TOWER LIMITED — Annual Report 2011

Nov 24, 2011

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25 November 2011

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 Wellington NSW 2000 NEW ZEALAND AUSTRALIA

TOWER Limited - Results information pack for year ended 30 September 2011

Further to the announcement today of TOWER’s results for the year ended 30 September 2011, 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

Full Year Ended 30 September 2011

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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 Analysis of profit – Health.......................................................................................................7 Health Insurance – Profit summary........................................................................................7 Health Insurance – Change in embedded value....................................................................8 Health Insurance – Change in value of one year’s new business..........................................8 Health Insurance – Embedded value and value of one year’s new business........................9 Health Insurance – Assumptions and sensitivity analysis......................................................9 Analysis of profit – Life.........................................................................................................10 Life Insurance – Profit summary..........................................................................................10 Life Insurance – Change in embedded value.......................................................................11 Life Insurance – Change in value of one year’s new business............................................11 Life Insurance – Embedded value and value of one year’s new business...........................12 Life Insurance – Assumptions and sensitivity analysis.........................................................12 Health & Life – In-force premium (Rolling 12)......................................................................13 Health & Life – Premium from new business.......................................................................13 Health & Life – Lapses.........................................................................................................13 Health & Life – Claims ratio..................................................................................................13 Health & Life – Management and sales expenses...............................................................13 General Insurance Analysis of profit – General Insurance.................................................................................14 General Insurance – Gross written premiums (rolling 12) and lapses.................................14 General Insurance – Net premiums and claims...................................................................14 General Insurance – Underwriting profits.............................................................................14 General Insurance – Management and sales expenses......................................................14 Investments Analysis of profit – Investments............................................................................................15 Investments – Funds under management and advice.........................................................15 Investments – KiwiSaver......................................................................................................15 Investments – Management and sales expenses................................................................15 5. Group appraisal value .............................................................................................................. 16 6. Group carrying value / appraisal value ..................................................................................... 17

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Financial overview 1

Financial overview
	Half year ended
$ millions (unless stated otherwise)	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
PREMIUM AND FUNDS Group gross premium (12 month rolling) Funds under management / advice	445.8 429.0 425.3 416.0 419.4 414.1 3,969.0 3,977.5 3,906.8 3,748.5 3,623.0 3,402.0
PROFIT Net profit after tax Profit excluding the impact of Christchurch earthquake and discount rate	20.4 13.0 30.0 28.1 23.5 26.6 30.1 24.5 30.6 27.7 25.4 21.5
EQUITY Net assets Shares on issue (millions)	455.5 447.2 441.3 416.4 404.4 307.4 265.2 263.6 260.6 258.7 254.8 193.9
DIVIDEND Cents per share Dividend to earnings per share	2.0 4.0 6.0 4.0 9.0 26% 82% 52% 37% 37%
EARNINGS RATIOS
Earnings per share (cents per share) *
Profit attributed to shareholders Return on equity (annualised) Profit attributed to shareholders Profit excluding the impact of Christchurch earthquake and discount rate	7.69 4.88 11.45 10.88 11.33 12.98 9.0% 5.8% 13.7% 13.7% 14.3% 17.7% 13.6% 11.0% 14.8% 13.6% 15.3% 14.5%
CAPITAL STRENGTH Gearing gross Interest cover (times) Financial strength rating - Health Financial strength rating - Life Financial strength rating - General Insurance	15.1% 15.3% 15.4% 16.2% 16.5% 35.0% 14.5 8.2 13.8 13.2 8.3 9.2 A- A- A- A- A- A- A- A- A- A- A- A- A- A- A- A- A- A-
INSURANCE PROFIT RATIOS Insurance profit/(loss) to net earned premium ratio - Health 5.3% 10% 1.9% (16%) -23.2% (9%) Insurance profit/(loss) to net earned premium ratio - Life 23.2% 17.6% 37.1% 46.9% 42.1% 2.3% Insurance profit/(loss) to net earned premium ratio - General Insurance 22% 15.1% 19% 16.6% 8% 13.3%
MANAGEMENT AND SALES EXPENSES AND COST RATIOS Management and sales expenses 80.8 93.9 83.1 89.9 84.5 94.7 Cost to income ratio 60.2% 77.4% 61.2% 66.2% 70.7% 76.8% Staff numbers 831 783 749 761 773 760

• Mar 09 adjusted for bonus element of Rights Issue

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Results summary 2

Results summary
	Half year ended
$ millions	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Health Life General Insurance Investments Finance & corporate expenses	4.7 9.1 1.6 9.6 6.4 9.2 17.6 7.5 34.8 20.0 16.9 1.9 23.8 15.3 21.0 17.5 10.6 14.7 5.5 4.4 1.0 2.9 4.9 3.3 (4.7) (4.8) (4.9) (4.5) (5.1) (5.5)
Profit before tax Income tax (expense)/credit	46.9 31.5 53.5 45.5 33.7 23.6 (16.8) (7.0) (22.9) (17.8) (8.3) (2.1)
Profit excluding the impact of Christchurch earthquakes and discount rate	30.1 24.5 30.6 27.7 25.4 21.5
Net of Christchurch expense Discount rate effect	(16.1) (7.5) (4.5) 6.4 (4.0) 3.9 0.4 (1.9) 5.1
Profit/(loss) after tax	20.4 13.0 30.0 28.1 23.5 26.6

$ millions	Health Life General Investments Corporate Group Life Group Insurance Shareholder Insurance Shareholder Policyholder Total
Results for 12 Months to 30 September 2011
Insurance profit/(loss) and operating earnings	10.9 7.5 34.3 9.9 0.0 62.6 4.8 67.4
Investment income on shareholders' funds	2.9 12.9 4.8 5.3 25.9 25.9
Corporate expenses Financing costs	(7.0) (7.0) (7.0) (7.8) (7.8) (7.8)
Profit/(loss) before tax Tax (expense)/credit	13.8 20.4 39.1 9.9 (9.5) 73.7 4.8 78.5 (4.1) (0.5) (14.5) (3.1) 3.0 (19.2) (4.8) (24.0)
Profit excluding the impact of Christchurch earthquakes and discount rate Net of Christchurch expense Discount rate effect	9.7 19.9 24.6 6.8 (6.5) 54.5 0.0 54.5 (1.1) (22.1) (0.3) (23.5) (23.5) 2.4 2.4 2.4
Profit/(loss) after tax	9.7 21.2 2.5 6.8 (6.8) 33.4 0.0 33.4
Results for 12 Months to 30 September 2010
Insurance profit and operating earnings Investment income on shareholders' funds Corporate expenses Financing costs	9.7 7.8 33.1 3.7 54.3 24.8 79.1 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 38.5 3.9 (9.4) 74.2 24.8 99.0 (3.7) (2.6) (12.1) (1.1) 3.6 (15.9) (24.8) (40.7)
Underlying profit/(loss) after tax Net of Christchurch expense Discount rate effect	7.5 27.4 26.4 2.8 (5.8) 58.3 0.0 58.3 (4.5) (4.5) (4.5) 4.3 4.3 4.3
Profit/(loss) after tax	7.5 31.7 21.9 2.8 (5.8) 58.1 0.0 58.1

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3

Balance sheet summary

Balance sheet summary - September 2011

$ millions	Health & Life General Ins Investments Head Office & Eliminations Group Sep-11 Group Sep-10	Health & Life General Ins Investments Head Office & Eliminations Group Sep-11 Group Sep-10
Cash & call deposits(1) Total investment assets * Deferred acquisition costs Intangible assets Other operational assets/(liabilities)	18.1 36.6 2.3 95.9 152.9 138.5 861.3 168.4 0.1 0.0 1,029.8 1,094.3 20.7 14.7 7.0 42.4 43.6 13.1 17.7 41.9 72.7 55.0 104.7 557.3 24.7 (8.0) 678.7 286.2
Total assets Policy liabilities & insurance provisions External debt Other operational (liabilities)/assets	1,017.9 794.7 34.1 129.8 1,976.5 1,617.6 (706.5) (619.8) (1,326.3) (980.4) (81.3) (81.3) (80.6) (60.3) (46.2) (9.4) 2.5 (113.4) (115.3)
Total liabilities	(766.8) (666.0) (9.4) (78.8) (1,521.0) (1,176.3)
Total equity	251.1 128.7 24.7 51.0	455.5 441.3
*** Investment assets breakdown**
Cash in transit(1) Fixed interest securities (NZ) Fixed interest securities (AUS) Fixed interest securities(International)	45.6 25.6 481.4 59.6 0.0 0.0 43.5 2.9 27.3	71.2 541.0 43.5 30.2 614.7 48.0 0.0 132.3 180.3 88.5 75.1 1,029.8
Total fixed interest securities Equity securities (NZ) Equity securities (AUS) Equitysecurities(International)	484.3 130.4 0.0 0.0 48.0 0.0 0.0 129.2 3.1
Total equities securities Property securities Derivative financial instruments	177.2 3.1 0.0 0.0 79.1 9.3 0.1 75.1
Total investment assets	861.3 168.4 0.1 0.0
Credit ratings for investment assets	Sep-11 216.0 566.8 37.1 5.4 77.4 902.7 11.2 180.3 88.5 280.0 1,182.7 152.9 1,029.8 1,182.7
Investment assets subject to credit rating AAA AA A BBB or below Unrated investments Investment assets not subject to credit rating Fixed interest securities Equity securities Property securities
Total cash and investment assets
Cash and call deposits Investment assets
Total cash and investment assets

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

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Balance sheet summary - September 2010

$ millions	Health & Life General Ins Investments Head Office & Eliminations Group Sep-10 Group Sep-09	Health & Life General Ins Investments Head Office & Eliminations Group Sep-10 Group Sep-09
Cash & call deposits 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 39.2 100.9 148.2 18.3 18.8 286.2 230.4
Total assets Policy liabilities & insurance provisions External debt Other operational (liabilities)/assets	1,020.2 430.8 27.0 139.6 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) (152.6)
Total liabilities	(800.0) (283.1) (9.2) (84.0) (1,176.3) (1,186.7)
Total equity	220.2 147.7 17.8 55.6	441.3 404.4
*** 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
Credit ratings for investment assets	Sep-10 87.2 609.9 139.4 11.4 68.9 916.8 10.7 219.8 85.5 316.0 1,232.8 138.5 208.2414437 69.70 1,094.3 1023.094799 71.20 - 1,232.8
Investment assets subject to credit rating AAA AA A BBB or below Unrated investments Investment assets not subject to credit rating Fixed interest securities Equity securities Property securities
Total cash and investment assets
Cash and call deposits Investment assets
Total cash and investment assets

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

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4

Business unit performance

Health Insurance

Health Insurance
	Half year ended
$ millions	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Net premium Incurred claims Premium payback payments Management and sales expenses Movement in policy liabilities Investment income on assets backing policy liabilities	70.9 69.7 68.2 67.7 66.3 65.3 (39.9) (37.1) (44.7) (37.3) (38.0) (35.9) (10.2) (9.9) (7.3) (6.0) (5.5) (3.7) (18.6) (17.8) (18.1) (17.5) (18.3) (18.7) (2.2) 3.2 (3.5) (0.1) 0.4 (4.7) 3.7 (0.9) 6.7 1.6 0.4 5.9
Insurance profit/(loss) Investment income on shareholders' funds	3.7 7.2 1.3 8.4 5.3 8.2 1.0 1.9 0.3 1.2 1.1 1.0
Profit before tax Income tax expense	4.7 9.1 1.6 9.6 6.4 9.2 (1.5) (2.6) (0.8) (2.9) (1.9) (2.8)
Profit after tax	3.2 6.5 0.8 6.7 4.5 6.4
Health Insurance - Profit summary
$ millions	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Health insurance operating earnings Planned profits Experience (loss)/profit	5.0 7.0 5.3 6.9 3.3 5.1 (2.5) (1.8) (4.7) (1.1) 0.4 0.6
Insurance profit net of tax Investment income on shareholders' funds (net of tax)	2.5 5.2 0.6 5.8 3.7 5.7 0.7 1.3 0.2 0.9 0.8 0.7
Profit after tax	3.2 6.5 0.8 6.7 4.5 6.4

Comments

Profits for Health have reduced for the September 2011 half year from March 2011 and this is mainly due to seasonal effect. Experience losses arise from unfavorable health claims when compared to plan.

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Health Insurance - Change in embedded value

	TOWER
$ millions	Medical
Embedded value as at 30 September 2010	111.5
Expected increase in value of in-force	6.1
Experience:
Investment earnings	(0.1)
Other	8.5
Changes in assumptions:
Investment earnings	(1.2)
Other	(8.5)
Value from new business	0.4
Miscellaneous:
Dividend Received / (Paid)	0.0
Other	(0.2)
Embedded value as at 30 September 2011	116.5

Comments

The Embedded Value has increased in line with expectations. The main reasons for this are:

• An increase in Value in Force generated through the increase in premium rates to offset current and historical claims inflation;

• This is offset by an adverse change to future expense and investment earnings assumptions.

The value of new business written in TOWER Medical Insurance continues to be positive.

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

$ millions	TOWER Medical
Value of one year’s new business as at 30 September 2010	0.5
Change in one year’s volumes and mix of business Changes in assumptions: Other	(0.1) 0.0 0.0
Value of one year’s new business as at 30 September 2011	0.4

Comments

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Our assessment of future new business value remains stable.

Refer to page 9 for assumptions used.

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

	Sep11	Mar-11	Sep10	Mar-10	Sep-09
	TOWER	TOWER	TOWER	TOWER	TOWER
$ millions	Medical	Medical	Medical	Medical	Medical
Net worth	25.5	22.2	15.8	21.4	15.4
Value of in-force business	91.0	93.1	95.7	87.3	86.6
Embedded value	116.5	115.3	111.5	108.7	102.0
Value of one year’s new business	0.4	0.5	0.5	0.5	0.6

Health Insurance - Assumptions and sensitivity analysis

Assumptions	Sep11 Mar-11 Sep10 Mar-10 Sep-09 TOWER Medical TOWER Medical TOWER Medical TOWER Medical TOWER Medical
Inflation Discount rate Earnings assumption (net of tax) ranges Expenses inflation	11.0% 11.0% 11.5% 12.6% 12.3% 2.5% - 3.5% 2.5% 3.4% 3.5% 3.5% 2.0% 2.0% 2.0% 2.0% 2.0%
Sensitivity analysis - $ millions	Sep11 Mar-11 Sep 10 Mar-10 Sep-09 TOWER Medical TOWER Medical TOWER Medical TOWER Medical TOWER Medical
Base appraisal value Appraisal value assuming: Discount rate 1% higher Investment returns 1% higher Discontinuance rate 10% higher Renewal expenses 10% higher	118.2 117.4 114.0 110.7 104.6 113.7 113.3 109.8 103.0 96.8 119.4 118.5 118.0 114.2 109.9 110.2 114.8 108.3 101.9 95.8 113.6 111.9 108.4 97.3 91.1

TOWER Results Information 30 September 2011 | 9

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Life Insurance

Analysis of profit - Life

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Net premiums	34.5	34.0	32.7	31.7	30.9	30.6
Incurred claims
- Policyholder maturities	(24.0)	(30.3)	(25.5)	(20.2)	(27.7)	(13.2)
- Life claims	(13.4)	(12.5)	(11.5)	(12.1)	(5.9)	(18.2)
Management and sales expenses	(20.8)	(20.2)	(21.9)	(19.7)	(23.1)	(22.0)
Movement in policy liabilities	17.0	19.5	(9.4)	(11.0)	(11.3)	47.7
Investment income/(loss) on assets backing policy liabilities	14.7	15.5	47.7	46.2	50.1	(24.2)
Insurance profit/(loss)	8.0	6.0	12.1	14.9	13.0	0.7
Investment income on shareholders' funds	9.6	1.5	22.7	5.1	3.9	1.2
Profit/(loss) before tax	17.6	7.5	34.8	20.0	16.9	1.9
Income tax (expense)/credit	(6.1)	0.9	(17.6)	(9.8)	(3.6)	5.5
Profit excluding the impact of
Christchurch earthquakes and discount	11.5	8.4	17.2	10.2	13.3	7.4
rate
Net of Christchurch expense	1.0	(2.1)
Discount rate effect	6.4	(4.0)	3.9	0.4	(1.9)	5.1
Profit after tax	18.9	2.3	21.1	10.6	11.4	12.5

Life Insurance - Profit summary

$ millions	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Life insurance operating earnings Planned profits Experience (loss)/profit	8.9 8.7 7.7 7.1 8.0 7.9 (4.2) (1.2) (3.7) 0.7 2.7 (1.1)
Insurance profit net of tax Investment income on shareholders' funds (net of tax)	4.7 7.5 4.0 7.8 10.7 6.8 6.8 0.9 13.2 2.4 2.6 0.6
Underlying profit Discount rate changes Net of Christchurch expense	11.5 8.4 17.2 10.2 13.3 7.4 6.4 (4.0) 3.9 0.4 (1.9) 5.1 1.0 (2.1)
Profit after tax	18.9 2.3 21.1 10.6 11.4 12.5

Comments

Life profit for the half year is materially higher than March 2011. This is primarily due to favourable movements in the discount rate and the investment return, and a reversal of some of the Christchurch Earthquake expense.

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|Life Insurance - Change in embedded value
$ millions|TOWER Life TOWER Health
& Life
58.6
169.3
4.7
15.8
(0.3)
2.3
(4.8)
(1.2)
(1.2)
0.2
(5.0)
(3.4)
0.9
4.8
0.0
0.0
(0.2)
0.0
52.7
187.8
TOWERResults Information 30 September 2011 | 10|
|---|---|
|Embedded value as at 30 September 2010||
|Expected increase in value of in-force
Experience:
Investment earnings
Other
Changes in assumptions:
Investment earnings
Other
Value from new business
Miscellaneous:
Dividend Received / (Paid)
Other||
|Embedded value as at 30 September 2011||

Comments

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

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• A reduction in embedded value for TOWER Life New Zealand, mainly due to a recalibration of earnings expectations for the Group Risk Business;

• Positive value generated TOWER Health & Life new business, partially offset by a negative impact from assumption changes.

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

$ millions	TOWER Life TOWER Health & Life
Value of one year’s new business as at 30 September 2010	1.2 7.2
Change in one year’s volumes and mix of business Changes in assumptions: Other	0.0 0.0 (0.3) (0.9) 0.0 0.0
Value of one year’s new business as at 30 September 2011	0.9 6.3

Comments

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• Our assessment of future new business that we expect to write has reduced from that determined as at September 2010. Slightly lower investment earnings assumptions and higher renewal expenses have been applied.

Refer to page 12 for assumptions used.

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Life Insurance - 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 Sep11 Mar-11 Sep10 Mar-10
Net worth Value of in-force business	18.1 32.3 19.3 31.3 17.5 26.7 18.4 12.7 34.6 155.4 41.9 152.0 41.1 142.7 40.0 133.9
Embedded value	52.7 187.8 61.2 183.3 58.6 169.3 58.4 146.6
Value of one year’s new business	0.9 6.3 1.0 5.6 1.2 7.2 0.9 5.2

Assumptions & Sensitivity Analysis

Life Insurance - Assumptions and sensitivity analysis

Assumptions	TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life Sep11 Mar-11 Sep10 Mar-10
Inflation Discount rate Earnings assumption (net of tax) ranges Expenses inflation	11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.5% 11.5% 3.0% to 4.8% 3.1% 3.5% to 6.0% 3.8% 3.2% to 6.0% 3.4% 3.4% to 6.0% 4.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Sensitivity analysis	TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life TOWER Life TOWER Health & Life Sep11 Mar-11 Sep 10 Mar-10
Base appraisal value Appraisal value assuming: Discount rate 1% higher Investment returns 1% higher Discontinuance rate 10% higher Renewal expenses 10% higher	56.5 212.8 65.2 205.7 63.3 198.3 62.1 167.3 53.7 198.4 62.0 192.5 60.1 184.5 59.2 154.6 65.0 213.8 75.0 207.2 72.9 199.8 71.7 169.0 55.7 195.5 64.3 189.7 62.3 181.4 61.3 152.2 55.3 207.8 63.8 201.3 62.0 193.4 60.1 162.4

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Health & Life - In-force premium (Rolling 12)

			Period ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Individual & Group Health	145.0	140.4	139.8	137.9	135.6	132.2
Individual Life	64.5	60.9	59.1	54.8	51.5	47.9
Group Life	19.4	18.5	17.9	18.2	20.0	18.5
Total in-force premium	228.9	219.8	216.8	210.9	207.1	198.6

Health & Life - Premium from new business

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Individual & Group Health	3.0	3.3	3.5	3.0	3.3	3.0
Individual Life	4.5	4.2	4.3	4.3	5.7	3.8
Group Life	0.9	0.5	1.2	0.5	2.0	0.8
Total new business	8.4	8.0	9.0	7.8	11.0	7.6

Health & Life - Lapses

	Half year ended
%	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Individual & Group Health lapse Individual Life lapse	11.6% 13.2% 10.8% 10.6% 13.4% 11.7% 13.9% 10.9% 11.8% 11.1% 12.0% 11.6%
Health & Life - Claims ratio
	Half year ended
%	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Individual & Group Health Individual Life Group Life	62.2% 58.9% 65.6% 55.0% 59.0% 54.8% 38.9% 36.2% 27.4% 33.1% 31.5% 36.3% 50.1% 84.6% 45.3% 46.8% 66.8% 59.8%
All claims	55.9% 54.3% 55.4% 49.6% 53.5% 51.3%
Total Life	40.7% 42.3% 32.3% 35.8% 38.4% 41.9%

Health & Life - Management and sales expenses

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Management expenses	17.9	18.7	19.5	18.5	20.4	23.2
Commissions	21.4	19.3	20.5	18.7	21.0	17.5
Total expenses	39.3	38.0	40.0	37.2	41.4	40.7

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General Insurance

Analysis of profit - General Insurance

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Net premiums	93.1	91.8	93.9	90.8	95.3	99.7
Incurred claims	(41.8)	(44.6)	(48.3)	(46.0)	(56.7)	(52.8)
Management and sales expenses	(35.0)	(35.9)	(32.3)	(33.6)	(35.2)	(36.2)
Underwriting profit	16.3	11.3	13.3	11.2	3.4	10.7
Investment income on assets backing technical reserves	4.1	2.6	4.7	3.9	4.6	2.6
Insurance profit	20.4	13.9	18.0	15.1	8.0	13.3
Investment income on shareholders' funds	3.4	1.4	3.0	2.4	2.6	1.4
Profit before tax	23.8	15.3	21.0	17.5	10.6	14.7
Income tax expense	(9.1)	(5.3)	(6.5)	(5.6)	(2.7)	(5.3)
Profit excluding the impact of Christchurch earthquakes	14.7	10.0	14.5	11.9	7.9	9.4
Net of Christchurch expense	(16.8)	(5.4)	(4.5)
Profit after tax	(2.1)	4.6	10.0	11.9	7.9	9.4

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

			Period ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
New Zealand	171.8	164.7	163.1	159.1	160.6	164.4
Pacific Islands	45.0	44.5	45.4	46.0	51.7	51.1
Total gross written premiums	216.8	209.2	208.5	205.1	212.3	215.5
Lapse rate	12.7%	13.5%	14.4%	15.5%	16.8%	16.4%

General Insurance - Net premiums and claims

			Half Year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
* Net premiums	78.1	89.1	92.5	90.8	95.3	99.7
Claims	50.9	49.5	53.3	46.0	56.7	52.8
Claims ratio	65.2%	55.6%	57.6%	50.7%	59.5%	53.0%

• Net premiums include net premium costs associated with the Christchurch earthquakes

General Insurance - Underwriting profits

Half Year ended	Half Year ended
$ millions Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Underwriting profit (7.8) 3.7 6.9	11.2 3.4 10.7
* Combined ratio 109.9% 96.0% 92.5%	87.7% 96.4% 89.3%

• Claims and costs to net premium ratio

General Insurance - Management and sales expenses

			Half Year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Management expenses	27.6	29.1	27.4	25.3	26.2	26.5
Commissions	7.4	6.8	4.9	8.3	9.0	9.7
Total expenses	35.0	35.9	32.3	33.6	35.2	36.2

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Investments

Analysis of profit - Investments

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Total income *	19.3	19.0	19.9	18.2	21.0	18.8
Management and sales expenses *	(13.8)	(14.6)	(18.9)	(15.3)	(16.1)	(15.5)
Profit before tax	5.5	4.4	1.0	2.9	4.9	3.3
Income tax expense	(1.8)	(1.3)	(0.2)	(0.9)	(1.4)	(1.0)
Profit after tax	3.7	3.1	0.8	2.0	3.5	2.3

Investments - Funds under management and advice**

	Half year ended
$ millions	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Total funds under management and advice	3,969 3,977 3,907 3,749 3,623 3,402
Total income *	19.3 19.0 19.9 18.2 21.0 18.8
Investments - KiwiSaver
	Half year ended
	Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09
Funds under management - $ millions Number of members Average funds per member - $	673.6 579.2 505.3 402.4 326.5 198.0 99,105 93,231 87,675 82,143 76,957 67,129 6,796 6,212 5,763 4,899 4,243 2,950

Investments - Management and sales expenses

			Half year ended
$ millions	Sep-11	Mar-11	Sep-10	Mar-10	Sep-09	Mar-09
Management expenses	12.6	12.6	16.3	13.2	13.5	13.7
Other expenses	0.0	0.0	0.0	0.1	0.1	0.3
Sales expenses	1.2	2.0	2.6	2.0	2.5	1.5
**Total expenses ***	13.8	14.6	18.9	15.3	16.1	15.5

• 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.

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5

Group appraisal value

Appraisal Value

Appraisal Value
$ millions	Investments Health & Life General Ins Holdings Companies Group Sep-11 Group Sep-10 Group Mar-11
Net worth Value of In-force business	75.9 75.9 72.8 60.0 281.1 281.1 287.0 279.4
Embedded value Value of 1 years new business Value of Future new business	357.0 0.0 0.0 0.0 357.0 359.8 339.4 7.6 7.6 7.1 8.9 30.5 30.5 28.4 36.2
Appraisal value (enterprise value) Fair value of net assets	387.5 0.0 0.0 0.0 387.5 388.2 375.6 166.2 24.7 51.0 241.9 235.8 250.5
Appraisal value	387.5 166.2 24.7 51.0 629.4 624.0 626.1

Comments

• The life companies’ embedded values reduced by a combined $2.8m over the 6 months or a reduction of -0.8%, whilst the appraisal values reduced by $0.7m.

• The value of TOWER Insurance and other companies increased by $6.1m, a return of 2.6%.

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6

Group carrying value / appraisal value

Carrying Value / Appraisal Value

Carrying Value / Appraisal Value
$ millions	Carrying Value of Net Assets Appraisal Value Carrying Value of Net Assets Appraisal Value Sep-10 Mar-10 Sep-11 Carrying Value of Net Assets Appraisal Value Mar-11 Carrying Value of Net Assets Appraisal Value
Health & Life TOWER Health & Life TOWER Medical TOWER Life (NZ)	151.4 212.8 135.4 205.6 133.3 198.3 110.3 167.3 70.7 118.2 67.6 117.4 61.1 114.0 67.0 110.7 28.9 56.5 26.0 65.2 25.8 63.3 29.5 62.1
General Insurance TOWER Insurance	251.1 387.5 229.0 388.2 220.2 375.6 206.8 340.1 128.7 166.2 134.8 165.5 147.7 177.1 140.1 170.3
Investment business TOWER Asset Management TOWER Managed Funds	128.7 166.2 134.8 165.5 147.7 177.1 140.1 170.3 10.6 10.6 8.1 8.1 6.5 6.5 5.5 5.5 14.1 14.1 12.8 12.8 11.3 11.3 10.5 10.5
Other TOWER Group head office	24.7 24.7 20.9 20.9 17.8 17.8 16.0 16.0 132.3 132.3 143.4 143.4 136.2 136.2 133.8 133.8
External debt	(81.3) (81.3) (80.9) (80.9) (80.6) (80.6) (80.3) (80.3)
Total capital employed	455.5 629.4 447.2 637.1 441.3 626.1 416.4 579.9

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-11	Mar-11
Health & Life	154%	170%
TOWER Insurance	129%	123%

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