2008: NZ$1.36).

Refer attached 2009 audited Financial Statements for TOWER Limited and its subsidiaries and Presentation for more detailed analysis and explanation.

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TOWER LIMITED

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER 2009

TOWER LIMITED FINANCIAL STATEMENTS For the year ended 30 September 2009

Table of Contents

INCOME STATEMENTS ................................................................................................................................................................... 2 BALANCE SHEETS ........................................................................................................................................................................... 3 STATEMENTS OF CHANGES IN EQUITY ........................................................................................................................................... 4 STATEMENTS OF CASH FLOWS ....................................................................................................................................................... 5 NOTES TO THE FINANCIAL STATEMENTS ........................................................................................................................................ 6 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES........................................................................................................................................6 2. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES .................................................................................................................................14 3. UNDERLYING PROFIT AFTER TAX .............................................................................................................................................................15 4. PREMIUM REVENUE ............................................................................................................................................................................15 5. INVESTMENT REVENUE .........................................................................................................................................................................16 6. FEE AND OTHER REVENUE .....................................................................................................................................................................16 7. CLAIMS EXPENSE ................................................................................................................................................................................16 8. MOVEMENT IN POLICYHOLDER LIABILITIES ................................................................................................................................................16 9. OTHER EXPENSES ................................................................................................................................................................................17 10. TAXATION .......................................................................................................................................................................................18 11. RECEIVABLES ...................................................................................................................................................................................21 12. INVESTMENT PROPERTY .....................................................................................................................................................................21 13. INTANGIBLE ASSETS ...........................................................................................................................................................................22 14. INVESTMENT IN SUBSIDIARIES ..............................................................................................................................................................22 15. DEFERRED ACQUISITION COSTS ............................................................................................................................................................23 16. PROPERTY, PLANT AND EQUIPMENT ......................................................................................................................................................24 17. PAYABLES .......................................................................................................................................................................................24 18. PROVISIONS ....................................................................................................................................................................................25 19. INTEREST BEARING LIABILITIES ..............................................................................................................................................................25 20. INSURANCE LIABILITIES .......................................................................................................................................................................25 21. OTHER LIABILITIES.............................................................................................................................................................................26 22. CONTRIBUTED EQUITY .......................................................................................................................................................................26 23. ACCUMULATED LOSSES ......................................................................................................................................................................27 24. RESERVES .......................................................................................................................................................................................27 25. DISTRIBUTION TO SHAREHOLDERS .........................................................................................................................................................27 26. SEGMENTAL REPORTING .....................................................................................................................................................................28 27. LIFE INSURANCE BUSINESS ..................................................................................................................................................................29 28. GENERAL AND HEALTH INSURANCE BUSINESS ...........................................................................................................................................38 29. FINANCIAL INSTRUMENTS CATEGORIES ...................................................................................................................................................42 30. RISK MANAGEMENT AND FINANCIAL INSTRUMENT INFORMATION .................................................................................................................45 31. CAPITAL RISK MANAGEMENT ...............................................................................................................................................................52 32. OPERATING LEASES ...........................................................................................................................................................................53 33. CASH AND CASH EQUIVALENTS .............................................................................................................................................................53 34. CONTINGENT LIABILITIES ....................................................................................................................................................................55 35. CAPITAL COMMITMENTS ....................................................................................................................................................................55 36. SHARE BASED PAYMENTS ....................................................................................................................................................................55 37. TRANSACTIONS WITH RELATED PARTIES ..................................................................................................................................................57 38. DISCLOSURES ON ASSET RESTRICTIONS AND MANAGED ASSETS .....................................................................................................................58 39. GUARANTEED RETURNS ON FUNDS INVESTED – LIFE INSURANCE COMPANIES ..................................................................................................58 40. INVESTMENT LINKED AND NON-INVESTMENT LINKED BUSINESS OF LIFE INSURANCE COMPANIES ...........................................................................58 41. EARNINGS PER SHARE ........................................................................................................................................................................59 42. IMPACT OF AMENDMENTS TO NZ IFRS .................................................................................................................................................59 43. SUBSEQUENT EVENTS ........................................................................................................................................................................60

1

TOWER LIMITED INCOME STATEMENTS For the year ended 30 September 2009

Note Revenue from continuing operations Premium revenue from insurance contracts Less: Outwards reinsurance expense Net premium revenue 4 Investment revenue 5 Fee and other revenue 6 Net operating revenue Expenses Claims expense Less: Reinsurance recoveries revenue Net claims expense 7 Decrease in policyholder liabilities 8 Amortisation expense 13 Management and sales expenses 9(a) Net claims and operating expenses Financing costs 9(b) Total expenses Profit/(loss) before taxation Tax (expense)/credit attributed to policyholders' returns 10(a) Profit/(loss) before taxation attributed to shareholders Tax (expense)/credit attributed to shareholders' profits 10(a) Profit for the year Profit attributable to: Shareholders Minority interests 3 Basic earnings per share 41 Diluted earnings per share 41

Group Company 2009 2008 2009 2008 $000 $000 $000 $000 423,759 406,924 - - (35,442) (29,924) - - 388,317 377,000 - - 59,151 37,395 169,159 192 34,312 40,404 - - 481,780 454,799 169,159 192 308,467 283,162 - - (38,468) (15,827) - - 269,999 267,335 - - (38,599) (28,045) - - 2,599 1,721 - - 179,008 180,971 666 695 413,007 421,982 666 695 8,297 8,140 - - 421,304 430,122 666 695 60,476 24,677 168,493 (503) (3,764) 13,775 - - 56,712 38,452 168,493 (503) (6,627) 2,016 152 1,758 50,085 40,468 168,645 1,255 49,537 40,460 168,645 1,255 548 8 - - 50,085 40,468 168,645 1,255 Cents Cents 24.31 20.06 24.31 20.04

The income statements should be read in conjunction with the accompanying notes.

2

TOWER LIMITED BALANCE SHEETS As at 30 September 2009

Note Assets Cash and cash equivalents 33 Receivables 11 Financial assets at fair value through profit or loss 29 Derivative financial assets Liabilities ceded under reinsurance 27 Investment property 12 Property, plant and equipment 16 Prepaid tax assets 10(c) Current tax assets Deferred acquisition costs 15 Investments in subsidiaries 14 Deferred tax assets 10(d) Intangible assets 13 Total Assets Liabilities Payables 17 Current tax liabilities Other liabilities 21 Provisions 18 Derivative financial liabilities Interest bearing liabilities 19 Insurance liabilities 20 Deferred tax liabilities 10(d) Life insurance contract liabilities 27 Life investment contract liabilities 27 Total Liabilities Net Assets/(Liabilities) Equity Contributed equity 22 Accumulated losses 23 Reserves 24 Total equity attributed to shareholders Minority interests Total Equity/(Deficit)

Group Company 2009 2008 2009 2008 $000 $000 $000 $000 146,381 58,292 84,392 2,651 141,253 126,269 248,863 260,664 1,076,595 1,099,027 - - 53,410 42,044 - - 19,971 18,405 - - - 2,449 - - 6,030 5,786 - - 34,732 42,737 - - 1,164 - - - 45,096 49,761 - - - - 190,172 189,041 32,650 37,511 - - 39,178 37,309 - - 1,596,460 1,519,590 523,427 452,356 62,123 63,098 421,673 583,151 - 5,640 - - 22,745 21,505 - - 7,594 9,453 - - 21,305 6,927 - - 80,002 87,559 - - 279,700 265,446 - - 38,619 40,090 - - 647,274 690,568 - - 32,650 35,084 - - 1,192,012 1,225,370 421,673 583,151 404,448 294,220 101,754 (130,795) 547,680 465,323 547,680 465,323 (35,128) (66,453) (335,527) (485,960) (110,795) (107,670) (110,399) (110,158) 401,757 291,200 101,754 (130,795) 2,691 3,020 - - 404,448 294,220 101,754 (130,795)

The financial statements were approved for issue by the Board on 25 November 2009.

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AI (Tony) Gibbs Chairman

John Spencer Director

The above balance sheets should be read in conjunction with the accompanying notes.

3

TOWER LIMITED STATEMENTS OF CHANGES IN EQUITY For the year ended 30 September 2009

Total equity/(deficit) at the beginning of year Movements in accumulated losses: Profit for the year attributable to the shareholders Dividend paid 23 Transfer from share based payments reserve 23 Other 23 Total movements in accumulated losses Movements in reserves: Exchange differences on translation of foreign operations 24 Movement in share based payments reserve 24 Total movements in reserves Total recognised income and expense for year Transactions with equity holders in their capacity as equity holders: Shares issued 22 Treasury shares 22 Change in minority interest Movements in equity for the year Total equity/(deficit) at the end of year Note

Group 2009 2008 2009 2008 $000 $000 $000 $000 294,220 261,897 (130,795) (122,013) 49,537 40,460 168,645 1,255 (19,467) (14,844) (19,467) (14,844) 1,372 - 1,372 - (117) (390) (117) (91) 31,325 25,226 150,433 (13,680) (2,884) 2,895 - - (241) 170 (241) 170 (3,125) 3,065 (241) 170 28,200 28,291 150,192 (13,510) 82,257 4,991 82,257 4,991 100 (263) 100 (263) (329) (696) - - 110,228 32,323 232,549 (8,782) 404,448 294,220 101,754 (130,795) Company

The above statements of changes in equity should be read in conjunction with the accompanying notes.

4

TOWER LIMITED STATEMENTS OF CASH FLOWS For the year ended 30 September 2009

		Group		Company	Company
		2009	2008	2009	2008
	Note	$000	$000	$000	$000
Cash flows from operating activities
Premiums received		420,764	408,890	-	-
Interest received		43,384	50,073	112	192
Dividends received		6,964	18,935	-	-
Investment income		17,105	31,154	-	-
Non-life company fee income		42,663	53,746	-	-
Reinsurance received		17,178	13,040	-	-
Reinsurance paid		(29,082)	(29,924)	-	-
Claims expenses		(294,770)	(273,547)	-	-
Payments to suppliers and employees		(184,441)	(181,862)	(10)	(223)
Interest paid		(8,519)	(7,626)	-	-
Income tax paid		(5,871)	(5,449)	-	-
Net cash inflow / (outflow) from operating activities	33(b)	25,375	77,430	102	(31)
Cash flows from investing activities
Net proceeds/(payments) for financial assets		10,722	(66,620)	-	-
Net payments for purchase of property, plant and equipment
and intangible assets		(6,137)	(7,506)	-	-
Net cash inflow / (outflow) from investing activities		4,585	(74,126)	-	-
Cash flows from financing activities
Proceeds from issue of share capital		81,795	1,081	81,795	1,081
Proceeds from issue of fixed rate senior unsecured bonds		81,759	-	-	-
Payment of rights issue costs		(465)	-	-	-
Payment of issue costs of fixed rate senior unsecured bonds		(3,499)	-	-	-
Repayment of borrowings		(85,000)	-	-	-
Payment of dividend		(16,157)	(10,607)	(16,157)	(10,607)
Net advances to subsidiaries		-	-	16,001	9,904
Net cash inflow / (outflow) from financing activities		58,433	(9,526)	81,639	378
Net increase / (decrease) in cash and cash equivalents		88,393	(6,222)	81,741	347
Cash and cash equivalents at the beginning of year		57,988	64,210	2,651	2,304
Cash and cash equivalents at the end of year	33(a)	146,381	57,988	84,392	2,651

Note:

The statements of cash flows present the net changes in cash flow for financial assets, property, plant and equipment and intangible assets. 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 and intangible assets, the value of the sales are immaterial.

The above statements of cash flows should be read in conjunction with the accompanying notes.

5

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

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.

TOWER Limited (Company) is a profit-oriented company incorporated in New Zealand under the New Zealand Companies Act 1993. The Company is listed on the New Zealand and Australian Stock Exchanges. The Company and its subsidiaries together are referred to in this financial report as TOWER, or the Group or the consolidated entity.

The financial report of the Company and the Group has been prepared in accordance with New Zealand Generally Accepted Accounting Practice (NZ GAAP). It complies with New Zealand Equivalents to International Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for profit-oriented entities.

The financial statements were authorised for issue by the Board of Directors on 25 November 2009.

The principal activity of the TOWER Limited Group is providing health, life and general insurance and investment management services. The Group predominantly operates in New Zealand with some of its general insurance operations based in the Pacific Islands region.

Compliance with International Financial Reporting Standards (IFRS)

The consolidated financial statements and notes of TOWER Limited comply with International Financial Reporting Standards (IFRS).

The financial statements have been prepared on a fair value basis with any exceptions noted in the accounting policies below.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of the Company as at 30 September 2009 and the results of all subsidiaries for the year then ended.

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

Specific accounting policies

(a) Premium revenue

(i) 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.

(ii) 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.

6

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(iii) 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:

(i) Dividends and distributions

Revenue is recognised on an accrual basis when the right to receive payment is established.

(ii) Property income

Property income is recognised on an accrual basis.

(iii) Interest income

Interest income is recognised on an effective interest method.

(iv) Fair value gains and losses

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

(d) Claims expense

(i) 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.

(ii) 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.

(iii) 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)).

(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

(i) 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.

7

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(ii) 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.

(iii) 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.

(iv) 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

(i) 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).

(ii) 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.

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

(iii) 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. All members of the tax consolidated group are jointly and severally liable for the tax liabilities of the Group.

(iv) Income tax expense

The income tax expense 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.

(v) GST

All revenues, expenses and certain 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 flows on a net basis to the extent that the GST is not recoverable and has been included in the expense or asset.

8

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(j) Foreign currency

(i) 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.

(ii) 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.

(iii) 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 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

Property, 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 5 years Buildings 50 - 100 years Leasehold property improvements 3-12 years

9

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(n) 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; and

• 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 annually.

(o) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to ordinary 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 of 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.

(p) Intangibles

(i) 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 acquiree 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.

(ii) 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.

General use computer software 3-5 years Core operating system software 10 years

10

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(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 finite 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

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

All purchases and sales of financial assets classified as fair value through profit or loss that require delivery within the timeframe established by regulation or market convention ("regular way" purchases and sales) are recognised at trade date, which is the date the Group commits to purchase or sell the assets. Loans and deposits are recognised at settlement date, which is the date that the assets are delivered or received.

(i) Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss comprise of financial assets that are either held for trading or designated on initial recognition at fair value through profit or loss. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term or if so designated by management. Designation by management takes place when it is necessary to eliminate or significantly reduce measurement or recognition inconsistencies or if related financial assets or liabilities are managed and evaluated on a fair value basis.

Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in the income statement. The net gain or loss recognised in the income statement includes any dividend or interest earned on the financial assets.

Derivatives are categorised as held for trading unless they are designated as hedges. All derivatives entered into by the Group are classified as held for trading as the Group does not apply hedge accounting.

(ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active market. The Group's loans and receivables comprise trade and other receivables and cash and cash equivalents in the balance sheet. Loans and receivables are measured at amortised cost using the effective interest method less any impairment.

(t) Impairment of financial assets

Financial assets, with the exception of those measured at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financial assets are impaired when there is objective evidence that the estimated future cash flows of the asset have been impacted as a result of one or more events that occurred after the initial recognition of the financial asset.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the assets' carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.

For all financial assets, other than trade receivables, the carrying amount is reduced by the impairment loss directly. For trade receivables the carrying amount is reduced via an allowance account, against which an uncollectible trade receivable is written off.

A trade receivable is deemed to be uncollectible upon notification of insolvency of the debtor or upon receipt of similar evidence that the Group will be unable to collect the amount. Changes in the carrying amount of the allowance account are recognised in the Income Statement.

A previously recognised impairment loss is reversed when, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was initially recognised.

In respect of financial assets carried at amortised cost, with the exception of trade receivables, the impairment loss is reversed through the Income Statement to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. Subsequent recoveries of trade receivables previously written off are credited against the allowance account.

11

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(u) Leased assets

(i) 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.

(ii) 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.

(v) 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.

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

(x) 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.

(y) 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.

(z) 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.

(aa) Life investment contract liabilities These contracts are designated at inception as at fair value through profit or loss 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.

The Group designates these investment contracts to be measured at fair value through profit or loss because it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities or recognising gains or losses on different basis.

(ab) 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 coupon swap 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.

12

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

1. Summary of significant accounting policies (continued)

(ac) 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 is performed at a portfolio level of contracts that are subject to broadly similar risks and are managed together as a single portfolio.

(ad) Contributed equity

(i) Ordinary share capital

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

(ii) Treasury shares

Where TOWER acquires its own equity instruments (treasury shares), these are deducted from equity and accounted for at weighted average cost. No gain or loss is recognised in the income statement on purchase, sale, issue or cancellation of the Group‟s own equity instruments.

(ae) Share based payments

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

These options are measured at fair value at grant date and expensed 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.

(af) Segment reporting

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.

(ag) Investment property

Investment property, which is property held to earn rentals and capital appreciation, is measured at its fair value at the reporting date. Gains or losses arising from changes in the fair value of investment property are included in profit or loss in the period in which they arise.

(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 are assessed by him therefore impact his total remuneration.

(ai) Comparatives

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

13

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

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 27.

(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 assumes 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;

• movements in industry benchmarks; and

• 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 28.

14

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

2. Critical accounting judgements and estimates (continued)

(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 Group may not receive amounts due to it and these amounts can be reliably measured.

(d) Prepaid tax asset

Refer to Note 10 for an explanation on assumptions supporting the carrying value of prepaid tax assets.

3. Underlying profit after tax

Underlying profit after tax is presented to provide a more meaningful comparison of the Group's profit for the reported financial years. The movement in the discount rate during the 2009 and 2008 financial years impacted values of the individual life risk policy liabilities and increased Group profit after tax. This impact has been shown separately below to facilitate comparison.

The discount rate applied to value individual life risk policy liabilities (included within life insurance contract liabilities in Note 27) is based on the current risk-free interest rates. The decline in the risk-free interest rates during the year has lead to a change in the value of individual life risk policy liabilities, generating a net gain of $3.148m in the year (2008: $2.074m).

Profit for the year (Less)/add: Discount rate effect before tax Income tax on discount rate effect Discount rate effect after tax Underlying profit after tax	2009 2008 2009 2008 $000 $000 $000 $000 50,085 40,468 168,645 1,255 (3,129) (1,902) - - (19) (172) - - (3,148) (2,074) - - 46,937 38,394 168,645 1,255 Group Company

4. Premium revenue

Life insurance contract premiums Less: Deposits recognised as an increase in policy liabilities Life insurance contract premiums recognised as revenue General insurance premiums Health insurance premiums Less: Reinsurance ceded Total net premium revenue	87,410 83,435 - - (9,971) (8,859) - - 77,439 74,576 - - 214,619 206,116 - - 131,701 126,232 - - 423,759 406,924 - - (35,442) (29,924) - - 388,317 377,000 - -

15

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

5. Investment revenue

Fixed interest securities Interest income Net gains on revaluation of fixed interest securities designated at fair value through profit or loss Equity securities Dividend income Net losses on revaluation of listed equity securities designated at fair value through profit or loss Property securities Property income Net (lossses)/gains on revaluation of property securities designated at fair value through profit or loss Other investment income Other investment income Net gains/(losses) on fair value of financial assets and liabilities at fair value through profit or loss held for trading Total investment income Total net gains/(losses) on revaluation of finanical assets at fair value through profit or loss Total investment revenue 6. Fee and other revenue Investment and management fees Total fee and other revenue 7. Claims expense Life insurance claims Life investment contract payments Total life claims and payments Less: Withdrawals recognised as a decrease in policy liabilities Life insurance claims recognised as expense General insurance claims Health insurance claims Less: Reinsurance recoveries revenue Total net claims expense 8. Movement in policyholder liabilities Decrease in life insurance contract liabilities Decrease in life investment contract liabilities Increase in non-current health insurance contract liabilities

2009 2008 2009 2008 $000 $000 $000 $000 43,384 50,073 159 192 7,327 50,655 - - 50,711 100,728 159 192 6,964 18,935 169,000 - (10,018) (57,532) - - (3,054) (38,597) 169,000 - 158 109 - - (10,635) 2,127 - - (10,477) 2,236 - - 3,520 1,306 - - 18,451 (28,278) - - 21,971 (26,972) - - 54,026 70,423 169,159 192 5,125 (33,028) - - 59,151 37,395 169,159 192 Group Company 34,312 40,404 - - 34,312 40,404 - - 91,644 92,274 - - 2,846 5,867 - - 94,490 98,141 - - (15,769) (16,827) - - 78,721 81,314 - - 146,621 124,519 - - 83,12577,329 - - 308,467 283,162 - - (38,468) (15,827) - - 269,999 267,335 - - (40,662) (30,154) - - (117) (4,816) - - 2,180 6,925 - - (38,599) (28,045) - -

16

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

9. Other expenses

(a) Management and sales expenses Life insurance contracts Policy acquisition expenses: Commission Other acquisition expenses Policy maintenance expenses: Commission Other maintenance expenses Investment management expenses Total life insurance expenses Life investment contracts Policy maintenance expenses: Commission Other acquisition expenses Total life investment expenses Other non-life expenses Total management and sales expenses Included in total management and sales expenses are the following: Amortisation of non-life deferred acquisition costs Bad debts written off Depreciation: Office equipment and furniture Motor vehicles Computer hardware Directors‟ fees Donations Employee benefits expense Net loss on fair value of employee share option derivative Loss on disposal of property, plant and equipment Restructuring costs Net foreign exchange loss Auditors remuneration Fees paid to parent auditors: Audit of financial statements Other assurance related services Non-assurance related services (b) Financing costs Interest expense Other costs Total financing costs

Group 2009 2008 2009 2008 $000 $000 $000 $000 11,863 5,376 - - 5,262 5,765 - - 5,249 5,046 - - 8,671 6,955 - - 223- - - 31,268 23,142 - - 21 18 - - 11 11 - - 32 29 - - 147,708 157,800 666 695 179,008 180,971 666 695 14,998 12,766 - - 507 26 - - 1,339 1,588 - - 116 83 - - 1,461 541 - - 602 602 602 602 - 1 - - 65,689 66,164 - - 383 712 - - 385 - - - - 389 - - - 3 - - 910 750 - - 111 138 - - 68 151 - - 8,006 7,756 - - 291 384 - - 8,2978,140 - - Company

17

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

10. Taxation

10. Taxation
	Group		Company
	2009	2008	2009	2008
	$000	$000	$000	$000
(a) Current tax expense
Analysis of taxation expense
Current taxation	9,442	9,449	(152)	(1,581)
Deferred taxation	2,752	(23,754)	-	(177)
Over provided in prior years	(1,803)	(1,486)	-	-
Income tax expense/(benefit) for the year	10,391	(15,791)	(152)	(1,758)
Income tax expense/(benefit) attributed to
policyholders	3,764	(13,775)	-	-
Income tax expense/(benefit) attributed to
shareholders	6,627	(2,016)	(152)	(1,758)
	10,391	(15,791)	(152)	(1,758)
The tax expense/(benefit) recognised can be reconciled to the accounting		profit as follows:
Profit/(loss) before taxation	60,476	24,677	168,493	(503)
Income tax at the current rate of 30% (2008: 33%)	18,143	8,143	50,548	(166)
Taxation effect of non deductible expenses / non-
assessable revenue:
Life insurance companies permanent differences	(5,718)	(3,599)	-	-
Change in tax rates	-	2,278	-	(18)
Recognition of prior period current tax	(1,803)	(1,486)	-	-
Utilisation of previously unrecognised tax losses	-	(7,401)	-	-
Non life insurance companies permanent
differences	-	(1,096)	-	(1,574)
Non deductible losses/(income) from PIEs	4,669	(7,987)	-	-
Benefit of imputation credits received	(573)	(4,643)	-	-
Non deductible expenditure	1,024	-	-	-
Release of non taxable provision	(5,351)	-	-	-
Non taxable dividend from subsidiaries	-	-	(50,700)	-
Income tax expense/(benefit)	10,391	(15,791)	(152)	(1,758)

The Group taxation expense/ (benefit) includes both tax on shareholder profits and on returns attributed to policyholders. The allocation of tax expense between shareholders and policyholders has been disclosed in the income statement.

(b) The Taxation (International Taxation, Life Insurance and Remedial Matters) Act 2009

The Taxation (International Taxation, Life Insurance and Remedial Matters) Act 2009 was passed on 6 October 2009. This Act will affect the taxation of TOWER Group‟s life insurance business. The new regime will result in more tax to pay for new term life business issued from 1 July 2010 and existing term life business once the grand-parenting provisions cease. TOWER Group has estimated that the impact of the new regime in the current period is immaterial and is currently reviewing the options available to mitigate the impact on future profits.

(c) Prepaid tax asset

Under the existing 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 of $34.732m in 2009 (2008: $42.737m).

Under the current tax regime, the prepaid tax can be used to satisfy tax liabilities on future Group taxable profits. A change in the tax regime applying to life insurance companies from 1 July 2010 allows the prepaid tax to be used to meet policyholder tax liabilities arising after this date. This prepaid tax is not affected by shareholder continuity requirements.

The directors undertook an exercise 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:

• tax rate of 30% for all years ;

• a conservative estimate of growth in TOWER operating profits after 2009;

• utilisation of prepaid tax against future policyholder tax liabilities; and

• realisation of investment assets occurring on implementation of the new tax regime in 2010, based on investment values as at 30 September 2009.

18

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

10. Taxation (continued)

Based on the above assumptions the Directors estimated the prepaid tax asset would be recovered in full against future Group tax liabilities by the 2015 financial year (2008: 2018). 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 tax liabilities of the Group and policyholders differed from Directors‟ estimates by 20% the prepaid tax asset would be fully utilised between 2014 - 2016.

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.

d) Deferred tax assets and liabilities

d) Deferred tax assets and liabilities
2009 Movements in deferred tax assets Provisions and accruals Unrealised losses Policyholder reserves Other Total deferred tax assets Movements in deferred tax liabilities Deferred costs Fair value Deferred tax in policyholder reserves Other Total deferred tax liabilities Net deferred tax 2008 Movements in deferred tax assets Provisions and accruals Unrealised losses Policyholder reserves Tax losses Other Total deferred tax assets Movements in deferred tax liabilities Deferred costs Fair value Unrealised gains Deferred tax in policyholder reserves Total deferred tax liabilities Net deferred tax Net deferred tax Expected to crystallise in the next 12 months Not expected to crystallise in the next 12 months	Opening balance at 1 October Charged/ (credited) to income statement Credited to equity Reclassified from policyholder reserves Closing balance at 30 September $000 $000 $000 $000 $000 Group
	4,381 (1,509) - - 2,872 18,814 (1,835) - - 16,979 13,606 (1,324) - - 12,282 710 (193) - - 517
	37,511 (4,861) - - 32,650
	16,908 (1,337) - - 15,571 974 (772) - - 202 22,208 - - 716 22,924 - - (78) - (78)
	40,090 (2,109) (78) 716 38,619
	(2,579) (2,752) 78 (716) (5,969)
	4,820 (439) - - 4,381 12,868 5,946 - - 18,814 14,497 (891) - - 13,606 11,885 (11,885) - - - 3,270 (2,035) (525) - 710
	47,340 (9,304) (525) - 37,511
	16,131 777 - - 16,908 7,668 (6,694) - - 974 27,141 (27,141) - - - 18,785 - -3,423 22,208
	69,725 (33,058) -3,423 40,090
	(22,385) 23,754 (525) (3,423) (2,579)
		2009 2008 $000 $000 15,184 1,822 (21,153) (4,401) Group
		(5,969) (2,579)

Deferred tax liabilities have not been recognised in respect of temporary differences totalling $1.261m associated with investments in subsidiaries.

19

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

10. Taxation (continued)

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. A deferred tax liability of $22.924m (2008: $22.208m) has been separately disclosed and included in the deferred tax liabilities balance representing taxable temporary differences which are implicitly embedded within life insurance policy liabilities.

(e) Imputation credit account

e) Imputation credit account
Balance at 1 October Attached to dividends received Taxation paid Income tax refunded Balance at 30 September Other including transfers to policyholder credit account	2009 2008 $000 $000 Group
	14,003 12,765 1,074 6,930 7 84 - (30) 4,500 (5,746)
	19,584 14,003

The Group imputation credit account reflects the imputation credits held by the Parent as the representative member.

(f) Policyholder credit account

Balance at 1 October Previous year's policyholder tax liability Transfer from imputation credit account Balance at 30 September Overestimation of previous years' policyholder tax liability	- 3,254 9,000 - (4,100) (9,000) (4,500) 5,746
	400 -

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 balance in the Policyholder Credit Account is available to meet any policyholder tax liability.

The policyholder tax liability is based on actuarial calculations which are finalised after year end. The Policyholder Credit Account disclosure includes the estimated policyholder tax liability for the current year and imputation credits transferred in the current year.

20

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

11. Receivables

Reinsurance recovery receivables Outstanding premiums and trade receivables Unsettled investment sales Unearned comission Related party receivables Other Total receivables Analysed as: Current Non current	Group 2009 2008 2009 2008 $000 $000 $000 $000 38,872 17,070 - - 90,476 95,602 - - 346 847 - - 8,622 9,090 - - - - 248,818 260,639 2,9373,660 4525 141,253 126,269 248,863 260,664 140,718 125,734 248,863 260,664 535 535 - - 141,253 126,269 248,863 260,664 Company

Outstanding premiums and trade receivables above are presented net of allowance for credit losses and impairment. Movement in the allowance for credit losses and impairment during the reporting period was as follows:

Outstanding premiums and trade receivables Allowance for doubtful debts Balance at 1 October Provisions added during the year Provisions released during the year Balance at 30 September	92,434 97,681 - - (1,958) (2,079) - - 90,476 95,602 - - 2,079 2,211 - - 1,574 1,490 - - (1,695) (1,622) - - 1,958 2,079 - -

The allowance for credit losses and impairment in relation to trade receivables is provided for based on estimated recoverable amounts determined by reference to current customer circumstances and past default experience. In determining the recoverability of a trade receivable the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date. The Group has provided fully for receivables over 120 days past due. Trade receivables between 60 and 120 days past due are provided for based on estimated irrecoverable amounts determined by reference to past due default experience.

12. Investment property

At fair value Balance at 1 October Reclassified as property, plant and equipment Other adjustments Balance at 30 September	2,449 2,158 - - (2,538) - - - 89 291 - - - 2,449 - -

Investment property was reclassified as property, plant and equipment on 1 April 2009.

21

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

13. Intangible assets

Year ended 30 September 2008 Net book value at 1 October 2007 Additions at cost Amortisation expense Net book value at 30 September 2008 At 30 September 2008 At cost Accumulated amortisation Net book value at 30 September 2008 Year ended 30 September 2009 Net book value at 1 October 2008 Additions at cost Disposals Amortisation expense Net book value at 30 September 2009 At 30 September 2009 At cost Accumulated amortisation Net book value at 30 September 2009	Goodwill Software WIP Total $000 $000 $000 $000 Group
	30,811 2,903 - 33,714 - 3,877 1,439 5,316 - (1,721) - (1,721)
	30,811 5,059 1,439 37,309
	30,811 12,538 1,439 44,788 - (7,479) - (7,479)
	30,811 5,059 1,439 37,309
	30,811 5,059 1,439 37,309 - 836 3,633 4,469 - (1) - (1) - (2,599) - (2,599)
	30,811 3,295 5,072 39,178
	30,811 13,373 5,072 49,256 - (10,078) - (10,078)
	30,811 3,295 5,072 39,178

Impairment testing for goodwill

The amount of goodwill is subject to bi-annual impairment testing at the cash generating unit level.

2009 Carrying amount of goodwill 2008 Carrying amount of goodwill	TOWER TOWER Medical Insurance Total $000 $000 $000
	13,067 17,74430,811
	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 28 in respect of TOWER Medical and TOWER Insurance.

An analysis of these key indicators and other valuations performed for the current year confirms that at 30 September 2009 there is no impairment of the value of goodwill (2008: Nil).

14. Investment in subsidiaries

Investments in controlled entities carried at cost	Group 2009 2008 2009 2008 $000 $000 $000 $000 - - 190,172 189,041 Company

TOWER Limited holds its subsidiary companies under a holding company, TOWER Financial Services Group Limited. All subsidiary companies have a balance date of 30 September.

22

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

14. Investment in subsidiaries (continued)

Principal trading subsidiary companies at 30 September 2009 and 2008 are as follows:

Name of Company	Holdings		Nature of Business
	2009	2008
Incorporated in New Zealand
TOWER Asset Management Limited	100%	100%	Investment management services
TOWER Corporation Holdings Limited	100%	100%	Management services
TOWER Health & Life Limited	100%	100%	Term, disability and medical insurance
TOWER Insurance Limited	100%	100%	Fire and general insurance
TOWER Investments Limited	100%	100%	Holding company
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 New Zealand Limited	100%	100%	Holding company
TOWER Option Scheme Limited	100%	100%	Trustee for executive share options
TOWER Capital Limited*	100%	-	Holding company for fixed rate senior
			unsecured bonds
TOWER Employee Benefits Limited	100%	100%	Holding company
TOWER Managed Funds Investment Limited	100%	100%	Holding company
TOWER Bourke Street Limited	100%	100%	Holding company
Incorporated in Australia
Australian Equitable Insurance Company Pty Limited	100%	100%	Holding company
Southern Pacific Insurance Company Pty Limited	100%	100%	Holding company
Incorporated in Fiji
TOWER Insurance (Fiji) Limited	100%	100%	Fire and general insurance
Incorporated in Cook Islands
TOWER Insurance (Cook Islands) Limited	100%	100%	Fire and general insurance
Incorporated in PNG
TOWER Insurance (PNG) Limited	100%	100%	Fire and general insurance
Incorporated in Samoa
National Pacific Insurance Limited	70%	70%	Fire and general insurance

• TOWER Capital Limited was incorporated on 18 December 2008

15. Deferred acquisition costs

Balance at 1 October Acquisition costs deferred during the year Current period amortisation Balance at 30 September Analysed as: Current Non current	Group 2009 2008 2009 2008 $000 $000 $000 $000 49,761 51,567 - - 10,333 10,960 - - (14,998) (12,766) - - 45,096 49,761 - - 13,547 15,160 - - 31,549 34,601 - - 45,096 49,761 - - Company

23

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

16. Property, plant and equipment

16. Property, plant and equipment
Year ended 30 September 2008 Net book value at 1 October 2007 Additions Disposals Foreign exchange movements Depreciation charge Net book value at 30 September 2008 At 30 September 2008 At cost Accumulated depreciation Net book amount at 30 September 2008 Year ended 30 September 2009 Net book value at 1 October 2008 Reclassified from investment property Additions Disposals Foreign exchange movements Depreciation charge Net book value at 30 September 2009 At 30 September 2009 At cost Accumulated depreciation Net book value at 30 September 2009	Land and buildings Office equipment and furniture Motor vehicles Computer equipment Total $000 $000 $000 $000 $000 Group
	- 4,345 120 910 5,375 - 138 270 2,555 2,963 - (278) (23) (219) (520) - 188 26 (34) 180 - (1,588) (83) (541) (2,212)
	- 2,805 310 2,671 5,786
	- 12,637 895 29,719 43,251 - (9,832) (585) (27,048) (37,465)
	- 2,805 310 2,671 5,786
	- 2,805 310 2,671 5,786 2,538 - - - 2,538 - 155 284 1,220 1,659 - (325) (25) (24) (374) (643) 19 (32) (7) (663) - (1,339) (116) (1,461) (2,916)
	1,895 1,315 421 2,399 6,030
	1,895 6,855 964 6,140 15,854 - (5,540) (543) (3,741) (9,824)
	1,895 1,315 421 2,399 6,030

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

17. Payables

Trade payables Reinsurance payables Unsettled investment purchases Other payables Related party payables Total payables Analysed as: Current Non current	Group 2009 2008 2009 2008 $000 $000 $000 $000 33,101 36,307 - - 10,188 6,458 - - 248 306 - - 18,586 20,027 1,712 1,646 - - 419,961581,505 62,12363,098 421,673583,151 62,123 62,993 421,673 583,151 - 105 - - 62,12363,098 421,673583,151 Company

As at 30 September 2009 unsettled investment purchases were made up of a $0.226m balance of the NZ brokers account for NZ equities (2008: $0.285m). The asset is recognised under financial assets at fair value through profit and loss.

24

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

18. Provisions

Employee benefits Other Total provisions Analysed as: Current Non current	Group 2009 2008 2009 2008 $000 $000 $000 $000 7,594 9,326 - - - 127 - - 7,5949,453 - - 7,594 9,453 - - - - - - 7,5949,453 - - Company

Movement in provisions

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

Other provisions Opening balance at 1 October Additions Amount used Reversal of unused amount Closing balance at 30 September	127 724 - - - 127 - - (127) - - - - (724) - - - 127 --

19. Interest bearing liabilities

Overdraft Bank loan Fixed rate senior unsecured bonds Unamortised capitalised costs Total interest bearing liabilities Analysed as: Current Non current Bank loan The bank loan was fully repaid in June 2009.	- 304 - - - 87,255 - - 83,220 - - - (3,218) - - - 80,00287,559 - - 860 2,559 - - 79,14285,000 - - 80,00287,559 - -

Fixed rate senior unsecured bonds

On 24 March 2009, the Group issued $81.759m of fixed rate senior unsecured bonds, bearing a fixed interest rate of 8.5% per annum. The bonds mature on 15 April 2014. The bonds are carried at amortised cost using the effective interest method. The fixed rate senior unsecured bonds balance above includes $1.461m of accrued interest. The Group capitalised $3.499m of costs associated with the issuance of the bonds. These costs are amortised over the five year term of the bonds using the effective interest rate method. The amortised costs to 30 September 2009 were $0.281m. The fair value of unsecured bonds as at 30 September 2009 is $83.535m, this has been estimated using the method outlined in Note 30 (d).

20. Insurance liabilities

Unearned premiums – general insurance Unearned premiums – health and disability Outstanding claims – general and health insurance Outstanding claims – life and other Analysed as: Current Non current	96,914 103,044 - - 15,645 15,446 - - 74,017 80,649 - - 93,12466,307 - - 279,700 265,446 - - 197,322 168,866 - - 82,378 96,580 - - 279,700 265,446 - -

25

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

21. Other liabilities

FuturePlan debenture Other Analysed as: Current Non current	Group 2009 2008 2009 2008 $000 $000 $000 $000 22,745 21,457 - - - 48 - - 22,745 21,505 - - 22,745 21,505 - - - - - - 22,745 21,505 - - Company

TOWER Life (NZ) Limited has issued a debenture to the TOWER Future Plan. 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.

22. Contributed equity

Ordinary share capital (fully paid) Less treasury shares Total contributed equity Represented by: Ordinary shares (no par value) Less treasury shares Movements in ordinary share capital Balance at 1 October Dividend reinvested shares issuance Employee share options scheme shares issuance Rights issue Balance at 30 September Movements in ordinary share capital Balance at 1 October Dividend reinvested shares issuance Employee share options scheme shares issuance Rights issue net of capitalised costs Balance at 30 September

Group 2009 2008 2009 2008 $000 $000 $000 $000 547,843 465,586 547,843 465,586 (163) (263) (163) (263) 547,680 465,323 547,680 465,323 Number of shares 254,882,993 191,992,041 254,882,993 191,992,041 (97,960) (101,526) (97,960) (101,526) 254,785,033 191,890,515 254,785,033 191,890,515 Company Number of shares 191,992,041 189,348,179 191,992,041 189,348,179 2,055,865 1,715,782 2,055,865 1,715,782 148,660 928,080 148,660 928,080 60,686,427 - 60,686,427 - 254,882,993 191,992,041 254,882,993 191,992,041 Number of shares Number of shares $000 $000 $000 $000 465,586 460,595 465,586 460,595 3,310 3,658 3,310 3,658 257 1,333 257 1,333 78,690 - 78,690 - 547,843 465,586 547,843 465,586

All shares rank equally with one vote attached to each share.

On 28 September 2009, TOWER Limited issued 60,686,427 ordinary shares pursuant to a 5 for 16 Rights Issue at a value of $1.34 per share. The Company raised $81.320m and incurred $2.630m of costs in relation to the Issue.

26

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

22. Contributed equity (continued)

Movements in treasury shares Balance at 1 October Movement in treasury shares during the year Balance at 30 September Represented by: Treasury shares (no par value) 23. Accumulated losses Accumulated losses Balance at 1 October Net profit for the year Transfer from share based payments reserve Dividend paid Other Balance at 30 September 24. Reserves Foreign currency translation reserve (FCTR) Balance at 1 October Currency translation differences arising during the yea Balance at 30 September

Group 2009 2008 2009 2008 $000 $000 $000 $000 263 - 263 - (100) 263 (100) 263 163 263 163 263 Number of shares 97,960 101,526 97,960 101,526 Company Number of shares (66,453) (91,680) (485,960) (472,280) 49,537 40,460 168,645 1,255 1,372 - 1,372 - (19,467) (14,844) (19,467) (14,844) (117) (389) (117) (91) (35,128) (66,453) (335,527) (485,960) 2,488 (407) - - r (2,884) 2,895 - - (396) 2,488 - -

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
Balance at 1 October	2,842	2,672	2,842	2,672
Net movement in share based payments reserve	(241)	170	(241)	170
Balance at 30 September	2,601	2,842	2,601	2,842
The share based payments reserve is used to recognise the	fair value of options	issued but not exercised.
Separation reserve	(113,000)	(113,000)	(113,000)	(113,000)

The share based payments reserve is used to recognise the fair value of options issued but not exercised.

The separation reserve was created at the time of the demerger in 2007 of the New Zealand and Australian businesses in accordance with the ruling provided by the Australian Tax Office (ATO). It will be carried forward indefinitely as a non equity style reserve to meet the requirements of the ATO.

Total reserves (110,795) (107,670) (110,399) (110,158)

25. Distribution to shareholders

On 20 November 2008 the Board of Directors declared a dividend for the 2008 financial year of 8.0 cents per share. The dividend was paid on 9 February 2009.

27

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

26. Segmental reporting

Business segments

2009 Profit for the year Less discount rate(1) Underlying profit for the year Revenue Revenue - external Revenue - internal Total revenue Total assets Total liabilities Acquisition of property, plant and equipment, intangibles and other non current assets Depreciation and amortisation 2008 Profit for the year Less discount rate(1) Underlying profit for the year Revenue Revenue - external Revenue - internal Total revenue Total assets Total liabilities Acquisition of property, plant and equipment, intangibles and other non current assets Depreciation and amortisation	Health & Life General Insurance Investments Other (Holding companies and eliminations) Total $000 $000 $000 $000 $000
	34,797 17,292 5,763 (7,767) 50,085 (3,148) - - - (3,148)
	31,649 17,292 5,763 (7,767) 46,937
	233,435 206,662 39,297 2,386 481,780 - - 14,313 (14,313) -
	233,435 206,662 53,610 (11,927) 481,780
	1,071,491 388,185 56,933 79,851 1,596,460 877,504 248,642 27,284 38,582 1,192,012 - 402 43 5,683 6,128 1,216 1,213 611 2,475 5,515
	28,508 14,801 3,659 (6,500) 40,468 (2,074) - - - (2,074)
	26,434 14,801 3,659 (6,500) 38,394
	208,108 200,620 43,118 2,953 454,799 - 408 11,751 (12,159) -
	208,108 201,028 54,869 (9,206) 454,799
	1,043,644 384,643 65,072 26,231 1,519,590 905,042 235,143 41,139 44,046 1,225,370 508 460 404 6,907 8,279 1,067 1,336 726 804 3,933

(1)The discount rate effect, as discussed in Note 3, has been adjusted for tax and shown separately to provide a more meaningful comparison between the reported periods.

Description of segments

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

Geographical segments

TOWER Group operates predominantly in one geographical segment, New Zealand. The operations in Australia and the Pacific region do not represent a significant part of the Group's operations.

28

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business

(a) Policy liabilities

Life insurance contract liabilities Value of policy liabilities – Projection Method Future policy benefits Future bonuses Future expenses Reinsurance Future profit margins Future premiums Value of policy liabilities – Accumulation Method Future policy benefits Unvested policy benefits Net policy liabilities - life insurance contracts Reconciliation of movements in life insurance contract policy liabilities Gross life insurance liabilities at 1 October Increase in liabilities ceded under reinsurance Decrease in life insurance contract liabilities recognised in the income statement Deposits recognised as an increase in policy liabilities Withdrawals recognised as a decrease in policy liabilities Other adjustments including foreign exchange Gross life insurance liabilities at 30 September Life investment contract liabilities Value of policy liabilities – Accumulation Method Future policy benefits Net policy liabilities - life investment contracts

Group Company 2009 2008 2009 2008 $000 $000 $000 $000 822,070 817,552 - - 148,893 185,246 - - 199,595 150,309 - - (10,855) (10,869) - - 210,252 288,311 - - (791,995) (807,570) - - 577,960 622,979 - - 47,486 49,234 - - 24,782 22,159 - - 650,228 694,372 - - 690,568 724,424 - - 1,566 2,494 - - (40,662) (30,154) - - 9,442 8,187 - - (12,923) (10,960) - - (717) (3,423) - - 647,274 690,568 - - 32,650 35,084 - - 32,650 35,084 - -

29

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

Reconciliation of movements in investment contract policy liabilities Gross life investment contract liabilities at 1 October Decrease in life investment contract liabilities recognised in the income statement Deposits recognised as an increase in policy liabilities Withdrawals recognised as a decrease in policy liabilities Gross life investment contract liabilities at 30 September Total gross policy liabilities Liabilities ceded under reinsurance Balance at 1 October Movement in income statement Balance at 30 September Deferred tax liability included within policy liabilities Net policy liabilities Analysed as: Current Non current

Group Company 2009 2008 2009 2008 $000 $000 $000 $000 35,084 45,095 - - (117) (4,816) - - 529 671 - - (2,846) (5,866) - - 32,65035,084 - - 679,924 725,652 - - 18,405 15,911 - - 1,566 2,494 - - 19,971 18,405 - - 22,924 22,208 - - 682,877 729,455 - - - - - - 682,877 729,455 - - 682,877 729,455 - -

30

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(b) Analysis of life insurance and life investment contract results

Life insurance contracts Planned profit margins Experience profits Capitalised loss (reversal)/recognition Other movement Investment earnings on assets in excess of policy liabilities of life companies Operating profit after tax attributable to shareholders arising from the life insurance contracts Life investment contracts Planned profit margins Experience profits Operating profit after tax attributable to shareholders arising from life investment contracts

Group Company 2009 2008 2009 2008 $000 $000 $000 $000 16,719 15,180 - - 3,765 2,511 - - (9) 6 - - - (239) - - 3,201 4,889 - - 23,676 22,347 - - 200 200 - - 14 104 - - 214 304 - -

(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 27(d)(d)).

Solvency requirement A Represented by: Policy liabilities Other liabilities Solvency reserve B Solvency requirement Assets available to meet solvency reserve: Solvency reserve: B Excess assets Coverage of required solvency reserve	2009 2008 2009 2008 $000 $000 $000 $000 743,636 764,679 92,770 89,274 706,656 728,401 (43,477) (21,105) 35,710 36,278 12,237 9,413 1,270- 124,010100,966 743,636 764,679 92,770 89,274 49,945 48,463 134,114 113,994 1,270- 124,010100,966 48,675 48,463 10,104 13,028 39.3 n/a 1.1 1.1 TOWER Health & Life TOWER Life (NZ)

31

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

The solvency requirement (A) is calculated in accordance with Professional Standard No. 5.01 'Solvency Reserving for Life Insurance Business' issued by the New Zealand Society of Actuaries. The solvency reserve (B) represents the assets required to be held in excess of policy and other liabilities in order to meet the solvency requirement. For TOWER Life (NZ) Ltd, no additional assets are required, the policy and other liabilities being sufficient to meet the solvency requirement. Hence the solvency reserve is disclosed as nil. (2008: Nil)

(d) Summary of significant actuarial methods and assumptions - life insurance

The effective date of the policy liabilities and solvency reserves calculation is 30 September 2009. 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 calculation of Policy Liabilities and Solvency Requirements.

(a) 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.

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.

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 fluctuation 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 below:

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

32

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(d) Summary of significant actuarial methods and assumptions - life insurance (continued)

(b) 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)	SIGNIFICANTCHANGES
Discount rates for participating business	As the value of benefits is contractually linked to the performance of assets, a discount rate based on the market return on the assets backing policy liabilities is used. The discount rate assumed in calculating policyholder liabilities was derived from the expected long term average rates of return for the assets pool backing this business, based on the benchmark asset mix. Discount rates assumed are net of taxationandinvestment expenses.	The discount rates used are as follows: September 2009 5.2% September 2008 5.7%
Discount rates for non- participating life insurance contracts	Risk free discount rates have been adopted for life insurance contracts where the benefits are not contractually linked to the performance of backing asset pools. The risk free discount rates have been determined based on swap rates, depending on the nature structure and term of the contract liabilities. Discount rates are assumed net of investment management expenses.	The discount rates used, net of tax are as follows: September 2009 4.1% to 4.2% September 2008 4.4% to 4.7%
Inflation	Benefit indexation is before allowance for the proportion of policyholders who take up indexation.	Benefit Indexation September 2009 2.0% September 2008 2.0%
Future expenses	Future maintenance expenses have been set based on experience analyses conducted by the various companies as well as the actuary‟s expectations of future expense levels. Future investment expenses have been assumed to be at the same percentage of assets under management as currently applies.	None
Rates of taxation	Rates of taxation have been assumed to remain as under current legislation or legislation substantively enacted at the valuation date.	Allowance has been made for the Taxation (International Taxation, Life Insurance and Remedial Matters) Act 2009. For the life business premium increases and/or cost reductions sufficient to fully offset any additionaltaxpayablehave beenassumed.
Mortality – risk products	Standard mortality tables, primarily NZ97 in New Zealand. These are adjusted for company experience.	Traditional product multiples have been reduced by 3% to allow for mortality improvements to next year. Rates on the TOWER Health and Life business, Funeral Plan and some MRI classes have been increased in line with recent experience.
Mortality – annuities	Standard mortality tables (New Zealand use PML80C10) adjustedforcompany experience.	None
Disability – lump sum	Based upon recent company and reinsurer experience adjusting for different product definitions. Some wholesale schemes use specific company experience.	None
Disability income	Standard morbidity tables (IAD89-93) adjusted for company experience. Specific company experience is usedforcertain wholesale schemes.	None

33

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(d) Summary of significant actuarial methods and assumptions - life insurance (continued)

REQUIRED ASSUMPTION	BASIS OF ASSUMPTION(By product Group)	SIGNIFICANT CHANGES
Discontinuances	Discontinuance rates have been assumed to be consistent with the experience of recent years. 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 relevantfactors.	For health and life business renewable to advanced ages, a discontinuance rate of 20% pa has been introduced for lives insured over age 65.
Surrender values	Surrender values are based oncurrent practice.	None
Rates of future supportable participating benefits	Assumed future supportable bonus rates included 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 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 representing policyholders‟ unvested benefits.	None None None

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.

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 changed in the contract liability. These losses may be reversed in subsequent periods should experience improve.

The life insurance contract liability calculations include the use of published market yields, such as government bond and swap 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 date.

34

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(d) Summary of significant actuarial methods and assumptions - life insurance (continued)

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

Assumption change Mortality and Morbidity Discontinuances Expenses Other Variable Expense risk Interest rate risk Mortality rates Morbidity rates Discontinuance Market risk

Change in future shareholder profit margins Change in next financial year's shareholder planned profit Change in current period contract liability Change in current period shareholder profit $000 $000 $000 $000 (870) (86) (174) 35 (74,338) (1,814) - - 2,991 (16) (111) 22 (1,630) (70) - - Impact of movement in underlying variable An increase in the level or inflationary growth of expenses over assumed levels will decrease profit and shareholder equity. Depending on the profile 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 fixed interest investments. The impact on profit and shareholder equity depends on the relative profiles of assets and liabilities, to the extent that these are not matched. For insurance contracts providing death benefits, greater mortality rates would lead to higher levels of claims, increasing associated claims costs and therefore reducing profit and shareholder equity. 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 increase claim costs, reducing profit and shareholders equity. 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 profit and shareholder equity. However, due to the interplay between the factors, there is not always an adverse outcome from an increase in discontinuance rates. For benefits which are not contractually linked to the underlying assets, the Group is exposed to market risk.

(c) 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 affect next financial year's expected shareholder profit.

		Change in next financial
		year's shareholder profit
		net of reinsurance
		$000
New Zealand
Variable	Movement
Mortality	Adverse movement of 10%	(841)
Morbidity Claims Costs	Adverse movement of 10%	(618)
Annuitant Mortality	Adverse movement of 10%	(179)
Lapses and Surrenders	Adverse movement of 10%	(578)
Renewal Expenses	Adverse movement of 10%	(857)

The impact from changes to interest rates has been reflected in Note 30 (f).

35

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(d) Summary of significant actuarial methods and assumptions - life insurance (continued)

(d) 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. 5.01 Solvency Reserving for Life Insurance Business‟ issued by the New Zealand Society of Actuaries.

(e) 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 30.

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.

(i) 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.

(ii) 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.

(iii) Reinsurance management procedures

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

(iv)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.

Type of contract	Details of contract workings	Nature of compensation for claims	Key variables affecting future cash flows
Non-participating life insurance contracts with fixed and guaranteed terms (Term Life and Disability includingrenewable term)	Guaranteed benefits paid on death, permanent and temporary disablement or maturity that are fixed and guaranteed and not at the discretion of the issuer.	Benefits, defined by the insurance contract are determined by the contract and not directly affected by the performance of underlying assets or the performance ofthe contracts aswhole.	Mortality, morbidity, lapses, expenses and market earnings on assets backing theliabilities
Life annuity contracts	These policies provide a guaranteed regular income for the life of the insured in return for an initial single premium.	The amount of the guaranteed regular income is set at inception of the policy including any indexation.	Longevity, benefit inflation, expenses and market earnings on assets backing theliabilities
Traditional life insurance contracts with discretionary participating benefits (endowment and whole of life)	These policies include a clearly defined initial guaranteed sum assured that is payable on death. The guarantee amount is increased throughout the duration of the policy by the addition of bonuses annually that once added are not removed. An additional (terminal) bonus is payable on claims paid as a result of death or maturity. Terminal bonus amounts are not guaranteed.	Benefits arising from the discretionary participation feature are based on the performance of a specified pool of contracts or a specified type of contract. Operating profit arising from these contracts is allocated between the policyholders and shareholders. The amount allocated to policyholders is held as an unvested policy liability until it is distributed to policyholdersvia bonuses.	Mortality, morbidity, lapses, expenses and market earnings on assets backing the liabilities

36

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

27. Life insurance business (continued)

(d) Summary of significant actuarial methods and assumptions - life insurance (continued)

Type of contract	Details of contract workings	Nature of compensation for claims	Key variables affecting future cash flows
Investment account contracts with discretionary participating features	The gross value of the premiums received is invested in the investment account with fees and premiums for any associated insurance cover being deducted from the account balance. Interest is credited regularly.	The payment of the account balance is generally guaranteed, although it may be subject to certain penalties on early termination. On certain contracts withdrawals can be deferred over limited time periods.	Fees, lapses, expenses and market earnings on assets backing the liabilities

(f) Concentration of insurance risk

The Group aims to maintain a portfolio 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.

(e) Liquidity risk and future net cash outflows

The table below shows the estimated timing of future cash outflows resulting from life insurance contract liabilities. This includes estimated future claims offset by expected future premiums and reinsurance recoveries. All values are discounted to the valuation date.

30 September 2009 30 September 2008	Total Less than one year One to two years Two to three years Three to five years Over five years $000 $000 $000 $000 $000 $000
	168,032 13,640 14,029 11,919 20,413 108,031 189,252 16,701 16,896 15,924 25,891 113,840

37

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

28. General and health insurance business

		Group			Company
		2009	2008		2009	2008
		$000	$000		$000	$000
(a) Analysis of general and health insurance
operating result
Premium revenue		346,320	332,348		-	-
Outward reinsurance expense		(19,497)	(16,837)		-	-
Net premium income		326,823	315,511		-	-
Claims expense		229,746	201,848		-	-
Reinsurance recoveries		(25,979)	(3,295)		-	-
Net claims incurred		203,767	198,553		-	-
Acquisition costs		39,801	42,141		-	-
Other underwriting expenses		60,257	64,132		-	-
Movement in actuarial reserves		2,237	1,213		-	-
Underwriting result		20,761	9,472		-	-
Investment income		20,117	21,439		-	-
Operating profit before taxation		40,878	30,911		-	-
Analysis of general and health underwriting result
Profit from general and health insurance		**40,878 **	30,911		-	-
(b) Net claims incurred		2009			2008
	Risks borne	Risks borne		Risks borne	Risks borne
	in	in		in	in
	current year	prior years	Total	current year	prior years	Total
	$000	$000	$000	$000	$000	$000
Gross claims expense
Direct claims - undiscounted	219,349	8,433	227,782	188,014	11,382	199,396
Movement in discount	45	1,919	1,964	(77)	2,529	2,452
Gross claims expense	219,394	10,352	229,746	187,937	13,911	201,848
Reinsurance and other recoveries
Reinsurance and other recoveries revenue -
undiscounted	(23,349)	(2,863)	(26,212)	(844)	(2,421)	(3,265)
Movement in discount	26	207	233	3	(33)	(30)
Reinsurance recoveries	(23,323)	(2,656)	(25,979)	(841)	(2,454)	(3,295)
Net claims incurred	196,071	7,696	203,767	187,096	11,457	198,553

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.

38

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

28. General and health insurance business (continued)

Risk margin Claims handling costs Discount Outstanding claims liability Central estimate of expected present value of future payments for claims incurred	Group Company 2009 2008 2009 2008 $000 $000 $000 $000 80,971 88,783 - - 5,335 4,822 - - 4,792 4,660 - - 91,098 98,265 - - (17,081) (17,616) - - 74,017 80,649 - -

(c) Outstanding claims

Assumptions adopted in calculation of general and health insurance provisions

Estimates of the outstanding claims as at 30 September 2009 have been carried out by the following Actuaries:

• General Insurance - P. Davies, B.Bus.Sc, FNZSA, FIA, AIA, AIAA; and - Health Insurance - H Raubal, BEc, FIAA, FNZSA

The actuarial assessments are in accordance with the standards of the Society of Actuaries of New Zealand. 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:

	2009	2008
- Inflation rates varied from	1.5% to 8%	1.5% to 8%
- Discount rates varied from	4% to 9%	4% to 7%
- Claims handling expense ratio	1.4% to 13%	1.4% to 13%
- Risk margin	5% to 50%	5% to 20%

The weighted average expected term to settlement of outstanding claims based on historical trends is:

- Short tail claims	within 1 year	within 1 year
- Australian long tail claims	1.1 to 2.5 years	1.6 to 2.9 years
- Long tail claims in the Pacific Islands	6.9 to 7.9 years	6.6 to 6.8 years
- Inwards reinsurance	in excess of 10 years	in excess of 10 years

Inflation rate

Insurance costs are subject to inflationary pressures. 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.

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

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.

39

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

28. General and health insurance business (continued)

Reconciliation of movements in discounted outstanding claims liability

		2009			2008
	Gross	Reinsurance	Net	Gross	Reinsurance	Net
	$000	$000	$000	$000	$000	$000
Balance brought forward	87,273	(6,624)	80,649	78,511	(5,695)	72,816
Effect of change in foreign exchange rates	(637)	(1,935)	(2,572)	1,874	671	2,545
Effect of changes in assumptions	676	77	753	132	(142)	(10)
Incurred claims recognised in the income
statement	223,750	(25,979)	197,771	197,784	(3,294)	194,490
Claim (payment) / recoveries during the
year	(205,317)	2,733	(202,584)	(191,028)	1,836	(189,192)
Balance carried forward	105,745	(31,728)	74,017	87,273	(6,624)	80,649
Reconciliation of undiscounted claims
to liability for outstanding claims
Outstanding claims undiscounted	41,056	(3,556)	37,500	50,469	(1,845)	48,624
Discount	(16,157)	738	(15,419)	(18,122)	505	(17,617)
Outstanding claims	24,899	(2,818)	22,081	32,347	(1,340)	31,007
Short tail outstanding claims			51,936			49,642
Total outstanding claims as per balance	sheet		74,017			80,649

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.

		2009	2008
Variable	Movement	Impact	Impact
		$000	$000
Claim settlement period	+ 0.5 years	(271)	(282)
	- 0.5 years	271	282
Claims expenses ratio	increase of 1%	277	93
	decrease of 1%	(277)	(93)
Inflation rates	increase of 1%	978	937
	decrease of 1%	(755)	(812)
Discount rates	increase of 1%	(801)	(765)
	decrease of 1%	935	892

(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 management 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; and

• the use of reinsurance to limit the Group's exposure.

40

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

28. General and health insurance business (continued)

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

Risk	Source of concentration	Risk Management measures
An accumulation of risks arising from a natural peril A large property loss Inclusion of multiple classes of casualty business in the one event	Insured property concentrations Fire or collapse affecting one building or a group of adjacent buildings Response by a multitude of the Group's policies to the one event, for example a construction liability and professional indemnity policy	Accumulation risk modeling, reinsurance protection Maximum acceptance limits, property risk grading, reinsurance protection Purchase of reinsurance clash protection

(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.

Ultimate claims cost estimate	Incidentyear
	Prior 2005 2006 2007 2008 2009 Total $000 $000 $000 $000 $000 $000 $000
At end of accident year One year later Two years later Three years later Four years later Current estimate of ultimate claims cost Cumulativepayments	- 166,672 179,089 186,567 196,169 198,692 - 165,217 176,203 185,026 195,309 - - 164,751 175,426 183,498 - - - 164,431 175,350 - - - - 164,177 - - - - - 164,177 175,350 183,498 195,309 198,692 - (56,713) (56,641) (54,547) (46,862) (15,529)
Undiscounted central estimate Discount topresent value	26,791 157 1,005 1,561 5,789 45,668 80,971 (15,408) 7 (18) (17) 23 (6) (15,419)
Discounted central estimate Claims handling expense Risk margin	11,383 164 987 1,544 5,812 45,662 65,552 3,982 4,483
Net outstanding claims liabilities Reinsurance recoveries on outstanding claims liabilities and other recoveries	74,017 31,728
Gross outstanding claims liabilities	105,745

The 2007 year development of claims figures for the health insurance operations have been revised to incorporate the effect of excess policies on the ultimate claim cost estimates.

(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.

41

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

28. General and health insurance business (continued)

(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's exposure in the worst possible scenario. The worst possible scenario for TOWER 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.

(h) Non-current health insurance contract liability

A number of the Group‟s health insurance policies have a benefit whereby policyholders receive the sum of premiums paid less claims received over the life of their policy, „premium payback‟, if certain conditions are met. This liability represents a long term health insurance contract liability which is determined at each reporting period using a number of assumptions in respect of the expected life of the contracts and payout rates.

The table below includes the reconciliation of the liability as at the reporting date.

Balance at 1 October New funding Benefits paid Other Balance at 30 September	Group Company 2009 2008 2009 2008 $000 $000 $000 $000 52,356 45,431 - - 6,868 6,619 - - (9,251) (6,004) - - 4,563 6,310 - - 54,536 52,356 - -

29. Financial instruments categories

The analysis of financial assets and liabilities into their categories and classes is set out in the following tables.

GROUP As at 30 September 2009 Financial assets Cash and cash equivalents Reinsurance recoveries receivable Outstanding premiums and trade receivables Unsettled investments sale Other receivables Derivative financial assets Investment in listed equity securities Investment in fixed interest securities Investment in property securities Total financial assets	Total $000 146,381 38,872 90,476 346 596 53,410 209,511 787,471 79,613 1,406,676	Loans and Receivables $000 146,381 38,872 90,476 346 596 - - - - 276,671	Fair value through profit or loss
			Designated Held for trading $000 $000 - - - - - - - - - - - 53,410 209,511 - 787,471 - 79,613 - 1,076,595 53,410

42

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

29. Financial instruments categories (continued)

GROUP As at 30 September 2008 Financial assets Cash and cash equivalents Reinsurance recoveries receivable Outstanding premiums and trade receivables Unsettled investments sale Other financial assets Derivative financial assets Investment in listed equity securities Investment in fixed interest securities Investment in property securities Total financial assets GROUP As at 30 September 2009 Financial liabilities Trade payables Reinsurance payables Unsettled investment purchases Other payables Interest bearing liabilities Derivative financial liabilities Life investment contract liabilities FuturePlan debenture Total financial liabilities As at 30 September 2008 Financial liabilities Trade payables Reinsurance payables Unsettled investment purchases Other payables Interest bearing liabilities Derivative financial liabilities Life investment contract liabilities FuturePlan debenture Total financial liabilities	Total $000 58,292 17,070 95,602 847 3,508 42,044 229,392 779,498 90,137 1,316,390 Total $000 33,101 10,188 248 11,490 80,002 21,305 32,650 22,745 211,729 36,307 6,458 306 20,027 87,559 6,927 35,084 21,457 214,125	Loans and Receivables Designated Held for trading $000 $000 $000 58,292 - - 17,070 - - 95,602 - - 847 - - 3,508 - - - - 42,044 - 229,392 - - 779,498 - - 90,137 - 175,319 1,099,027 42,044 Fair value through profit or loss Designated Held for trading $000 $000 $000 - - 33,101 - - 10,188 - - 248 - - 11,490 - - 80,002 - 21,305 - 32,650 - - - - 22,745 32,650 21,305 157,774 - - 36,307 - - 6,458 - - 306 - - 20,027 - - 87,559 - 6,927 - 35,084 - - - - 21,457 35,084 6,927 172,114 Financial liabilities at amortised cost Fair value through profit or loss	Fair value through profit or loss
		Designated $000 - - - - - - 32,650 - 32,650 - - - - - - 35,084 - 35,084

43

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

29. Financial instruments categories (continued)

COMPANY As at 30 September 2009 Financial assets Cash and cash equivalents Other receivables Related party receivable Total financial assets As at 30 September 2008 Financial assets Cash and cash equivalents Other receivables Related party receivable Total financial assets COMPANY As at 30 September 2009 Financial liabilities Other payables Related party payables Total financial liabilities As at 30 September 2008 Financial liabilities Other payables Related party payables Total financial liabilities

$000 $000 84,392 84,392 45 45 248,818 248,818 333,255 333,255 2,651 2,651 25 25 260,639 260,639 263,315 263,315 Total $000 $000 1,712 1,712 419,961 419,961 421,673 421,673 1,646 1,646 581,505 581,505 583,151 583,151 Total Loans and Receivables Financial liabilities at amortised cost

44

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. 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, credit risk and financing and liquidity risk. The non-financial risks include insurance risk, compliance risk and operational risk. The Group's objectives and policies in respect of non-financial risks are disclosed in the Notes 27 and 28, 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 which is 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 Group Risk and Compliance Manager and this exposure is reported quarterly to 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; and

• 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.

(i) Currency risk

Currency risk is the risk of loss resulting from changes in exchange rates when applied to assets and liabilities or future transactions denominated in a currency that is not the Group's functional currency.

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, which does not form a significant part of the Group‟s operations.

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.

The Group enters into forward foreign exchange contracts in accordance with its investment policies as economic hedges of foreign currency exposure in investments in international equities through its holdings in international equities funds. The main foreign currencies exposure of the funds is to the Australian and US dollars, Japanese Yen, Euro and British Pounds. The notional amounts and contractual cash flows of these derivatives are included in (e) below.

The impact of reasonably possible changes in the currency risk on the Group shareholders' profit and equity is included in (f) below.

(ii) Interest rate risk

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

The Board is responsible for the management of the interest rate risk arising from external borrowings. As at 30 September 2009 there were no interest rate swaps in place in relation to external borrowings (2008: Nil). The Group manages interest rate risk arising from its interest bearing investments in accordance with Group Investment Committee approved policies.

45

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

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 claim liabilities.

Life insurance

Interest rate risk and other market risks arise in life insurance to the extent that there is a mismatch between the policyholder liabilities and the assets backing those liabilities. These mismatches could impact current period operating profits.

The primary areas of mismatch for the Group‟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.

(iii) Price risk

Price risk is the risk of loss resulting from the decline in prices of equity securities or other assets. The Group is exposed to the price risk because of its investments in publicly traded equity securities and other unit trusts.

The price risk is managed by diversification of the investment portfolio, which is done in accordance with the limits set by the investment mandates and monitored by the Group Investment Committee.

(b) Credit risk

Credit risk is the risk of loss that arises from a counterparty 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 of that instrument.

The Group's exposure to credit risk is limited to deposits and investments held with banks and other financial institutions as well as credit exposure to trade customers or other counterparties. For banks and financial institutions the minimum credit rating accepted by the Group is 'A'. Independent ratings are used for customers that are rated by rating agencies. For customers with no external ratings, internally developed minimum credit quality requirements are applied, which takes into accounts customers' financial position, past experience and other relevant factors. The overall exposure to credit risk is monitored on group basis in accordance with the limits set by the Board.

(i) Credit risk concentration

Concentration of credit risk exists when the Group enters into contracts or financial instruments with a number of counterparties that are engaged in similar business activities or exposed to similar economic factors that might affect their ability to meet contractual obligations. TOWER manages concentration of credit risk by credit rating, industry type and individual counterparty.

The significant concentrations of credit risk are outlined by industry type below.

New Zealand government Other government agencies Banks Other non-investment related receivable Other industries Total financial assets with credit exposure	2009 2008 $000 $000 Carrying value
	39,316 30,484 39,391 10,696 749,733 655,539 133,808 108,140 95,496 233,677 1,057,744 1,038,536

(ii) Maximum exposure to credit risk

The Group's maximum exposure to credit risk without taking account of any collateral or any other credit enhancements is the carrying amount of financial assets held by the Group at the reporting date, which is as follows:

Cash and cash equivalents Loans and receivables Financial assets at fair value through profit or loss Derivative financial assets Total credit risk	146,381 58,292 130,289 117,027 727,664 821,173 53,410 42,044 1,057,744 1,038,536

46

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

(iii) Credit quality of financial assets that are neither past due nor impaired

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if applicable) or to historical information about counterparty default rates:

	Carrying value
	2009	2008
Credit exposure by credit rating	$000	$000
AAA	36,943	37,807
AA	541,705	727,920
A	303,406	102,230
BBB	2,739	4,737
Below BBB	5,710	8,995
Total counterparties with external credit rating by
Standard and Poor's	890,503	881,689
Group 1	112,493	94,934
Group 2	-	6,032
Group 3	10,503	11,956
Total counterparties with no external credit rating	122,996	112,922
Total financial assets neither past due nor impaired with credit exposure	1,013,499	994,611
Group 1 - trade debtors outstanding for less than 6 months
Group 2 - trade debtors outstanding for more than 6 months with no defaults in the past
Group 3 - unrated investments

TOWER invests in a number of Pacific region investment markets through its Pacific Islands operations to comply with the local statutory requirements and in accordance with TOWER investment policies. These investments relate to the general insurance business of the Group and generally have low credit ratings representing the majority of the value included in the 'Below BBB' category above.

(iv) Financial assets that would otherwise be past due whose terms have been renegotiated None of the financial assets that are fully performing has been renegotiated in the past year.

(v) Financial assets that are past due but not impaired

The Group considers that financial assets are past due if payments have not been received when contractually due. At the reporting date, the total of carrying value of past due but not impaired assets held by the Group is as follows:

Past due but not impaired

As at 30 September 2009 Reinsurance recoveries receivable Outstanding premiums and trade receivables Other financial assets Total As at 30 September 2008 Reinsurance recoveries receivable Outstanding premiums and trade receivables Other financial assets Total	Less than 31 days 31 to 60 days 61 to 90 days Over 90 days Total $000 $000 $000 $000 $000
	3,486 375 1,435 3,388 8,684 3,493 2,102 924 2,837 9,356 - - - 26,206 26,206
	6,979 2,477 2,359 32,431 44,246
	1,984 926 - 2,874 5,784 7,644 2,537 1,841 3,895 15,917 - 223 64 24,754 25,041
	9,628 3,686 1,905 31,523 46,742

The parent company does not have past due financial assets as at 30 September 2009 (2008: Nil).

47

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

(vi) Financial assets that are individually impaired

Outstanding premiums and trade receivables Other receivables Total	2009 2008 $000 $000 Carrying value
	148 11 215 91 363 102

Outstanding premiums are covered by the underlying assets invested. When outstanding premiums reach a predetermined percentage of the value of the assets invested, the assets are realised and offset against the outstanding debt. Assets invested relate to investments in fixed interest, equities and unit linked funds.

(c) Financing and liquidity risk

Financing and liquidity risk is the risk that the Group will not be able to meet its cash outflows or refinance debt obligations, as they fall due, because of lack of liquid assets or access to funding on acceptable terms.

To mitigate financing and liquidity risk the Group treasury function maintains sufficient liquid assets to ensure that the Group can meet its debt obligations and other cash outflows on a timely basis.

(i) Financial liabilities by contractual maturity

The table below summarises the Group's financial liabilities into relevant maturity groups based on the remaining period at the balance date to the contractual maturity date. All amounts disclosed are contractual undiscounted cash flows that include interest payments and exclude the impact of netting agreements.

GROUP As at 30 September 2009 Financial liabilities Trade payables Reinsurance payables Unsettled investment purchases Other payables Derivative financial liabilities(1) Interest bearing liabilities Life investment contract liabilities FuturePlan debenture Total financial liabilities As at 30 September 2008 Financial liabilities Trade payables Reinsurance payables Unsettled investment purchases Other payables Derivative financial liabilities(1) Interest bearing liabilities Life investment contract liabilities FuturePlan debenture Total financial liabilities	Carrying value Total contractual cash flows Less than one year One to two years Two to three years Three to five years Over five years No maturity $000 $000 $000 $000 $000 $000 $000 $000
	33,101 33,101 33,101 - - - - - 10,188 10,188 10,188 - - - - - 248 248 248 - - - - - 11,490 11,490 11,490 - - - - - 20,634 38,213 (3,613) 628 2,533 6,701 31,964 - 80,002 113,309 6,950 6,950 6,950 92,459 - - 32,650 32,650 - - - - - 32,650 22,745 22,745 22,745 - - - - -
	211,058 261,944 81,109 7,578 9,483 99,160 31,964 32,650
	36,307 36,307 36,307 - - - - - 6,458 6,458 6,458 - - - - - 306 306 306 - - - - - 20,027 20,027 20,027 - - - - - 5,872 5,872 5,872 - - - - - 87,559 96,229 7,703 88,526 - - - - 35,084 35,084 - - - - - 35,084 21,457 21,457 21,457 - - - - -
	213,070 221,740 98,130 88,526 - - - 35,084

(1) Derivative financial liabilities excludes the employee share option derivative of $0.671m (2008: $1.055m)

48

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

COMPANY As at 30 September 2009 Financial liabilities Related party payables Other payables Total financial liabilities As at 30 September 2008 Financial liabilities Related party payables Other payables Total financial liabilities	Carrying value Total contractual cash flows Less than one year No maturity $000 $000 $000 $000
	419,961 419,961 - 419,961 1,712 1,712 1,712 -
	421,673 421,673 1,712 419,961
	581,505 581,505 - 581,505 1,646 1,646 1,646 -
	583,151 583,151 1,646 581,505

(d) Fair values of financial assets and liabilities

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. Fair value of financial instruments traded in active markets is based on quoted market prices at balance date. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. Valuation techniques used to value life investments contract liabilities and general and health insurance liabilities are described in Notes 27 and 28, respectively. Refer below for details of valuation methods used for each remaining category of financial assets and liabilities.

The carrying amounts of all financial assets and liabilities reasonably approximate their fair values with the exception of senior unsecured bonds.

The following methods and assumptions were used by TOWER in estimating the fair values of financial instruments.

(i) Cash and cash equivalents

The carrying amount of cash and cash equivalents reasonably approximates its fair values.

(ii) Financial assets at fair value through profit or loss and held for trading

The fair value of financial assets at fair value through profit or loss is determined by reference to their quoted price at the reporting date. The fair value of property investments is determined by reference to external valuations.

(iii) Loans and receivables, trade and other payables

Carrying values of loans and receivables, adjusted for impairment values, and carrying values of trade and other payables reasonably approximate their fair values.

(iv) Derivative financial liabilities

The fair value of derivative financial liabilities is determined by the reference to the quoted market price of the underlying equity securities.

(v) Interest bearing liabilities

The carrying value of the unsecured bank loan and bank overdraft reasonably approximate their fair values that have been estimated applying a discounted cash flow approach to future principal and interest payments using the market rate of interest at the latest repricing date. The fair value of senior unsecured bonds is determined by reference to the quoted market price of the underlying debt securities.

(e) Derivative financial instruments

The Group utilises derivative financial instruments to reduce investment risk. Specifically, derivatives are used to achieve cost effective short-term re-weightings of asset class, sector and security exposures and to hedge portfolios, as an economic hedge, when a market is subject to significant short-term risk.

Derivative financial instruments used by the Group include interest rate swaps and foreign exchange forward contracts. The Group also has a derivative liability of $0.671m related to the employee share option scheme (2008: $1.055m).

49

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The fair value of interest rate swaps are calculated by discounting estimated future cash flows based on the terms and maturity of each contract using market interest rates. The average interest rate is based on the outstanding balances at the start of the financial year.

The table below details the notional principal amounts (amounts used to calculate payments made on swap contracts), fair values and remaining terms of interest rate swap contracts outstanding as at reporting date:

Received fixed pay floating rates contracts	Average contracted fixed interest	Notional principal amount	Fair value
	2009 2008 % %	2009 2008 $000 $000	2009 2008 $000 $000
Less than 1 year 1 to 2 years 2 to 5 years over 5 years	8% - 4,000 - 106 - - 8% - 4,000 - 75 7% 7% 9,400 1,500 952 14 7% 8% 568,750 486,650 27,071 41,586 582,150 492,150 28,129 41,675
		582,150 492,150 28,129 41,675

The foreign exchange forward contracts are settled on a gross basis. All contracts mature within 12 months of the reporting date and their carrying values reasonably approximate undiscounted cash flows because the impact of discounting is not significant.

GROUP As at 30 September 2009 Forward foreign exchange contracts Outflow Inflow As at 30 September 2008 Forward foreign exchange contracts Outflow Inflow	Total contractual cash flows Less than one year $000 $000 65,371 65,371 - - - 70,017 70,017 - - - 87,308 87,308 - - - 81,806 81,806 - - -

(f) Sensitivity analysis

The analysis below demonstrates the impact of changes in interest rates, exchange rates and equity prices on the Group's shareholder profit after tax and equity. The analysis is based on changes in economic conditions that are considered reasonably possible at the reporting date. The potential impact is assumed as at the reporting date.

(i) Interest rate

The impact of a 50 basis point change in New Zealand and international interest rates as at the reporting date on the Group's profit after tax is included in the table below. In the previous year the impact of 100 basis point change was assumed. The sensitivity analysis assumes changes in interest rates only. All other variables are held constant.

Change in variables +50 basis points (2008: +100 basis points) -50 basis points (2008: -100 basis points)	profit after tax equity profit after tax equity $000 $000 $000 $000 (3,026) (3,026) (5,003) (5,003) 3,086 3,086 5,033 5,033 2009 2008 Impact on Impact on

This analysis assumes that the sensitivity applies to the closing market yields of fixed interest investments. A parallel shift in the yield curve is assumed.

The risks assumed and methods used for deriving sensitivity information and significant variables have been applied consistently over the reporting period included in the analysis.

50

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

The impact of changes in market interest rates presented here excludes insurance contract liabilities, which are also affected by the changes in market interest rates that determine the discount rates applicable to these contracts. The table below provides a sensitivity analysis in respect of changes in interest rates as applied to insurance contract liabilities. A combined effect is necessary to appreciate the sensitivity of the Group's profit to movements in interest rates.

Change in variables +50 basis points (2008: +100 basis points) -50 basis points (2008: -100 basis points)	profit after tax equity profit after tax equity $000 $000 $000 $000 (1,383) (1,383) 1,347 1,347 1,275 1,275 (1,494) (1,494) 2009 2008 Impact on Impact on

Sensitivity to interest rates has been assessed by reference to internal investigations of the movement in insurance contract liabilities to movements in discount rates consistent with that used for internal management reporting.

(ii) Foreign currency

The table below demonstrates the impact of a 10% movement of currency rates against the New Zealand dollar on the Group's shareholder profit after tax and equity. The analysis assumes changes in foreign currency rates only, with all other variables held constant. The potential impact on the profit and equity of the Group is due to the changes in fair value of currency sensitive monetary assets and liabilities as at the reporting date.

Change in variables 10% appreciation of New Zealand dollar 10% depreciation of New Zealand dollar	profit after tax equity profit after tax equity $000 $000 $000 $000 (179) (179) (65) (65) 179 179 65 65 2009 2008 Impact on Impact on

The dollar impact of the change in currency movements is determined by applying the sensitivity to the value of the unhedged international assets.

The risks assumed and methods used for deriving sensitivity information and significant variables have been applied consistently over the reporting period included in the analysis.

(iii) Equity price

Equity price risk is the risk that the fair value of equities will decrease as a result of changes in levels of equity indices and the value of individual stocks. The Group holds all of its equities at fair value through profit or loss.

The table below demonstrates the impact of a 10% movement in New Zealand equities on the profit after tax and equity of the Group. The potential impact is assumed as at the reporting date. The analysis below excludes investment linked business, which is disclosed in Note 40. Investment linked business can be excluded because any asset movement will flow through to the policyholder.

Change in variables +10% in New Zealand equities -10% in New Zealand equities	profit after tax equity profit after tax equity $000 $000 $000 $000 177 177 86 86 (177) (177) (86) (86) 2009 2008 Impact on Impact on

The dollar impact of the change in the New Zealand equities is determined by applying the sensitivity to the value of the New Zealand equities.

The risks assumed and methods used for deriving sensitivity information and significant variables have been applied consistently over the two reporting periods included in the analysis.

51

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

30. Risk management and financial instrument information (continued)

(iv) Other price

Other price sensitivity includes sensitivity to unit price fluctuations. The unit price risk is the risk that the fair value of investments in property fund units and international equities held in unit trust will decrease as a result of changes in the value of these units. The Group holds all of its investments in property securities, international equities and other unit trusts at fair value through profit or loss.

The table below demonstrates the impact of a 10% movement in the value of property funds, international equities and other unit trusts on the profit after tax and equity of the Group. The potential impact is assumed as at the reporting date.

Change in variables +10% property funds and other unit trusts -10% property funds and other unit trusts +10% in International equities -10% in International equities	profit after tax equity profit after tax equity $000 $000 $000 $000 2,302 2,302 1,709 1,709 (2,302) (2,302) (1,709) (1,709) 4,552 4,552 4,123 4,123 (4,552) (4,552) (4,123) (4,123) Impact on Impact on 2009 2008

International equity assets are held via a unit trust which invests in a number of different countries. The sensitivity for each individual country is small so a breakdown by country has not been provided.

The risks assumed and methods used for deriving sensitivity information and significant variables have been applied consistently over the two reporting periods included in the analysis.

31. Capital risk management

The Group's objective when managing capital is to ensure that the Group's level of capital is sufficient to enable it to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders of the Group.

The Group's capital resources include ordinary equity and interest bearing liabilities.

Interest bearing liabilities (Note 19) TOWER shareholder equity Total capital resources	Group 2009 2008 $000 $000
	80,002 87,599 401,757 291,200
	481,759 378,799

The life and health insurance businesses of the Group measure the adequacy of their capital against published capital standards. The life insurance companies apply the 'New Zealand Society of Actuaries Professional Standard No.5 Solvency Reserving for Life Insurance Business for this purpose, whilst TOWER Medical Insurance Limited applies the Solvency Standard issued by the Health Funds Association of New Zealand. There is no prescribed capital standard for general insurers in New Zealand. TOWER Insurance measures its capital against internally set targets.

Each insurance subsidiary within the Group is required to hold assets in excess of the levels specified by the various standards so as to ensure that they continue to meet the minimum requirements under a reasonable range of adverse scenarios. The Group's capital management strategy forms part of the Group's broader strategic planning process overseen by the Group Audit and Compliance Committee. Refer Notes 27 and 28 for details of statutory capital management of the Group.

52

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

32. Operating leases

As lessee Rent paid under non-cancellable operating leases during the year Rent payable under non-cancellable operating leases to the end of the lease terms are: – Not later than one year – Later than five years – Later than one year and not later than five years	Group Company 2009 2008 2009 2008 $000 $000 $000 $000 3,838 4,012 - - 4,365 5,027 - - 12,981 17,977 - - 465 967 - - 17,811 23,971 - -

Operating lease payments represent the future rentals payable for office space under current leases. Leases are for an average of four years with rental rates reviewed every three to six years.

33. Cash and cash equivalents

Cash at bank and in hand Deposits at call Total cash and cash equivalents	15,258 22,028 3,072 2,651 131,123 36,264 81,320 - 146,381 58,292 84,392 2,651

The effective interest rate for deposits at call is 3.12% (2008: 7.92%) and the balances primarily mature within three 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:

Balances as above Bank overdraft (note 19) Balances per statements of cash flow	146,381 58,292 84,392 2,651 - (304) - - 146,381 57,988 84,392 2,651

53

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

33. Cash and cash equivalents (continued)

(b) Reconciliation of profit for the period to net cash flows from operating activities

		Group		Company
		2009	2008	2009	2008
		$000	$000	$000	$000
Profit after tax		50,085	40,468	168,645	1,255
Add/(less) non cash items
Depreciation		2,916	2,212	-	-
Amortisation of intangibles		2,599	1,721	-	-
Change in life insurance	and life
investment contract liabilities		(24,870)	(22,711)	-	-
Net loss on financial assets at fair
value through profit or loss		9,449	65,002	-	-
Share based payments expense		1,132	170	-	-
Decrease/(increase) in deferred tax		3,392	(19,806)	(153)	(667)
Loss on disposal of property,	plant and equipment	385	-	-	-
Intercompany income		-	-	(168,435)	(406)
		45,088	67,056	57	182
(Less)/add movements in working capital (excluding the effects of			exchange differences on consolidation)
(Increase)/decrease in receivables		(20,021)	8,176	(21)	(25)
Increase/(decrease) in payables		(532)	(475)	66	(188)
Decrease in taxation		1,353	2,542	-	-
		(19,200)	10,243	45	(213)
(Less)/add other items classified as investing / financing activities
(Decrease)/increase in interest accrued		(513)	131	-	-
Net cash inflows/(outflows)	from
operating activities		25,375	77,430	102	(31)

54

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

34. Contingent liabilities

In February 2004, the Inland Revenue Department (IRD) refunded TOWER $30.000m in respect of overpaid tax. The IRD believed that it ought not to have paid this refund and the matter was referred to the IRD Adjudications Unit which, on 25 February 2009, ruled that the refund should not have been issued. Legal proceedings were commenced, however the matter has now been resolved satisfactorily and on 16 November 2009, a Notice of Discontinuance was filed confirming that the parties will not be pursuing this dispute. The resolution of this matter has no impact on TOWER Limited‟s financial statements.

35. Capital commitments

There were no capital commitments as at 30 September 2009 (2008: Nil).

36. Share based payments

The Company has eight 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.

Vesting requirements of each tranche include service and performance conditions. The performance condition is based on a market condition such as total shareholder return achieved at the end of each reporting period. Tranche E is also subject to a non-market based performance hurdle. The holders of the options are not entitled to dividend or have other shareholder benefits, including voting rights.

The grant date 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 Exercise price after rights issue Grant date Vesting date Expiry date Expected volatility Risk free rate Amount expensed / (released) during the year ($000) Terms of share schemes Exercise price after rights issue Grant date Vesting date Expiry date Expected volatility Risk free rate Amount expensed / (released) during the year ($000)	Tranche A Tranche B Tranche C Tranche D
	$1.31 $2.04 $2.04 $2.46 31-Mar-04 9-Aug-05 9-Aug-05 4-Apr-06 1-Apr-07 9-Aug-08 9-Aug-09 3-Apr-09 31-Mar-10 9-Aug-11 9-Aug-12 4-Apr-12 20% 20% 20% 20% 5.71% 5.71% 5.71% 5.71% - - 76 120 Tranche E Tranche F Tranche G Tranche H
	$1.94 $2.10 $1.38 $1.48 1-Oct-06 11-Dec-07 5-Dec-08 19-Jan-09 16-Oct-09 1-Dec-10 1-Dec-11 19-Jan-12 6-Oct-12 1-Dec-13 1-Dec-04 19-Jan-15 20% 20% 40% 40% 5.71% 5.71% 4.88% 4.47% 798 122 13 3

The exercise price has been reduced to maintain the value of the share options after the rights issue which was completed on 28 September 2009. The fair value remains unchanged after the rights issue as the reduction of the exercise price is to preserve the value of the share option before and after the rights issue.

Expected volatility was determined by looking at the performance of the share price over a number of periods ranging from six months 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.

55

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

36. Share based payments (continued)

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

2009 Outstanding at start of year Exercised Outstanding at the end of the year Exercisable at the end of the year 2009 Outstanding at start of year Granted Forfeited Outstanding at the end of the year 2008 Outstanding at start of year Exercised Forfeited Outstanding at the end of the year Exercisable at the end of the year 2008 Outstanding at start of year Granted Forfeited Outstanding at the end of the year

Weighted(1) Tranche A Tranche B Tranche C Tranche D average exercise price 708,608 300,000 366,660 500,000 $2.19 (262,000) - (66,660) - $1.55 446,608 300,000 300,000 500,000 $1.93 446,608 300,000 300,000 500,000 $1.96 Tranche E Tranche F Tranche G Tranche H 3,000,000 1,200,000 - - $2.19 - - 400,000 100,000 $1.49 - (200,000) - - $2.19 3,000,000 1,000,000 400,000 100,000 $1.93 Tranche A Tranche B Tranche C Tranche D 1,862,172 500,000 500,000 900,000 $2.07 (1,071,216) (133,320) - - $1.48 (82,348) (66,680) (133,340) (400,000) $2.34 708,608 300,000 366,660 500,000 $2.19 708,608 300,000 - - $1.62 Tranche E Tranche F Tranche G Tranche H 3,000,000 - - - $2.07 - 1,500,000 - - $2.19 - (300,000) - - $2.34 3,000,000 1,200,000 - - $2.19 Number of options Number of options Number of options

(1) The weighted average exercise price for outstanding and exercisable share options at the end of the year has been adjusted for the impact of the rights issue.

Tranches A to D have fully vested as at the reporting date 30 September 2009. The weighted average share price at the date of exercise of share options was $1.68 (2008: $2.21).

56

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

37. 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 and asset manager and are therefore not recorded in this note. Shares and other financial securities have been traded between TOWER Limited, its subsidiaries, unit trusts and superannuation funds where TOWER Limited or its subsidiaries have an interest. Trade amounts owing between related parties are payable under normal commercial terms.

Guinness Peat Group Plc (GPG) holds approximately 35% of TOWER‟s shares, which makes it a related party to the Group. The Group did not have any material transactions or balances with GPG during the year, other than in the normal course of its investment activities, as discussed below.

The Group holds a number of equity securities portfolios across a large number of New Zealand and overseas entities. A significant part of these investments are held by TOWER Life (NZ) Limited for the purposes of meeting the requirements of the life insurance business of the Group. These portfolios, which are managed by specialist investment managers within TOWER, may from time to time include investments in companies that themselves have a shareholding in the Group.

(a) Subsidiaries

During the year there have been transactions between TOWER Limited and its subsidiaries, which have been conducted on an arms length basis.

Related party receivable and payable balances of TOWER Limited at the reporting date were as follows:

Related party TOWER Corporation Holdings Limited TOWER Life Limited TOWER Financial Services Group Limited TOWER consolidated tax group members	2009 2008 Nature of Type of $000 $000 Relationship Transaction (3,435) (14,505) Subsidary Loan (416,526) (567,000) Subsidary Loan 237,473 249,447 Subsidary Advance 11,345 11,192 Subsidary Tax losses

The receivable owing from the TOWER consolidated tax group members of $11.345m (2008: $11.192m) represents the benefit of tax losses offset by TOWER Limited as a member of the TOWER consolidated tax group.

TOWER Limited enters into transactions with its related parties in the normal course of business. Transactions during the year included partial settlement of intercompany balances and intercompany dividends as shown below:

Related party TOWER Corporation Holdings Limited TOWER Life Limited TOWER Financial Services Group Limited TOWER Financial Services Group Limited	2009 2008 Nature of Type of $000 $000 Relationship Transaction (181,237) (9,641) Subsidary Settlement/Advance 169,000 - Subsidary Dividend (11,231) (275) Subsidary Settlement/Advance 150,474 - Subsidary Settlement

b) Key management personnel compensation

The remuneration of key management personnel during the year was as follows:

Termination benefits Share based payments Independent directors fees Salaries and other short-term employee benefits	2009 2008 2009 2008 $000 $000 $000 $000 3,792 3,695 - - 333 448 - - 950 311 - - 602602 602 602 5,677 5,056 602 602 Company Group

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 (2008: 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.

57

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

38. 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:

Superannuation funds Unit trust and group investment funds Assets per balance sheet Total assets under management	2009 2008 $000 $000 Group
	990,082 807,854 1,879,8462,137,991
	2,869,928 2,945,845 1,596,4601,519,590
	4,466,388 4,465,435

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.

39. 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:

TOWER Life (NZ) Total Capital Preservation Fund Capital Protected Plan VITAL	29,123 30,764 8,462 9,295 1,642 1,713
	39,227 41,772

40. Investment linked and non-investment linked business of life insurance companies

Investment assets Other assets Policyholder liabilities Other liabilities Net assets Retained earnings Net premium revenue Investment revenue Net claims expense Other operating expenses Change in policyholder liabilities Operating profit/(deficit) before taxation Taxation credit Operating profit after taxation

Investment linked Non- investment linked Investment linked Non- investment linked 2009 2009 2008 2008 $000 $000 $000 $000 32,650 779,190 35,084 801,701 - 81,019 - 77,797 (32,650) (650,228) (35,084) (694,372) - (45,621) - (44,828) - 164,360 - 140,298 - 125,736 - 101,654 - 61,495 - 61,489 317 31,344 (5,711) 16,001 - (66,232) - (68,781) (297) (45,434) (467) (36,803) 117 40,662 4,816 30,154 137 21,835 (1,362) 2,060 77 1,841 1,666 20,287 214 23,676 304 22,347 Group

58

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

41. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributed to shareholders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares held as treasury shares.

Diluted earnings per share is calculated by dividing the net profit attributed to shareholders of the Company by the weighted average number of ordinary shares on issue during the year adjusted for the weighted average number of ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.

Basic and diluted earnings per share is based on the weighted average number of shares adjusted for the effect of the bonus element of the rights issue.

Profit attributable to shareholders Weighted average number of ordinary shares for basic earnings per share Effect of dilution: Share Options Weighted average number of ordinary shares adjusted for the effect of dilution Basic earnings per share Diluted earnings per share	2009 2008 $000 $000 Group
	49,537 40,460 Number Number of shares of shares
	203,779,890 201,745,118 - 237,688
	203,779,890 201,982,806 Cents Cents
	24.31 20.06 24.31 20.04

42. Impact of amendments to 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 October 2009 or later periods, and the Group has not early adopted them:

• NZ IAS 1 (Amendment) 'Presentation of financial statements‟ (effective from 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. The Group will apply NZ IAS 1 (Amendment) from 1 October 2009.

• NZ IFRS 8, „Operating segments „ (effective from 1 January 2009). NZ IFRS 8 replaces NZ 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 NZ IFRS 8 from 1 October 2009.

• NZ IAS 27 (Revised), 'Consolidated and separate financial statements', (effective from 1 July 2009). The revised standard requires that investments in subsidiaries, jointly controlled entities and associates accounted for in accordance with IAS 39 in the parent‟s separate financial statements should continue to be measured in accordance with IAS 39 when classified as held for sale (or included in a disposal group classified as held for sale).The Group will apply NZ IAS 27 (Revised) prospectively to transactions with non-controlling interests from 1 October 2010.

• NZ IFRS 2 (Amendment), 'Share-based payment' (effective from 1 January 2009). The amended standard deals with vesting conditions and cancellations. It restricts the definition of a vesting condition to service conditions and performance conditions only. All other features of a share-based payment are non-vesting conditions. The non-vesting and market conditions are included when estimating the fair value of equity granted. All cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The Group will apply NZ IFRS 2 (Amendment) from 1 October 2009. It is not expected to have a material impact on the Group's financial statements.

• NZ IFRS 3 (Revised), „Business combinations‟ (effective from 1 July 2009). The revised standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business are to be recorded at fair value at the acquisition date, with contingent payments classified as debt subsequently re-measured through the income statement.

59

TOWER LIMITED NOTES TO THE FINANCIAL STATEMENTS For the year ended 30 September 2009

42. Impact of amendments to NZ IFRS (continued)

• There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest‟s proportionate share of the acquiree‟s net assets. All acquisition-related costs should be expensed. The Group will apply NZ IFRS 3 (Revised) prospectively to all business combinations from 1 October 2009.

• NZ IAS 36 (Amendment), „Impairment of assets‟ (effective from 1 January 2009). The amended standard extends the disclosures requirements of estimates used to determine recoverable amount of cash-generating units containing goodwill or intangible assets with indefinite useful lives, equivalent to those for value-in-use calculation.

• This disclosure is required when discounted cash flows are used to estimate fair value less costs to sell. The Group will apply the NZ IAS 36 (Amendment) and provide the required disclosure where applicable for impairment tests from 1 October 2009.

• NZ IAS 38 (Amendment), „Intangible assets‟(effective from 1 January 2009). The amendments clarify the circumstances in which an entity can recognise a prepayment asset for advertising or promotional expenditure. Recognition of an asset would be permitted up to the point at which the entity has the right to access the goods purchased or up to the point of receipt of services. The Group will apply the NZ IAS 38 (Amendment) from 1 October 2009. It is not expected to have a material impact on the Group's financial statements.

• NZ IAS 32 (Amendment), „Financial instruments: Presentation‟ and NZ IAS 1 (Amendment), „Presentation of Financial Statements - Puttable Financial Instruments and Obligations arising on liquidation‟ (effective from 1 January 2009). The revisions provide a limited scope exceptions for puttable instruments to be classified as equity if they fulfil a number of specified features. The amendments to the standards will have no impact on the financial position or performance of the Group, as the Group has not issued such instruments.

• NZ IFRS 7 (Amendment), „Financial Instruments: Disclosures‟ (effective from 1 January 2009). The amendment requires disclosure of all the level of the fair value hierarchy into which fair value measurements are categorised based on a three level fair value hierarchy for financial instruments. In addition, the amendment provides further clarification around liquidity risk disclosures and additional quantitative disclosures based on liquidity risk of financial liabilities. The Group will apply NZ IFRS 7 (Amendment) from 1 October 2009.

43. Subsequent events

On 25 November 2009 the Directors declared a dividend of 9 cents per share. The dividend will be paid on 2 February 2010.

60

PricewaterhouseCoopers PricewaterhouseCoopers Tower 188 Quay Street Level 22 Reception Level 8 Mail Centre Private Bag 92162 Auckland New Zealand Telephone +64 9 355 8000 Facsimile +64 9 355 8001

Auditors’ Report

to the shareholders of Tower Limited

We have audited the financial statements on pages 1 to 60. The financial statements provide information about the past financial performance and cash flows of the Company and Group for the year ended 30 September 2009 and their financial position as at that date. This information is stated in accordance with the accounting policies set out on pages 6 to 13.

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 2009 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 capacities as auditors and providers of other assurance and advisory services.

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 1 to 60:

• (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 2009 and their financial performance and cash flows for the year ended on that date.

Our audit was completed on 25 November 2009 and our unqualified opinion is expressed as at that date.

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Chartered Accountants

Auckland

TOWER Group Full Year Results – 30 September 2009

Rob Flannagan Group Managing Director

Eric O’Sullivan Group Chief Financial Officer

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TOWER Group
Full Year Results – 30 September 2009
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Agenda

 Results Overview

 Business Performance

• Looking Forward

2

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Results Overview

3

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TOWER Group Financial Highlights
Full Year 30 September 2009
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• Net Profit

$50.1m 23.8%

 Underlying Profit

 Dividend (Tax paid, on increased capital)

 Earnings per Share

• Return on Equity

• Gearing (Debt to debt plus equity)

$46.9m 22.3% 9cps 12.5% 24.3cps 21.2% 16.1% 1.4% 16.5% 6.4%

Changes are compared to full year 30 September 2008

4

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TOWER Group Results
Summary
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		Full year ended 30 September	Full year ended 30 September
$ millions	Change from previous year	2009	2008	2007
Health & Life	19.7%	31.6	26.4	24.0
General Insurance	16.6%	17.3	14.8	13.0
Investments	57.0%	5.8	3.7	7.6
Business unit net profit after tax	21.8%	54.7	44.9	44.6
Finance & corporate expenses	(20.0%)	(7.8)	(6.5)	(8.1)
Underlying profit after tax	22.1%	46.9	38.4	36.5
Discount rate effect	52.4%	3.2	2.1	(1.3)
Net profit after tax	23.8%	50.1	40.5	35.2

5

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TOWER Group Results
Key Points
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• Overall profit of $50.1m is up 23.8%

• Underlying profit at $46.9m, up 22.3% on last year

• Health & Life is achieving strong sales growth and management expense reductions leading to increased profitability

• General Insurance continues to improve its underwriting profit and the direct business net premium revenue continues to experience strong growth

• The Investments’ business continues to be right - sized with good control in costs to offset its lower revenue levels

6

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Business Performance

7

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TOWER Business Performance
Statistics
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	Full year ended 30 September	Full year ended 30 September	Full year ended 30 September
	2009	2008	2007
Net profit after tax	$50.1m	$40.5m	$35.2m
Earnings per Share	24.31cps	*20.06cps	*15.56cps
Return on Equity	**16.1%	14.7%	14.4%
Gearing (Debt to debt plus equity)	16.5%	22.9%	25.0%
Net Asset Backing	$1.59	$1.53	$1.38

• Adjusted for bonus element of Rights Issue

** Equity excludes Rights Issue 28 September 2009

8

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TOWER Share Price
2009 Financial Year
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TOWER Shares v NZX Index adjusted for Rights Issue
1 Oct 2008 - 30 Sep 2009
Dividend Reinvested
0.50
0.40
NZX All
0.30 Index
0.20
0.10
0.00
-0.10
-0.20
-0.30
-0.40
-0.50
Price Difference (cents) v Index
1.10.08 22.10.08 13.11.08 4.12.08 29.12.08 21.01.09 12.02.09 5.03.09 26.03.09 20.04.09 11.05.09 2.06.09 23.06.09 14.07.09 4.08.09 25.08.09 15.09.09
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TOWER – Health & Life
Analysis of Profit - Health
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		Full year ended 30 September	Full year ended 30 September
$ millions	Change from previous year	2009	2008	2007
Net premiums	4%	131.6	126.2	117.2
Incurred claims	(8%)	(83.1)	(77.3)	(65.7)
Management and sales expenses	10%	(37.0)	(41.0)	(40.1)
Movement in policyholder liabilities	49%	(4.3)	(8.5)	(6.1)
Underwriting result		7.2	(0.6)	5.3
Investment income	(17%)	8.4	10.1	2.2
Profit before tax	64%	15.6	9.5	7.5
Income tax expense	(27%)	(4.7)	(3.7)	(2.5)
Profit after tax	88%	10.9	5.8	5.0

• Higher earnings in Health due to improved underwriting margins

• Investment returns decreased

• Profit after tax up by 88% on last year

10

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TOWER – Health & Life
Analysis of Profit - Life
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is of Profit - Life
		Full year ended 30 September
$ millions	Change from previous year	2009	2008	2007
Net premiums	4%	61.5	58.9	55.0
Incurred claims	5%	(65.0)	(68.1)	(63.2)
Management and sales expenses	(24%)	(45.1)	(36.5)	(35.7)
Movement in policyholder liabilities	10%	36.4	33.2	13.5
Underwriting result	3%	(12.2)	(12.5)	(30.4)
Investment income	179%	31.0	11.1	54.0
Profit before tax		18.8	(1.4)	23.6
Income tax credit/(expense)	(91%)	1.9	22.0	(4.6)
Underlying profit after tax	1%	20.7	20.6	19.0
Discount rate effect	52%	3.2	2.1	(1.3)
Profit after tax	5%	23.9	22.7	17.7

• Strong growth in value of new business due to growth and management expense reductions

• Investment income up strongly

 Discount rate change has added $3.2m to profit

11

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TOWER – Health & Life
In-force Premiums and Lapses
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140 16%
120 14%
12%
100
10%
80
8%
60
6%
40
4%
20
2%
0 0%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Individual & Group Health Individual Life
Group Life Individual & Group Health Lapse
Individual Life Lapse
$ millions Lapse Rate
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• Overall premium growth across all business lines

• Increased lapse rates within range of long term assumptions

12

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TOWER – Health & Life
New Business
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6
5
4
3
2
1
0
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Individual & Group Health Individual Life Group Life
$ millions
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• Total new business in 2009 up 35% over prior year

• Most significant improvement in Individual Life and Group Life

13

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TOWER – Health & Life
Health Claims Ratio
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80%
70%
60%
50%
40%
30%
20%
10%
0%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Individual & Group Health
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 Health claims ratio reduced 1.9% from a year ago

14

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TOWER – Health & Life
Life Claims Ratio
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80%
70%
60%
50%
40%
30%
20%
10%
0%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Individual Life Group Life
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• Individual Life claims ratio reduced

• Increase in Group Life off a relatively small base

15

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TOWER – Health & Life
Management & Sales Expenses
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30
25
20
15
10
5
0
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Management expenses Commissions
$ millions
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• Management expenses have reduced over the last six months

• Commissions costs driven by growth in Individual Life new business sales

16

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TOWER – General Insurance
Analysis of Profit
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Full year ended 30 September

$ millions	Change from previous year	2009	2008	2007
Net premiums	3%	195.0	189.3	184.1
Incurred claims	3%	(109.5)	(112.5)	(109.1)
Management and sales expenses	(8%)	(71.4)	(66.4)	(65.4)
Underwriting result	36%	14.1	10.4	9.6
Investment income	2%	11.2	11.0	13.0
Profit before tax	18%	25.3	21.4	22.6
Income tax expense	(21%)	(8.0)	(6.6)	(9.6)
Profit after tax	17%	17.3	14.8	13.0

• Premiums increased and claims cost reduced

• Strong underwriting performance - up by 36%

• Investment returns flat with last year

17

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TOWER – General Insurance
Gross Written Premiums & Lapses
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25%
220
200 20%
180
15%
160
140 10%
120
5%
100
80 0%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
New Zealand Pacific Island Lapse rate
Lapse Rates
Rolling 12 month GWP ($m)
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• New Zealand direct business continues to experience strong premium growth

• Pacific premiums stable in local currencies but impacted by exchange rate fluctuations

• Lapse rates remain stable overall

18

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TOWER – General Insurance
Net Premiums & Claims
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120 80%
100
70%
80
60%
60
50%
40
40%
20
0 30%
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Net premiums Claims Claims ratio
$ millions
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• Claims reduced by $3.0m despite impact of 30 September Tsunami

• Claims ratio continues positive trend

19

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TOWER – General Insurance
Management & Sales Expenses
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30
25
20
15
10
5
0
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Management expenses Commissions
$ millions
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• Increased investment in marketing

 Commission costs steady

20

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TOWER – Investments
Analysis of Profit
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		Full year ended 30 September	Full year ended 30 September
$ millions	Change from previous year	2009	2008	2007
Total income	(5%)	53.6	56.5	63.9
Management expenses	10%	(38.1)	(42.2)	(41.9)
Sales expenses	21%	(7.3)	(9.2)	(9.9)
Profit before tax	61%	8.2	5.1	12.1
Income tax expense	(71%)	(2.4)	(1.4)	(4.5)
Profit after tax	57%	5.8	3.7	7.6

• Income reduced by $2.9m due to less funds under management

• Cost reduction programme continues saving $6.0m

• After tax improvement in profit of $2.1m

21

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TOWER – Investments
Funds Under Management
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6,000 35
30
5,000
25
4,000
20
3,000
15
2,000
10
1,000
5
0 0
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
FUM Total Income
$ millions
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• Funds under management grew by 6% from March 2009

• Total Fee Income up by 2% to $27.1m

22

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TOWER – Investments
Expenses
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16
14
12
10
8
6
4
2
0
Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09
Management expenses Sales expenses Other expenses Kiwisaver/PIE establishment
$ millions
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• Expenses controlled to ensure business is resourced and sized appropriately for current market conditions

• Steady reduction since March 2007

23

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TOWER – Investments
KiwiSaver
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400 90,000
80,000
70,000
300
60,000
50,000
200
40,000
326.5
30,000
100 198.0
20,000
139.2
10,000
57.1
0 0
Mar-08 Sep-08 Mar-09 Sep-09
Funds under management Number of members
$ millions Members
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TOWER KiwiSaver as at 30 September 2009 had:

 76,957 Members

• $326.5m of Funds under management

• Average member balance over $4,200

24

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Looking Forward

25

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TOWER – Looking forward
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• As a New Zealand and Pacific company we are pleased to have delivered such a strong result through a period of financial turmoil

• Market conditions will continue to remain challenging over the next six to twelve months

• The business fundamentals are sound and secure

• We are growing in all of our chosen markets

• We have restructured our capital base during the year via both Bonds and Rights Issues to give us a strong and flexible balance sheet

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Looking Forward
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• The Life industry is going through change as a result of the new taxation legislation which comes into effect 1[st] July 2010

• The new financial advisor compliance rules complement our current expertise in this area. This is a core competency of TOWER

• Our new computer system is being implemented in stages and will be completed within 18 months

• Management remains firmly focused on opportunities for profitable and sustainable growth

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TOWER Group
Full Year Results – 30 September 2009
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Questions
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