TOWER LIMITED — Annual Report 2012

Nov 28, 2012

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29 November 2012

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

Information pack - TOWER Limited preliminary results for the year ended 30 September 2012

Further to the announcement today of TOWER’s preliminary results for the year ended 30 September 2012, attached is a results information pack.

Bronwyn Walsh Company Secretary TOWER Limited

ARBN 088 481 234 Incorporated in New Zealand

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Results Information

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Contents

Contents	Contents
Message from Group Managing Director		3
1	Financial overview	4
2	Results summary	5
3	Balance sheet summary	6
4	Business unit performance
	Health
	Analysis of profit – Health	8
	Health Insurance – Profit summary	8
	Life
	Analysis of profit – Life	9
	Life Insurance – Profit summary	9
	Life Insurance – Change in embedded value	10
	Life Insurance – Change in value of one year’s new business	10
	Life Insurance – Embedded value and value of one year’s new business	11
	Life Insurance – Assumptions and sensitivity analysis	11
	Health and Life
	Health & Life – In-force premium	12
	Health & Life – Premium from new business	12
	Health & Life – Lapses	12
	Health & Life – Claims ratio	12
	Health & Life – Management and sales expenses	12
	General Insurance
	Analysis of profit – General Insurance	13
	General Insurance – Gross written premiums 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

2

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2012 Financial Year

Message from Rob Flannagan, Group Managing Director

Despite what continues to be a difficult economic operating environment, the TOWER Group is profitable, maintains a strong balance sheet and is well positioned for organic growth.

As a result, the TOWER Board has declared an unimputed dividend of 6 cents, which will be paid on 1 February 2013. This brings the annual dividend to 11 cents per share (unimputed).

Key financial highlights for the year ended 30 September 2012:

• $55.8m net profit after tax, up 67% on 2011

• Unimputed final dividend of 6 cents per share

• 10% increase in total equity

• Gearing improved to 14.1%

• Net asset backing increased to $1.85 per share

• Capital return of $120.0m planned, subject to court and shareholder approval

Excluding the positive impact of the discount rate movement, TOWER net profit after tax for the year ended 30 September 2012 was $46.8m, even after taking into account continued impacts of Canterbury.

We continue to make industry-leading progress with settling customers’ claims following the Canterbury earthquakes. To date, we have closed almost 60% of claims and have made payments exceeding $200 million, with over $3 million being paid out every week.

Management and staff have worked hard over the past 12 months to better anticipate and deliver to customer needs, while taking a disciplined approach to cost management.

As a result, each of TOWER’s business units –General Insurance, Life, Investments and Health – improved performance over the previous year.

We have been very focused over the past year on improving our engagement with staff, customers and the adviser community, and are seeing this approach translate into solid returns for our shareholders.

Along with enhancing and simplifying our product range, we have introduced a case management approach in our General Insurance business, resulting in a 28% reduction in the time it takes to settle claims, and taken a much more proactive approach to customer retention.

We have also put a great deal of effort into ensuring we have the right people in the right roles, and delivering leadership and development programmes to support them.

The past financial year had been a very busy period for TOWER, with a comprehensive strategic review undertaken to identify opportunities that would deliver long-term benefits to shareholders.

This involved a comprehensive evaluation of aspects of the TOWER Group including capital structure, its existing four business units and strategic acquisition and divestment opportunities.

In November 2012, as a direct outcome of the review, we announced the sale of our Health business.

TOWER is planning to repay capital to shareholders of $120 million, subject to court and shareholder approval.

With the return of capital planned, the company’s dividend reinvestment plan will not operate for this dividend payment and all shareholders will receive the cash dividend payment.

We are clearly focused on a range of goals for the financial year ending 30 September 2013. Activities will focus on six key initiatives – customer retention, distribution, interaction with advisers, KiwiSaver, product simplification and pricing.

3

1 Financial Overview

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HALF YEAR ENDED
$ M I L L I O N S ( U N L E S S S TAT E D O T H E R W I S E ) SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
PREMIUM AND FUNDS
Group gross premium 498.3 471.0 445.8 429.0 425.3 416.0
Funds under management / advice 4,224.8 4,116.1 3,969.0 3,977.5 3,906.8 3,748.5
PROFIT
Net profit after tax 32.2 23.6 20.4 13.0 30.0 28.1
Profit excluding the impact of discount rate [1] 24.0 22.8 14.0 17.0 26.1 27.7
EQUITY
Net assets 498.8 476.6 455.5 447.2 441.3 416.4
Shares on issue (millions) 269.1 266.4 265.2 263.6 260.6 258.7
DIVIDEND
Cents per share 6.0 5.0 2.0 4.0 6.0 4.0
Dividend to earnings per share 50% 57% 26% 82% 52% 37%
EARNINGS RATIOS
Earnings per share (cents per share)
Profit attributed to shareholders 11.95 8.80 7.65 4.89 11.45 10.88
Return on equity (annualised) [2]
Profit attributed to shareholders 13.1% 10.1% 9.1% 5.9% 13.9% 13.7%
Profit excluding the impact of discount rate [1] 9.7% 9.9% 6.2% 7.7% 12.1% 13.5%
CAPITAL STRENGTH
Gearing gross 14.1% 14.6% 15.1% 15.3% 15.4% 16.2%
Interest cover (times) [1] 13.4 9.4 8.3 4.1 14.1 12.0
Financial strength rating - Health [3] A- A- A- A- A- A-
Financial strength rating - Life A- A- A- A- A- A-
Financial strength rating - General Insurance A- A- A- A- A- A-
INSURANCE PROFIT RATIOS
Insurance profit/(loss) to net earned premium ratio - Health [3] 10.7% 12.0% 5.3% 10.3% 1.9% 12.4%
Insurance profit/(loss) to net earned premium ratio - Life [1] 48.3% 40.0% 26.4% 10.9% 37.1% 46.9%
Insurance profit/(loss) to net earned premium ratio - General
Insurance [1] 6.9% 8.1% (4.8%) 7.1% 12.5% 16.6%
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1 Calculation includes impact of catastrophe events in all periods.

2 Return on Equity is half year profits and half year average equity annualised

3 Classified as discontinued operations in the Group financials in accordance with accounting standards.

4

2 Results Summary

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HALF YEAR ENDED
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Health [1] 9.0 9.4 4.7 9.1 1.6 9.6
Life 24.7 19.5 18.7 5.2 34.8 20.0
General Insurance 10.6 9.2 (0.3) 7.7 14.6 17.5
Investments 4.7 5.0 5.5 4.4 1.0 2.9
Finance & corporate expenses (7.0) (7.2) (5.0) (4.8) (4.9) (4.5)
Profit before tax 42.0 35.9 23.6 21.6 47.1 45.5
Income tax (expense)/credit (18.0) (13.1) (9.6) (4.6) (21.0) (17.8)
Profit excluding the impact of discount rate 24.0 22.8 14.0 17.0 26.1 27.7
Discount rate effect 8.3 0.7 6.4 (4.0) 3.9 0.4
Profit from continuing operations 32.2 23.6 20.4 13.0 30.0 28.1
R E S U LT S F O R 1 2 M O N T H S T O 3 0 S E P T E M B E R 2 0 1 2
$ M I L L I O N S
Insurance profit and operating earnings 16.5 15.2 14.8 9.7 56.3 17.5 73.8
Investment income on shareholders’ funds 1.9 11.4 5.0 3.4 21.7 21.7
Corporate expenses (9.7) (9.7) (9.7)
Financing costs (7.9) (7.9) (7.9)
Profit/(loss) before tax 18.4 26.6 19.8 9.7 (14.2) 60.4 17.5 78.0
Tax (expense)/credit (5.1) (2.9) (6.6) (2.7) 3.8 (13.6) (17.5) (31.1)
Profit excluding the impact of discount rate 13.3 23.7 13.2 7.0 (10.4) 46.8 0.0 46.8
Discount rate effect 9.0 9.0 9.0
Profit/(loss) after tax 13.3 32.7 13.2 7.0 (10.4) 55.8 0.0 55.8
R E S U LT S F O R 1 2 M O N T H S T O 3 0 S E P T E M B E R 2 0 1 1
Insurance profit and operating earnings [2] 10.9 6.4 2.6 9.9 29.8 4.8 34.6
Investment income on shareholders’ funds 2.9 12.9 4.8 5.3 25.9 25.9
Corporate expenses (7.3) (7.3) (7.3)
Financing costs (7.8) (7.8) (7.8)
Profit/(loss) before tax [2] 13.8 19.3 7.4 9.9 (9.8) 40.6 4.8 45.4
Tax (expense)/credit (4.1) (0.5) (4.9) (3.1) 3.0 (9.6) (4.8) (14.4)
Profit excluding the impact of discount rate [2] 9.7 18.8 2.5 6.8 (6.8) 31.0 0.0 31.0
Discount rate effect 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
INSURANCE1 HEALTH SHAREHOLDER LIFE INSURANCE GENERAL INvESTMENTS CORPORATE SHAREHOLDER GROUP POLICYHOLDER LIFE GROUP TOTAL
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1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

2 Includes all Canterbury earthquake expenses. These were separated in September 2011 results information pack.

5

3 Balance Sheet Summary

S E P T E M B E R 2 0 1 2

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HEAD
GENERAL OFFICE & GROUP GROUP
$ M I L L I O N S HEALTH [1] LIFE INSURANCE INvESTMENTS ELIMINATIONS SEP-12 SEP-11
Cash & call deposits [2] 13.3 21.3 87.6 0.6 76.9 199.7 152.9
Total investment assets 92.2 789.8 154.7 0.0 0.0 1,036.7 1,029.8
Deferred acquisition costs 22.4 0.0 17.1 6.3 45.8 42.4
Intangible assets 0.0 13.1 17.7 51.1 81.9 72.7
Other operational assets/(liabilities) 26.6 71.8 487.9 22.8 (7.8) 601.3 678.7
Total assets 154.5 896.0 765.0 29.7 120.2 1,965.4 1,976.5
Policy liabilities & insurance provisions (79.6) (628.0) (554.7) (1,262.3) (1,326.3)
External debt (82.0) (82.0) (81.3)
Other operational (liabilities)/assets (11.0) (48.3) (48.7) (4.5) (9.8) (122.3) (113.4)
Total liabilities (90.6) (676.3) (603.4) (4.6) (91.8) (1,466.6) (1,521.0)
Total equity 63.9 [3] 219.7 161.6 25.2 28.4 498.8 455.5
Investment assets breakdown
Cash in transit [2] 0.0
Fixed interest securities (NZ) 88.9 552.8 75.5 0.0 717.2
Fixed interest securities (AUS) 0.0 37.5 37.5
Fixed interest securities (International) 5.2 29.7 34.9
Total fixed interest securities 88.9 558.0 142.7 0.0 789.6
Equity securities (NZ) 45.1 45.1
Equity securities (AUS) 0.0 0.0 0.0
Equity securities (International) 48.1 4.4 52.5
Total equities securities 0.0 93.2 4.4 0.0 97.6
Property securities 47.6 7.6 0.0 55.2
Derivative financial instruments 3.3 91.0 0.0 94.3
Total investment assets 92.2 789.8 154.7 0.0 0.0 1,036.7
Credit ratings for investment assets SEP-12
Investment assets subject to credit rating
AAA 361.9
AA 662.7
A 22.7
BBB or below 15.6
Unrated investments 20.6
1,083.5
Investment assets not subject to credit rating
Fixed interest securities 0.0
Equity securities 97.6
Property securities 55.3
152.9
Total cash and investment assets 1,236.4
Cash and call deposits 199.7
Investment assets 1,036.7
Total cash and investment assets 1,236.4
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• 1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

• 2 Cash in transit has been included in the call deposits portfolio.

3 Excludes goodwill relating to the Health business of $13.1m, included with Life.

6

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S E P T E M B E R 2 0 1 1

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HEAD
OFFICE & GROUP GROUP
$ M I L L I O N S HEALTH [1] LIFE GENERAL INS INvESTMENTS ELIMINATIONS SEP-11 SEP-10
Cash & call deposits 11.6 6.5 36.6 2.3 95.9 152.9 138.5
Total investment assets 76.5 784.8 168.4 0.1 1,029.8 1,094.3
Deferred acquisition costs 20.7 0.0 14.7 7.0 42.4 43.6
Intangible assets 0.0 13.1 17.7 41.9 72.7 55.0
Other operational assets/(liabilities) 43.7 61.0 557.3 24.7 (8.0) 678.7 286.2
Total assets 152.5 865.4 794.7 34.1 129.8 1,976.5 1,617.6
Policy liabilities & insurance provisions (80.9) (625.6) (619.8) (1,326.3) (980.4)
External debt (81.3) (81.3) (80.6)
Other operational (liabilities)/assets (13.9) (46.4) (46.2) (9.4) 2.5 (113.4) (115.3)
Total liabilities (94.8) (672.0) (666.0) (9.4) (78.8) (1,521.0) (1,176.3)
Total equity 57.7 193.4 128.7 24.7 51.0 455.5 441.3
Investment assets breakdown
Cash in transit 16.6 29.0 25.6 71.2
Fixed interest securities (NZ) 70.5 410.9 59.6 541.0
Fixed interest securities (AUS) 43.5 43.5
Fixed interest securities (International) 2.9 27.3 30.2
Total fixed interest securities 87.1 442.8 156.0 685.9
Equity securities (NZ) 48.0 48.0
Equity securities (AUS) 0.0
Equity securities (International) 129.2 3.1 132.3
Total equities securities 0.0 177.2 3.1 180.3
Property securities 79.1 9.3 0.1 88.5
Derivative financial instruments 6.0 69.1 75.1
Total investment assets 93.1 768.2 168.4 0.1 1,029.8
Credit ratings for investment assets SEP-11
Investment assets subject to credit rating
AAA 216.0
AA 566.8
A 37.1
BBB or below 5.4
Unrated investments 77.4
902.7
Investment assets not subject to credit rating
Fixed interest securities 11.2
Equity securities 180.3
Property securities 88.5
280.0
Total cash and investment assets 1,182.7
Cash and call deposits 152.9
Investment assets 1,029.8
Total cash and investment assets 1,182.7
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1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

7

4 Business Unit Performance

Health Insurance[[1]] - Analysis of profit

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HALF YEAR ENDED
Health Insurance [[1]] -
Analysis of profit
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Net premium 73.6 72.6 70.9 69.7 68.2 67.7
Incurred claims (41.3) (37.3) (39.9) (37.1) (44.7) (37.3)
Premium payback payments (9.6) (9.0) (10.2) (9.9) (7.3) (6.0)
Management and sales expenses (19.2) (19.0) (18.6) (17.8) (18.1) (17.5)
Movement in policy liabilities 2.0 0.2 (2.2) 3.2 (3.5) (0.1)
Investment income on assets backing policy liabilities 2.3 1.2 3.7 (0.9) 6.7 1.6
Insurance profit/(loss) 7.8 8.7 3.7 7.2 1.3 8.4
Investment income on shareholders' funds 1.2 0.7 1.0 1.9 0.3 1.2
Profit before tax 9.0 9.4 4.7 9.1 1.6 9.6
Income tax expense (2.5) (2.6) (1.5) (2.6) (0.8) (2.9)
Profit after tax 6.5 6.8 3.2 6.5 0.8 6.7
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Health Insurance[1] - Profit summary

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$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Health insurance operating earnings [1]
Planned profits 3.7 6.2 5.0 7.0 5.3 6.9
Experience (loss)/profit 1.9 0.1 (2.5) (1.8) (4.7) (1.1)
Insurance profit net of tax 5.6 6.3 2.5 5.2 0.6 5.8
Investment income on shareholders' funds (net of tax) 0.9 0.5 0.7 1.3 0.2 0.9
Profit after tax 6.5 6.8 3.2 6.5 0.8 6.7
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Comments

Health Insurance profit has reduced from the March 2012 half year mainly due to seasonal effects. Underlying profit is strong due to increased premiums and lower management expenses. Net profit is $3.3m higher than the corresponding period last year.

1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

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Life - Analysis of profit

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HALF YEAR ENDED
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Net premiums 38.0 36.0 34.5 34.0 32.7 31.7
Policyholder maturities (20.5) (21.7) (24.0) (30.4) (25.5) (20.3)
Life claims (15.0) (13.5) (13.4) (12.4) (11.5) (12.0)
Life claims catastrophe 0.0 0.0 1.1 (2.3)
Management and sales expenses (20.7) (19.2) (20.8) (20.2) (21.9) (19.7)
Movement in policy liabilities (18.2) 0.5 17.0 19.5 (9.4) (11.0)
Investment income/(loss) on assets backing policy
liabilities 54.8 32.3 14.7 15.5 47.7 46.2
Insurance profit/(loss) 18.4 14.4 9.1 3.7 12.1 14.9
Investment income on shareholders’ funds 6.3 5.1 9.6 1.5 22.7 5.1
Profit/(loss) before tax 24.7 19.5 18.7 5.2 34.8 20.0
Income tax (expense)/credit (13.4) (7.1) (6.2) 1.1 (17.6) (9.8)
Profit excluding the impact of discount rate 11.3 12.4 12.5 6.3 17.2 10.2
Discount rate effect 8.3 0.7 6.4 (4.0) 3.9 0.4
Profit after tax 19.6 13.1 18.9 2.3 21.1 10.6
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Life - Profit summary

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$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Life insurance operating earnings
Planned profits 8.8 8.2 8.9 8.7 7.7 7.1
Experience (loss)/profit (3.1) 0.5 (3.2) (3.3) (3.7) 0.7
Insurance profit net of tax 5.7 8.7 5.7 5.4 4.0 7.8
Investment income on shareholders’ funds (net of tax) 5.6 3.7 6.8 0.9 13.2 2.4
Underlying profit 11.3 12.4 12.5 6.3 17.2 10.2
Discount rate changes 8.3 0.7 6.4 (4.0) 3.9 0.4
Profit after tax 19.6 13.1 18.9 2.3 21.1 10.6
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Comments

Strong underlying claims experience, was more than offset by unfavourable lapse experience.

Investment income on assets backing policyholder liabilities was high as a result of gains on fixed interest investments. Policyholder liabilities also increased due to the same effect.

There was also a significant discount rate effect which boosted profit after tax by $8.3m during the second half.

9

Life Insurance - Change in embedded value

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TOWER HEALTH
$ M I L L I O N S TOWER LIFE & LIFE
Embedded value as at 30 September 2011 52.7 187.8
Expected increase in value of in-force 3.8 19.1
Experience:
Investment earnings (0.2) 1.5
Other 0.6 9.4
Changes in assumptions:
Investment earnings (15.6) (5.0)
Other 2.0 5.8
value from new business 0.6 0.9
Miscellaneous:
Dividend Received / (Paid) (6.5) 0.0
Other 0.0 0.1
Embedded value as at 30 September 2012 37.4 219.6
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Comments

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

▪ A reduction in embedded value for TOWER Life New Zealand, mainly due to a reduction in assumed future investment earnings and dividends. The reduction in investment earnings is a result of a change in mix in investment strategy from 65/35 ratio of fixed interest to growth assets to a 80/20 ratio.

▪ The value of TOWER Health & Life has increased as premium increases and imputation credits associated with the new tax basis have now been recognised. Also the risk discount rate has reduced from 11% to 10% partially reflecting the reduction in the risk-free discount rate over the last 2-3 years.

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

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TOWER HEALTH
$ M I L L I O N S TOWER LIFE & LIFE
Value of one year’s new business as at 30 September 2011 0.9 6.3
Change in one year’s volumes and mix of business 0.0 (0.1)
Changes in assumptions: (0.9) (1.0)
Other 0.0 0.5
Value of one year’s new business as at 30 September 2012 0.0 5.7
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Comments

The value of future new business has reduced to nil for TOWER Life NZ because there is currently an expense overrun associated with Group Risk business.

The value of new business for TOWER Health and Life has been reviewed to take into account the recent changes to life insurance taxation and also the change in discount rate. The level of profitability is marginally lower than March.

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

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SEP-12 MAR-12 SEP-11 MAR-11
TOWER TOWER TOWER TOWER
$ M I L L I O N S TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE
Net worth 15.4 35.8 17.4 43.1 18.1 32.3 19.3 31.3
value of in-force business 22.0 183.8 32.0 159.5 34.6 155.4 41.9 152.0
Embedded value 37.4 219.6 49.4 202.6 52.7 187.8 61.2 183.3
Value of one year’s new business 0.0 5.7 0.9 5.8 0.9 6.3 1.0 5.6
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Life Insurance - Assumptions and sensitivity analysis

Assumptions	SEP-12 MAR-12 SEP-11 TOWER TOWER TOWER	MAR-11	TOWER
	TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE	TOWER LIFE	HEALTH & LIFE
Inflation
Discount rate	10.0% 10.0% 11.0% 11.0% 11.0% 11.0%	11.0%	11.0%
	2.4% to 2.9% to 3.0% to	3.5% to
Earnings assumption (net of tax) ranges	2.7% 2.5% 4.5% 3.1% 4.8% 3.1%	6.0%	3.8%
Expenses inflation	2.0% 2.0% 2.0% 2.0% 2.0% 2.0%	2.0%	2.0%

	Sensitivity analysis	SEP-12 MAR-12 SEP-11 TOWER TOWER TOWER	MAR-11	TOWER
$	M I L L I O N S	TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE TOWER LIFE HEALTH & LIFE	TOWER LIFE	HEALTH & LIFE
	Base appraisal value	37.4 242.5 53.3 225.5 56.5 212.8	65.2	205.7
	Appraisal value assuming:
	Discount rate 1% higher	35.4 225.8 50.7 211.6 53.7 198.4	62.0	192.5
	Investment returns 1% higher	44.9 247.5 60.7 227.1 62.8 213.8	72.4	207.2
	Discontinuance rate 10% higher	37.5 222.9 52.8 208.0 55.7 195.5	64.3	189.7
	Renewal expenses 10% higher	35.7 233.9 52.4 220.0 55.3 207.8	63.8	201.3

1 1

Health & Life - In-force premium

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PERIOD ENDED
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Individual & Group Health [1] 149.3 146.3 145.0 140.4 139.8 137.9
Individual Life 69.1 66.8 64.5 60.9 59.1 54.8
Group Life 20.0 19.9 19.4 18.5 17.9 18.2
Total in-force premium 238.4 233.0 228.9 219.8 216.8 210.9
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Health & Life - Premium from new business

Hlh & LifPi f bi
eat e -remum rom new usness $ M I L L I O N S	SEP-12	MAR-12	HALF YEAR SEP-11		ENDED MAR-11		SEP-10	MAR-10
Individual & Group Health1	3.9	2.6	3.0			3.3	3.5	3.0
Individual Life	5.0	4.3	4.5			4.2	4.3	4.3
Group Life	0.4	0.8	0.9			0.5	1.2	0.5
Total new business	9.3	7.7	8.4			8.0	9.0	7.8

Health & Life -Lapses % SEP-12	MAR-12	HALF YEAR SEP-11	HALF YEAR SEP-11	ENDED MAR-11	SEP-10	MAR-10
Individual & Group Health lapse1 11.1%	10.6%	11.6%		13.2%	10.8%	10.6%
Individual Life lapse 15.3%	12.1%	13.9%		10.9%	11.8%	11.1%
Health & Life -Claims ratio % SEP-12	MAR-12	HALF YEAR SEP-11		ENDED MAR-11	SEP-10	MAR-10
Individual & Group Health1 60.2%	56.2%	62.2%		58.9%	65.6%	55.0%
Individual Life 28.8%	28.2%	38.9%		36.2%	27.4%	33.1%
Group Life 54.6%	42.0%	50.1%		84.6%	45.3%	46.8%
All claims 52.0%	48.6%	55.9%		54.3%	55.4%	49.6%
Total Life 33.5%	30.3%	40.7%		42.3%	32.3%	35.8%

Health & Life -Management and sales expenses $ M I L L I O N S SEP-12	MAR-12	HALF YEAR SEP-11	HALF YEAR SEP-11	ENDED MAR-11	ENDED MAR-11	SEP-10 MAR-10
Management expenses 20.1	19.3	17.9			18.7	19.5 18.5
Commissions 19.9	18.8	21.4			19.3	20.5 18.7
Total expenses 39.9	38.1	39.3			38.0	40.0 37.2

1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

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General Insurance - Analysis of profit

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HALF YEAR ENDED
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Net premiums 103.9 93.9 78.1 89.2 92.5 90.8
- Gross earned premiums 125.0 113.9 106.2 102.1 104.8 101.5
- Reinsurance (21.1) (20.0) (13.2) (10.2) (10.9) (10.7)
- Catastrophe reinsurance reinstatement 0.0 0.0 (14.9) (2.7) (1.4)
Claims (46.4) (44.9) (41.8) (44.6) (48.3) (46.0)
Claims catastrophe [1] (14.7) (5.5) (9.1) (5.0) (5.0)
Management and sales expenses (40.1) (38.8) (35.0) (35.9) (32.3) (33.6)
Underwriting profit/(loss) 2.7 4.7 (7.8) 3.7 6.9 11.2
Investment income on assets backing technical
reserves 4.5 2.9 4.1 2.6 4.7 3.9
Insurance profit 7.2 7.6 (3.7) 6.3 11.6 15.1
Investment income on shareholders’ funds 3.4 1.6 3.4 1.4 3.0 2.4
Profit before tax 10.6 9.2 (0.3) 7.7 14.6 17.5
Income tax expense (2.8) (3.8) (1.8) (3.1) (4.6) (5.6)
Profit/(loss) after tax 7.8 5.4 (2.1) 4.6 10.0 11.9
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1 Events >$1m. Includes $9.4m after tax provision in relation to the February 2011 event

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General Insurance - Gross written premiums (Rolling 12)
and lapses HALF YEAR ENDED
$ M I L L I O N S SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
New Zealand 206.5 190.1 171.8 164.7 163.1 159.1
Pacific Islands 53.4 47.9 45.0 44.5 45.4 46.0
Total gross written premiums 259.9 238.0 216.8 209.2 208.5 205.1
Lapse rate 13.7% 13.3% 12.7% 13.5% 14.4% 15.5%
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General Insurance -Net premiums and claims $ M I L L I O N S SEP-12	MAR-12	HALF YEAR SEP-11	HALF YEAR SEP-11	ENDED MAR-11	SEP-10 MAR-10
Net premiums 103.9	93.9	78.1		89.2	92.5 90.8
Claims 61.1	50.4	50.9		49.6	53.3 46.0
Claims ratio1 58.8%	53.7%	65.2%		55.6%	57.6% 50.7%

General Insurance -Underwriting profts $ M I L L I O N S SEP-12	MAR-12	HALF YEAR SEP-11	HALF YEAR SEP-11	ENDED MAR-11	SEP-10 MAR-10
Underwriting profit/(loss) 2.7	4.7	(7.8)		3.7	6.9 11.2
Combined ratio2 97.4%	95.0%	109.9%		96.0%	92.5% 87.7%

General Insurance - Management and sales expenses

enera nsurance -anagement an saes expens $ M I L L I O N S SEP-12	es	MAR-12	HALF YEAR SEP-11	HALF YEAR SEP-11	ENDED MAR-11	ENDED MAR-11	SEP-10 MAR-10
Management expenses 32.2		30.8	27.6			29.1	27.4 25.3
Commissions 7.9		8.0	7.4			6.8	4.9 8.3
Total expenses 40.1		38.8	35.0			35.9	32.3 33.6

1 Includes catastrophe events 2 Claims and costs to net premium ratio

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Investments - Analysis of profits

	HALF YEAR ENDED
$ M I L L I O N S	SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Total income	16.3 18.9 19.3 19.0 19.9 18.2
Management and sales expenses	(11.6) (13.9) (13.8) (14.6) (18.9) (15.3)
Profit before tax	4.7 5.0 5.5 4.4 1.0 2.9
Income tax expense	(1.3) (1.4) (1.8) (1.3) (0.2) (0.9)
Profit after tax	3.4 3.6 3.7 3.1 0.8 2.0

Investments - Funds under management and advice[1]

nvestments -uns uner management a	n avce		HALF YEAR ENDED	HALF YEAR ENDED
$ M I L L I O N S	SEP-12	MAR-12	SEP-11	MAR-11	SEP-10	MAR-10
Total funds under management and advice	4,225	4,116	3,969	3,977	3,907	3,749
Total income	16.3	18.9	19.3	19.0	19.9	18.2

Investments - KiwiSaver

IKiiS
nvestments -waver	HALF YEAR ENDED
$ M I L L I O N S	SEP-12 MAR-12 SEP-11 MAR-11 SEP-10	MAR-10
Funds under management	862.8 764.1 673.6 579.2 505.3	402.4
Number of members	105,363 103,010 99,105 93,231 87,675	82,143
Average funds per member	8,189 7,418 6,796 6,212 5,763	4,899

Investments - Management and sales expenses

nvestments -anagement an saes expe	nses HALF YEAR ENDED
$ M I L L I O N S	SEP-12 MAR-12 SEP-11 MAR-11 SEP-10 MAR-10
Management expenses	10.1 11.7 12.6 12.6 16.3 13.2
Other expenses	0.0 0.0 0.0 0.0 0.0 0.1
Sales expenses	1.5 2.2 1.2 2.0 2.6 2.0
Total expenses	11.6 13.9 13.8 14.6 18.9 15.3

1 Total funds under management includes funds from Kiwisaver.

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5 Group appraisal value

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GENERAL HOLDINGS GROUP GROUP GROUP
$ M I L L I O N S HEALTH [1] LIFE INSURANCE INvESTMENTS COMPANIES SEP-12 MAR-12 SEP-11
Net worth 0.0 51.2 51.2 60.5 50.4
value of In-force business 0.0 205.8 205.8 191.4 190.0
Embedded value [2] 0.0 257.0 0.0 0.0 0.0 257.0 251.9 240.5
value of 1 years new business 0.0 5.7 5.7 6.7 7.2
value of Future new business 0.0 22.9 22.9 26.9 28.8
Appraisal value (enterprise value) [2] 0.0 279.9 0.0 0.0 0.0 279.9 278.8 269.3
Fair value of net assets 242.2 25.2 28.4 295.8 244.9 241.9
Appraisal value [2] 0.0 279.9 242.2 25.2 28.4 575.7 523.7 511.2
Health appraisal value Mar-12 and Sep-11 [1] 121.1 118.2
Total appraisal value [3] 644.8 629.4
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Comments

▪ The life companies’ embedded values (excluding Health) increased by a combined $5.1m over the 6 months or 2%, whilst the appraisal values increased by $1.1m.

▪ The value of TOWER Insurance and other companies increased by $50.9m, a return of 20.8%.

1 Classified as discontinued operations in the Group financials in accordance with accounting standards.

2 Excludes Health

3 Sep-12 excludes Health. Mar-12 and Sep-11 includes Health

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6 Group Carrying Value / Appraisal Value

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SEP-12 MAR-12 SEP-11 MAR-11
CARRYING CARRYING CARRYING CARRYING
vALUE OF APPRAISAL vALUE OF APPRAISAL vALUE OF APPRAISAL vALUE OF APPRAISAL
$ M I L L I O N S NET ASSETS vALUE NET ASSETS vALUE NET ASSETS vALUE NET ASSETS vALUE
Health & Life
TOWER Health & Life 179.7 242.5 166.3 225.5 151.4 212.8 135.4 205.6
TOWER Life (NZ) 26.9 37.4 27.1 53.3 28.9 56.5 26.0 65.2
206.6 279.9 193.4 278.8 180.4 269.3 161.4 270.8
General Insurance
TOWER Insurance 161.6 242.2 134.7 173.9 128.7 166.2 134.8 165.5
161.6 242.2 134.7 173.9 128.7 166.2 134.8 165.5
Investment Business
TOWER Asset Management 10.7 10.7 9.2 9.2 10.6 10.6 8.1 8.1
TOWER Managed Funds 14.5 14.5 12.7 12.7 14.1 14.1 12.8 12.8
25.2 25.2 21.9 21.9 24.7 24.7 20.9 20.9
Other
TOWER Group head office 110.4 110.4 130.7 130.7 132.3 132.3 143.4 143.4
External debt (82.0) (82.0) (81.6) (81.6) (81.3) (81.3) (80.9) (80.9)
Total capital employed 421.8 575.7 399.1 523.7 384.8 511.2 379.6 519.7
TOWER Medical [1] 77.0 77.5 121.1 70.7 118.2 67.6 117.4
Total capital employed 498.8 476.6 644.8 455.5 629.4 447.2 637.1
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Comments

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

1 Classified as discontinued operations in the Group financials in accordance with accounting standards. 2 Ratio is Life only at Sept 12

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