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TOWER LIMITED Annual Report 2010

Nov 25, 2010

65971_rns_2010-11-25_bd09abba-daa1-4fc3-92ba-950d55182bf9.pdf

Annual Report

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26 November 2010

Market Information Company Announcements Office NZX Limited ASX 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

TOWER Limited - Results Information pack for year ended 30 September 2010

Further to the announcement today of TOWER’s results for the year ended 30 September 2010, attached is a Results Information pack.

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Bronwyn Walsh Company Secretary TOWER Limited

ARBN 088 481 234 Incorporated in New Zealand

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TOWER LIMITED

Results Information Year Ended 30 September 2010

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Contents

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

2 TOWER Results Information 30 September 2010

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1

Financial overview
Half year ended
$ millions (unless stated otherwise) Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
PREMIUM AND FUNDS
Group gross premium (12 month rolling)
Funds under management / advice		 425.3
416.0
419.4
414.1
401.9
393.6
3,906.8
3,748.5
3,623.0
3,402.0
3,732.0
3,916.0
PROFIT
Net profit after tax (from continuing
operations)
Underlying profit (excludes discount rate
effect)		 30.0
28.1
23.5
26.6
20.3
20.2
24.4
27.7
25.4
21.5
18.0
20.4
EQUITY
Net assets
Shares on issue (millions)		 441.3
416.4
404.5
307.4
294.2
270.1
260.6
258.7
254.8
193.9
191.9
191.8
DIVIDEND
Cents per share
Dividend to earnings per share		 6.0
4.0
9.0
8.0
52%
37%
37%
40%
EARNINGS RATIOS
Earnings per share (cents per share) *
Profit attributed to shareholders
Return on equity (annualised)
Profit attributed to shareholders
Underlying profit (excludes discount rate
effect)		 11.45
10.88
11.33
12.98
10.09
10.02
13.7%
13.7%
14.3%
17.7%
14.7%
15.0%
13.7%
13.6%
15.3%
14.5%
13.8%
15.3%
CAPITAL STRENGTH
Gearing gross
Interest cover (times)
Financial strength rating - Health
Financial strength rating - Life
Financial strength rating - General Insurance		 15.4%
16.2%
16.5%
35.0%
22.9%
24.4%
13.8
13.2
8.3
9.2
2.1
6.3
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
A-
EV & VNB
Embedded value
Change in embedded value (pre transfers)
Value of one year's new business		 227.9
205.0
195.0
182.1
185.6
168.3
20.9
13.1
12.9
(3.5)
21.2
9.0
8.4
6.1
6.1
2.7
2.7
3.4
INSURANCE PROFIT RATIOS
Insurance profit/(loss) to net earned premium
ratio - Health
1.9%
12.4%
8.0%
12.6%
(0.9%)
12.8%
Insurance profit/(loss) to net earned premium
ratio - Life
48.9%
52.4%
42.1%
2.3%
(17.1%)
(3.4%)
Insurance profit to net earned premium ratio -
General Insurance
12.5%
16.6%
8.4%
13.3%
7.0%
11.6%
MANAGEMENT AND SALES EXPENSES
AND COST RATIOS
Management and sales expenses
83.1
89.9
84.5
94.7
89.2
91.8
Cost to income ratio
61.2%
66.2%
70.7%
76.8%
95.0%
82.2%
Staff numbers
749
761
773
760
793
794
  • Sep 07- Mar 09 adjusted for bonus element of Rights Issue

3 TOWER Results Information 30 September 2010

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2

Results summary

Results summary
2
Half year ended
$ millions Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Health & Life
General Insurance
Investments
Finance & corporate expenses		 36.4
29.6
23.3
11.1
(2.5)
10.6
14.6
17.5
10.6
14.7
8.9
12.5
1.0
2.9
4.9
3.3
2.2
2.9
(4.9)
(4.5)
(5.1)
(5.5)
(6.1)
(5.9)
Profit before tax
Income tax (expense)/credit		 47.1
45.5
33.7
23.6
2.5
20.1
(22.7)
(17.8)
(8.3)
(2.1)
15.5
0.3
Underlying profit
Discount rate effect		 24.4
27.7
25.4
21.5
18.0
20.4
5.6
0.4
(1.9)
5.1
2.3
(0.2)
Profit from continuing operations 30.0
28.1
23.5
26.6
20.3
20.2

Profit and loss - Analysis by shareholder and policyholder

$ millions Health
Life
General
Investments
Corporate
Group
Life
Group
Insurance
Shareholder
Insurance
Shareholder
Policyholder
Total
Results to 30 September 2010
Insurance profit and operating earnings
Investment income on shareholders' funds
Corporate expenses
Financing costs		 9.7
7.8
26.7
3.7
47.9
24.8
72.7
1.5
22.2
5.4
0.2
4.0
33.3
33.3
(5.8)
(5.8)
(5.8)
(7.6)
(7.6)
(7.6)
Profit/(loss) before tax
Tax (expense)/credit		 11.2
30.0
32.1
3.9
(9.4)
67.8
24.8
92.6
(3.7)
(4.3)
(10.2)
(1.1)
3.6
(15.7)
(24.8)
(40.5)
Underlying profit/(loss) after tax
Discount rate effect		 7.5
25.7
21.9
2.8
(5.8)
52.1
0.0
52.1
6.0
6.0
6.0
Profit/(loss) after tax 7.5
31.7
21.9
2.8
(5.8)
58.1
58.1
Results to 30 September 2009
Insurance profit/(loss) and operating
earnings
Investment income on shareholders' funds
Corporate expenses
Financing costs		 13.5
9.9
21.3
5.8
50.5
3.8
54.3
2.1
5.1
4.0
2.4
2.5
16.1
16.1
(4.8)
(4.8)
(4.8)
(8.3)
(8.3)
(8.3)
Profit/(loss) before tax
Tax (expense)/credit		 15.6
15.0
25.3
8.2
(10.6)
53.5
3.8
57.3
(4.7)
5.7
(8.0)
(2.4)
2.8
(6.6)
(3.8)
(10.4)
Underlying profit/(loss) after tax
Discount rate effect		 10.9
20.7
17.3
5.8
(7.8)
46.9
0.0
46.9
3.2
3.2
3.2
Profit/(loss) after tax 10.9
23.9
17.3
5.8
(7.8)
50.1
50.1

4 TOWER Results Information 30 September 2010

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Balance sheet summary 3

Balance sheet summary 2010

Balance sheet summary 2010
$ millions Health & Life
General Ins
Investments Head Office &
Eliminations
Group Sep-10
Group Sep-09
Cash & call deposits(1)
Total investment assets *
Deferred acquisition costs
Intangible assets
Other operational assets/(liabilities)		 28.3
14.8
0.7
94.7
138.5
146.4
855.6
236.5
0.3
1.9
1,094.3
1,130.0
22.3
13.6
7.7
43.6
45.1
13.1
17.7
24.2
55.0
39.2
59.6
148.2
18.3
60.1
286.2
230.4
Total assets
Policy liabilities & insurance provisions
External debt
Other operational (liabilities)/assets		 978.9
430.8
27.0
180.9
1,617.6
1,591.1
(739.3)
(241.1)
(980.4)
(954.1)
(80.6)
(80.6)
(80.0)
(60.7)
(42.0)
(9.2)
(3.4)
(115.3)
(152.5)
Total liabilities (800.0)
(283.1)
(9.2)
(84.0)
(1,176.3)
(1,186.6)
Total equity 178.9
147.7
17.8
96.9		 441.3
404.5
*** Investment assets breakdown**
Cash in transit(1)
Fixed interest securities (NZ)
Fixed interest securities (AUS)
Fixed interest securities(International)		 17.0
52.3
469.3
103.0
39.0
5.0
30.3		 69.3
572.3
39.0
35.3

646.6
48.1

1.9
171.7

221.7
85.5
71.2

1,094.3
Total fixed interest securities
Equity securities (NZ)
Equity securities (AUS)
Equitysecurities(International)		 474.3
172.3
0.0
0.0
48.1
1.9
168.7
3.0
Total equities securities
Property securities
Derivative financial instruments		 216.8
3.0
0.0
1.9
76.3
8.9
0.3
71.2
Total investment assets 855.6
236.5
0.3
1.9

(1) Cash in transit has been included in the investment assets portfolio.

5 TOWER Results Information 30 September 2010

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Balance sheet summary 2009

Balance sheet summary 2009
$ millions Health & Life
General Ins
Investments Head Office &
Eliminations
Group Sep 09
Group Sep-08
Cash & call deposits
Total investment assets *
Deferred acquisition costs
Intangible assets
Other operational assets/(liabilities)		 11.0
31.6
3.1
100.7
146.4
58.3
906.6
210.5
0.9
12.0
1,130.0
1,141.0
24.1
12.5
8.5
45.1
49.8
13.6
17.7
0.5
7.4
39.2
37.3
110.7
116.0
43.9
(40.2)
230.4
233.2
Total assets
Policy liabilities & insurance provisions
External debt
Other operational (liabilities)/assets		 1,066.0
388.3
56.9
79.9
1,591.1
1,519.6
(760.4)
(193.7)
(954.1)
(991.1)
(80.0)
(80.0)
(87.6)
(111.6)
(55.0)
(27.3)
41.4
(152.5)
(146.7)
Total liabilities (872.0)
(248.7)
(27.3)
(38.6)
(1,186.6)
(1,225.4)
Total equity 194.0
139.6
29.6
41.3
404.5
294.2
*** Investment assets breakdown**
Fixed interest securities (NZ)
Fixed interest securities (AUS)
Fixed interest securities(International)		 574.2
122.9
0.9
9.9
707.9
50.7
50.7
3.1
25.8
28.9
577.3
199.4
0.9
9.9
787.5
50.1
50.1
2.1
2.1
154.4
2.9
157.3
204.5
2.9
0.0
2.1
209.5
71.4
8.2
79.6
53.4
53.4
906.6
210.5
0.9
12.0
1,130.0
Total fixed interest securities
Equity securities (NZ)
Equity securities (AUS)
Equitysecurities(International)
Total equities securities
Property securities
Derivative financial instruments
Total investment assets

6 TOWER Results Information 30 September 2010

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Business unit performance 4

Health & Life

Analysis of profit - Health

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Health premium
Net premium 68.2 67.7 66.3 65.3 63.7 62.5
Premium payback payments (7.3) (6.0) (5.5) (3.7) (3.6) (2.4)
60.9 61.7 60.8 61.6 60.1 60.1
Incurred claims* (44.7) (37.3) (38.0) (35.9) (39.4) (31.9)
Management and sales expenses (18.1) (17.5) (18.3) (18.7) (21.9) (19.1)
Movement in policy liabilities (3.5) (0.1) 0.4 (4.7) (5.3) (3.2)
Investment income on assets backing
policy liabilities		 6.7 1.6 0.4 5.9 5.9 2.1
Insurance profit/(loss) 1.3 8.4 5.3 8.2 (0.6) 8.0
Investment income on shareholders' funds 0.3 1.2 1.1 1.0 1.2 0.9
Profit before tax 1.6 9.6 6.4 9.2 0.6 8.9
Income tax expense (0.8) (2.9) (1.9) (2.8) (0.3) (3.4)
Profit after tax 0.8 6.7 4.5 6.4 0.3 5.5

Analysis of profit - Life

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Net premiums 32.7 31.7 30.9 30.6 29.9 29.0
Incurred claims (37.0) (32.3) (33.6) (31.4) (36.4) (31.7)
Management and sales expenses (21.9) (19.7) (23.1) (22.0) (19.4) (17.1)
Movement in policy liabilities (5.5) (9.3) (11.3) 47.7 0.1 33.1
Investment income/(loss) on assets
backing policy liabilities		 47.7 46.2 50.1 (24.2) 20.7 (14.3)
Insurance profit/(loss) 16.0 16.6 13.0 0.7 (5.1) (1.0)
Investment income on shareholders' funds 18.8 3.4 3.9 1.2 2.0 2.7
Profit/(loss) before tax 34.8 20.0 16.9 1.9 (3.1) 1.7
Income tax (expense)/credit (19.3) (9.8) (3.6) 5.5 13.9 8.1
Underlying profit 15.5 10.2 13.3 7.4 10.8 9.8
Discount rate effect 5.6 0.4 (1.9) 5.1 2.3 (0.2)
Profit after tax 21.1 10.6 11.4 12.5 13.1 9.6
  • Incurred claims are presented net of premium payback payments which are shown separately as a deduction from net premiums.

7 TOWER Results Information 30 September 2010

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Health & Life - In-force premium

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Individual & Group Health 139.8 137.9 135.6 132.2 130.1 127.8
Individual Life 59.1 54.8 51.5 47.9 45.1 43.0
Group Life 17.9 18.2 20.0 18.5 18.1 17.1
Total in-force premium 216.8 210.9 207.1 198.6 193.3 187.9

Health & Life - Premium from new business

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Individual & Group Health 3.5 3.0 3.3 3.0 3.7 3.3
Individual Life 4.3 4.3 5.7 3.8 3.3 1.8
Group Life 1.2 0.5 2.0 0.8 0.5 1.2
Total new business 9.0 7.8 11.0 7.6 7.5 6.3

Health & Life - Lapses

Half year ended
% Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Individual & Group Health lapse
Individual Life lapse		 10.8%
10.6%
13.4%
11.7%
12.1%
11.5%
11.8%
11.1%
12.0%
11.6%
12.5%
10.3%
Health & Life - Claims ratio
Half year ended
% Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Individual & Group Health
Individual Life
Group Life		 65.6%
55.0%
59.0%
54.8%
61.9%
51.0%
27.4%
33.1%
31.5%
36.3%
40.6%
31.4%
45.3%
46.8%
66.8%
59.8%
52.3%
34.2%
All claims 55.4%
49.6%
53.5%
51.3%
56.8%
46.0%
Total Life 35.8%
35.8%
38.4%
41.9%
42.4%
31.9%

Health & Life - Management and sales expenses

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Management expenses 19.5 18.5 20.4 23.2 23.2 21.9
Commissions 20.5 18.7 21.0 17.5 18.1 14.3
Total expenses 40.0 37.2 41.4 40.7 41.3 36.2

8 TOWER Results Information 30 September 2010

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General Insurance

Analysis of profit - General Insurance

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Net premiums 92.5 90.8 95.3 99.7 96.1 93.2
Incurred claims (53.3) (46.0) (56.7) (52.8) (59.3) (53.2)
Management and sales expenses (32.3) (33.6) (35.2) (36.2) (34.2) (32.2)
Underwriting profit 6.9 11.2 3.4 10.7 2.6 7.8
Investment income on assets backing
technical reserves		 4.7 3.9 4.6 2.6 4.1 3.0
Insurance profit 11.6 15.1 8.0 13.3 6.7 10.8
Investment income on shareholders' funds 3.0 2.4 2.6 1.4 2.2 1.7
Profit before tax 14.6 17.5 10.6 14.7 8.9 12.5
Income tax expense (4.6) (5.6) (2.7) (5.3) (1.8) (4.8)
Profit after tax 10.0 11.9 7.9 9.4 7.1 7.7

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

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
New Zealand 163.1 159.1 160.6 164.4 163.7 161.8
Pacific Islands 45.4 46.0 51.7 51.1 44.9 43.9
Total gross written premiums 208.5 205.1 212.3 215.5 208.6 205.7
Lapse rate 14.4% 15.5% 16.8% 16.4% 17.2% 18.0%

General Insurance - Net premiums and claims

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Net premiums 92.5 90.8 95.3 99.7 96.1 93.2
Claims 53.3 46.0 56.7 52.8 59.3 53.2
Claims ratio 57.6% 50.7% 59.5% 53.0% 61.7% 57.1%

General Insurance - Underwriting profits

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Underwriting profit 6.9 11.2 3.4 10.7 2.6 7.8
* Combined ratio 92.5% 87.7% 96.4% 89.3% 97.3% 91.6%
  • Claims and costs to net premium ratio

General Insurance - Management and sales expenses

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Management expenses 27.4 25.3 26.2 26.5 25.2 23.0
Commissions 4.9 8.3 9.0 9.7 9.0 9.2
Total expenses 32.3 33.6 35.2 36.2 34.2 32.2

9 TOWER Results Information 30 September 2010

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Investments

Analysis of profit - Investments

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Total income * 19.9 18.2 21.0 18.8 21.5 23.0
Management and sales expenses * (18.9) (15.3) (16.1) (15.5) (19.3) (20.1)
Profit before tax 1.0 2.9 4.9 3.3 2.2 2.9
Income tax expense (0.2) (0.9) (1.4) (1.0) (0.8) (0.6)
Profit after tax 0.8 2.0 3.5 2.3 1.4 2.3

Investments - Funds under management and advice**

Half year ended
$ millions Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Total funds under management and advice 3,907
3,749
3,623
3,402
3,732
3,916
Total income * 19.9
18.2
21.0
18.8
21.5
23.0
Investments - Kiwisaver
Half year ended
$ millions Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Funds under management
Number of members
Average funds per member		 505.3
402.4
326.5
198.0
139.2
57.1
87,675
82,143
76,957
67,129
56,084
37,047
5,763
4,899
4,243
2,950
2,482
1,541

Investments - Management and sales expenses

Half year ended
$ millions Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08
Management expenses 16.3 13.2 13.5 13.7 15.7 14.2
Other expenses 0.0 0.1 0.0 0.2 0.0 1.7
Kiwisaver/PIE establishment 0.0 0.0 0.1 0.1 0.7 0.9
Sales expenses 2.6 2.0 2.5 1.5 2.9 3.3
**Total expenses *** 18.9 15.3 16.1 15.5 19.3 20.1
  • Income and expenses for prior periods have been reclassified to achieve consistency in presentation with the current period. The reclassification had no impact on profit before tax. ** Total funds under management includes funds from Kiwisaver.

10 TOWER Results Information 30 September 2010

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Appraisal value 5

Appraisal Value

Appraisal Value
$ millions Investments
Health & Life
General Ins
Holdings
Companies
Group Sep-10
Group Mar-10
Group Sep-09
Net worth
Value of In-force business		 44.2
44.2
31.1
27.8
183.7
183.7
173.9
167.2
Embedded value
Value of 1 years new business
Value of Future new business		 227.9
0.0
0.0
0.0
227.9
205.0
195.0
8.4
8.4
6.1
6.1
33.7
33.7
24.4
24.5
Appraisal value (enterprise value)
Fair value of net assets		 261.6
0.0
0.0
0.0
261.6
229.4
219.5
114.0
177.1
17.8
96.9
405.8
350.5
343.9
Appraisal value 375.6
177.1
17.8
96.9
667.4
579.9
563.4

Comments

  • The life companies’ embedded values grew by a combined $22.9m over the 6 months or 11.2%, whilst the appraisal values grew by $32.2m or 14.0%. Allowing for the net internal dividends received, the combined return is 13.2%.

  • The fair values of TOWER Medical Insurance and TOWER Insurance have increased by a combined $10.1m or 3.6%. Allowing for the $10.7m of internal dividends paid the combined return is 7.4% over the 6 months to 30 September 2010.

11 TOWER Results Information 30 September 2010

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Carrying value / appraisal value 6

Carrying Value / Appraisal Value

Carrying Value / Appraisal Value
$ millions Sep-10
Mar-10
Sep-09
Mar-09
Carrying Value
of Net Assets
Appraisal
Value
Carrying Value
of Net Assets
Appraisal
Value
Carrying Value
of Net Assets
Appraisal
Value
Carrying Value
of Net Assets
Appraisal
Value
Health & Life
TOWER Health & Life
TOWER Medical
TOWER Life (NZ)		 92.0
198.3
110.3
167.3
115.2
156.9
107.0
136.2
61.1
114.0
67.0
110.7
48.6
104.6
44.1
95.8
25.8
63.3
29.5
62.1
30.2
62.7
26.9
56.5
General Insurance
TOWER Insurance		 178.8
375.6
206.8
340.1
194.0
324.2
178.0
288.5
147.7
177.1
140.1
170.3
136.9
165.7
138.8
153.2
Investment business
TOWER Asset Management
TOWER Managed Funds		 147.7
177.1
140.1
170.3
136.9
165.7
138.8
153.2
6.5
6.5
5.5
5.5
6.4
6.4
6.4
6.4
11.3
11.3
10.5
10.5
23.2
23.2
19.7
19.7
Other
TOWER Group head office
External debt		 17.8
17.8
16.0
16.0
29.6
29.6
26.1
26.1
177.5
177.5
133.8
133.8
123.9
123.9
129.7
129.7
(80.6)
(80.6)
(80.3)
(80.3)
(80.0)
(80.0)
(165.2)
(165.2)
Total capital employed 441.2
667.4
416.4
579.9
404.4
563.4		 307.4
432.3

Comments

  • The appraisal value of total capital employed of TOWER Group is well in excess of the carrying value of its net assets.

  • The ratios of appraisal value over carrying value for the insurance companies are

Sep-10 Mar-10
Health & Life 210% 164%
Tower Insurance 120% 122%

12 TOWER Results Information 30 September 2010

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7

Life Insurance - profit summary

Life Insurance - Profit Summary
$ millions Sep-10
Mar-10
Sep-09
Mar-09
Sep-08
Mar-08
Life insurance operating earnings
Planned profits
Experience (loss)/profit		 7.7
7.1
8.0
7.9
7.0
6.7
(5.4)
0.7
2.7
(1.1)
1.6
0.3
Insurance profit net of tax
Investment income on shareholders' funds
(net of tax)		 2.3
7.8
10.7
6.8
8.6
7.0
13.2
2.4
2.6
0.6
2.2
2.8
Underlying profit
Discount rate changes		 15.5
10.2
13.3
7.4
10.8
9.8
5.6
0.4
(1.9)
5.1
2.3
(0.2)
Profit after tax 21.1
10.6
11.4
12.5
13.1
9.6

Comments

Planned profits have reduced for both the March 2010 and September 2010 half years from the comparable March and September 2009 half years following a change in the treatment of lapses for policyholders aged over 65. In prior years these policies were assumed to lapse at the same rate as other policies, whereas they are now assumed to lapse at a higher rate. This change reduces the expected profit margins on in-force business and so reduced the planned profits for the current year.

The main contributor to the experience losses related to earnings on risk business liabilities. Other items of experience in total made only a small contribution to the losses.

13 TOWER Results Information 30 September 2010

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8

Life Insurance - Change in embedded value

Life Insurance - Change in Embedded Value

TOWER Life TOWER
$ millions Health & Life
Embedded value as at 30 September 2009 59.0 136.0
Expected increase in value of in-force 5.5 14.5
Experience:
Investment earnings 3.1 4.8
Other (0.7) (3.2)
Changes in assumptions:
Investment earnings (5.3) (1.7)
Other 5.9 5.7
Value from new business 0.5 5.3
Miscellaneous:
Dividend Received / (Paid) (9.2) 8.1
Other (0.2) (0.2)
Embedded value as at 30 Septenber 2010 58.6 169.3

Comments

The primary contributors to the change in embedded value have been:

  • Investment returns, both as positive gains to actual experience over the year and also as negative contribution from the lower expected returns in the future due to falls in interest rate assumptions;

  • Net dividends of $1.1 million were paid from the insurance operations

  • The “cost” of holding increased solvency capital.

The value of new business written in TOWER Health & Life has improved reflecting both sales volume increases and improved expense margins.

14 TOWER Results Information 30 September 2010

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9

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

Life Insurance - Change in Value of One Year's New Business

TOWER Life TOWER
$ millions Health & Life
Value of one year’s new business as at
30 September 2009		 0.9 5.2
Change in one year’s volumes and mix of
business		 (0.2) 1.1
Changes in assumptions: 0.4 1.0
Other 0.1 (0.1)
Value of one year’s new business as at
30 September 2010		 1.2 7.2

Comments

  • Our assessment of future new business that we expect to write has increased from that which was undertaken as at September 2009 due to higher expected sales volumes and a lower discount rate. A lower investment earnings assumption has also been applied. There have been no other changes in assumptions.

Refer to page 16 for assumptions used

15 TOWER Results Information 30 September 2010

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

Life Insurance
0		 - Embedded value and value of one year's new business
$ millions TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
Sep10
Mar-10
Sep-09
Mar-09
Net worth
Value of in-force business		 17.5
26.7
18.4
12.7
19.2
8.6
17.7
9.7
41.1
142.7
40.0
133.9
39.8
127.4
36.4
118.3
Embedded value 58.6
169.3
58.4
146.6
59.0
136.0
54.1
128.0
Value of one year’s new business 1.2
7.2
0.9
5.2
0.9
5.2
0.6
2.1

Assumptions & Sensitivity Analysis

Assumptions TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
Sep10
Mar-10
Sep-09

TOWER Life
TOWER
Health & Life
Mar-09
Inflation
Discount rate
Earnings assumption (net of tax)
ranges
Expenses inflation		 11.0%
11.0%
11.5%
11.5%
11.5%
11.5%
3.2% to 6.0%
3.4%
3.4% to 6.0%
4.1%
3.5% to 6.1%
4.1%
2.0%
2.0%
2.0%
2.0%
2.0%
2.0%		 11.5%
11.5%

3.9% to 6.1%
3.9%

2.0%
2.0%
Sensitivity analysis TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
TOWER Life
TOWER
Health & Life
Sep 10
Mar-10
Sep-09

TOWER Life
TOWER
Health & Life
Mar-09
Base appraisal value
Appraisal value assuming:
Discount rate 1% higher
Investment returns 1% higher
Discontinuance rate 10% higher
Renewal expenses 10% higher		 63.3
198.3
62.1
167.3
62.7
156.9
60.1
184.5
59.2
154.6
59.9
144.7
72.9
199.8
71.7
169.0
71.7
162.8
62.3
181.4
61.3
152.2
61.7
138.4
62.0
193.4
60.1
162.4
60.6
147.7		 56.5
136.2

54.0
126.4

65.5
137.6

55.8
126.4

54.5
131.5

16 TOWER Results Information 30 September 2010

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