TOWER LIMITED — Interim / Quarterly Report 2014

May 26, 2014

Leading light

Half year results to 31 March 2014 27 May 2014

Leading light

This presentation has been prepared by TOWER Limited to provide shareholders with information on TOWER’s business. This document is part of, and should be read in conjunction with an oral briefing to be given by TOWER. A copy of this webcast of the briefing is available at http://www.tower.co.nz/investor-centre/

It contains summary information about TOWER as at 31 March 2014, which is general in nature, and does not purport to contain all information a prospective investor should consider when evaluating an investment. It is not an offer or invitation to buy TOWER shares.

Investors must rely on their own enquiries and seek appropriate professional advice in relation to the information and statements in relation to the proposed prospects, business and operations of TOWER. The data contained in this document is for illustrative purposes only. Past performance is not a guarantee of future performance and must not be relied on as such.

Forward looking statements

This document contains certain forward-looking statements. Such statements relate to events and depend on circumstances that will occur in the future and are subject to risks, uncertainties and assumptions. There are a number of factors which could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements, including, among others: the enactment of legislation or regulation that may impose costs or restrict activities; the re-negotiation of contracts; fluctuations in demand and pricing in the industry; fluctuations in exchange controls; changes in government policy and taxation; industrial disputes; and war and terrorism. These forward-looking statements speak only as at the date of this document. Solvency estimates contained herein are yet to be reviewed by the Reserve Bank of New Zealand.

Disclaimer

Neither TOWER nor any of its advisers or any of their respective affiliates, related bodies corporate, directors, officers, partners, employees and agents (other persons) makes any representation or warranty as to the currency, accuracy, reliability or completeness of information in this presentation.

To the maximum extent permitted by law, TOWER and the Other Persons expressly disclaim any liability incurred as a result of the information in this Presentation being inaccurate or incomplete in any way.

The statements made in this presentation are made only as at the date of this presentation. The accuracy of the information in this presentation remains subject to change without notice.

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2

Michael Stiassny Chairman

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“Deliver attractive shareholder returns by growing a general insurance business that is a leading light in New Zealand and the Pacific”

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3

Progress on strategy

New operating model implemented

after tax General insurance first half net profit up strongly

First half dividend 6.5 cents, up 30%

Capital returned via buy back and bonds repaid

TOWER has further surplus capital to support shareholder returns and growth

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4

David Hancock CEO

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5

What we are covering today

+ Performance highlights

+ General insurance and operations

+ Capital and risk management

+ Strategy and outlook

6

solid result despite weather events

Performance highlights

General Insurance profit up strongly, supported by rate Investment in brand, product and service to support increases due to rising reinsurance costs growth in direct and alliance channels Improved customer satisfaction reflected in rising Focus on staff engagement, efficiency and cost structure Net Promoter Score and lower policy lapse rates to support growth in multiple channels Pacific earnings recovery and identified growth path Capital returned, bonds repaid and strong solvency through strong brands and alliances maintained. Canterbury rebuild supports progress toward capital release

Improved customer satisfaction reflected in rising Net Promoter Score and lower policy lapse rates

Pacific earnings recovery and identified growth path through strong brands and alliances

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Financial highlights

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change on
HY14 HY13
pcp
General insurance
Reported
Gross written premium ($m) 139.2 132.5 5%
General insurance NPAT ($m) 11.8 (14.8) na
Underlying [1]
Claims ratio (%) 50.4% 52.1% -170bp
Combined ratio (%) 88.3% 91.0% -270bp
13.5 9.7 39%
Underwriting profit ($m)
General insurance NPAT ($m) 13.1 5.9 122%
Group
Reported NPAT ($m) 13.1 44.2 -70%
EPS (c) [2] 4.96 (3.5) na
DPS (c) 6.5 5.0 30%
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delivering
financial
performance
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• Combined ratio improved

• Underlying General Insurance NPAT up 122%

• Adverse weather impacting industry returns

• EPS remains in transition

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1. Excludes impact of the Canterbury earthquakes and the discontinuation of the Australian business. Refer page 34 for overview of abnormals 2. Includes profit attributable to shareholders from ongoing operations only

8

Performance indicators

Net earned premium ($m) Underlying expense ratio (%)

Gross written premium ($m) Underlying combined ratio (%)

GROSS WRITTEN PREMIUM

NET EARNED PREMIUM

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160
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160
120
87.6 90.3% 91.0% 88.3%
80 82.6% 83.4% 85.9%
40
0
Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14
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120
80
39.1% 41.3% 38.9% 37.9%
40 37.6% 38.5% 36.9%
0 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14
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Excluding Canterbury and Australia revaluation and foreign exchange loss ($m)

Claims excluding Canterbury ($m)

CLAIMS

UNDERWRITING PROFIT

Claims ratio excluding Canterbury and Australia revaluation (%)

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80
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20
16
12
8
4
0
Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14
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60
40 48.5% 49.0% 52.1% 50.4%
49.0%
45.0% 44.9%
20
0 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14
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revenue
and margins
improving
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1. Refer page 34 for overview of abnormals

A New Zealand and Pacific insurer

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solid
base
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HY14:

HY14:

As at 31 March 2014:

As at 31 March 2014:

$139.2m

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(6 MONTHS)
GWP
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$13.1m

1 UNDERLYING NPAT

496,167

26 6 496,167 4,5 5 Inforce policies Clients2

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New Zealand 82%
Pacific Islands 18%
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New Zealand 79%
Pacific Islands 21%
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New Zealand 87%
Pacific Islands 13%
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New Zealand 86%
Pacific Islands 14%
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New Zealand - Direct 280k 1%[3] New Zealand - Alliances 153k 4%[3]

1. Excludes impact of the Canterbury earthquakes and the discontinuation of the Australian business. Refer page 34 for overview of abnormals

2. One customer can be comprised of multiple clients

3. Movement since September 2013

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10

Priorities

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TOWER
roadmap
The
Vision leading light
in New Zealand
general insurance
Customer
satisfaction
Staff Net promoter score
Strategic pillars engagement
AonHewitt survey
Financial
performance
Capital
Value-added efficiencies
services
Key enablers
Direct + alliance
Product channels
bundling
Data
insights
Outcomes Shareholder
Returns
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execution on
priorities
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Customer retention and growth

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customer
focus
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NET PROMOTER SCORE (NPS)

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30
25
24
17 20
19
15
12
10
6
0
Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14
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• Net promoter score (NPS) is a benchmark for customer loyalty

• Promoters will

• hold more policies with us

• hold higher value policies

• stay with us longer

• NPS improved from 6 to 25 between November and May

• Specialist save team established with 80% save rate

• Cross-selling between lines to increase multiple policies

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METHODOLOGY
Customers are asked:
“On a scale of 0 to 10,
how likely would you be
to recommend TOWER
to family, friends or
colleagues?”
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• Lower lapse rates supports revenue, with improvement from 13.7% to 13.5%[1] in last half

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12

1. Premium lapse rate excludes FinTel

Customer focus – brand

Powerful brand and product initiatives

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customer focus
to unlock brand
potential
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• Refreshing our brand with multi-channel lighthouse campaign, building on TOWER’s legacy of more than 140 years of looking out for Kiwis

• Response has been strong with improvement in key brand attributes including being flexible and easy to do business with

• Significant opportunity to further leverage brand to improve share of new business

• Product innovation a key focus – introduction of telematics into New Zealand through SmartDriver app

• App downloads ahead of expectations and reviews positive, helping position TOWER as a product innovator

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Leadership in Pacific markets

HY14 GWP BREAKDOWN BY CHANNEL

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HY14 GWP BREAKDOWN
BY DISTRIBUTION
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PNG 35%
Fiji 27%
Samoa [1] 16%
Cook Islands 9%
Solomon Islands 8%
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Alliances 17% Broker 34% Direct 49%

Tonga 5%

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HY14 GWP BREAKDOWN
BY PRODUCT
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Commercial 30% Motor 34% Home & contents 19% Workers comp 6% Accident 3% Other 8%

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Growth
opportunity
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• Pacific NPAT $2.7m

• Long-term businesses: more than 100 years history in some markets

• Multi-country alliances with high quality banking partners

• Net promoter score of +42 for Pacific showing strong customer loyalty

• Rejuvenated online presence driving up to 20% of direct lead generation in Fiji

• Consistent and careful underwriting – attractive margins

• Significant growth potential in the region from our strong brand and expertise

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14

1. Includes American Samoa

Management of risk and capital Michael Boggs CFO

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15

TOWER Group summary Profit

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Half year ended
$ millions Mar 2014 Mar 2013 Sep 2013
General Insurance 13.1 5.9 13.1
Life [1] 3.7 9.0 3.0
Health - 0.9 -
Investments - 4.0 -
16.8 19.8 16.1
Business unit net profit after tax
Corporate financing costs and investment income (1.6) (2.0) (1.8)
Corporate expenses (1.4) (1.4) (2.0)
13.8 16.4 12.3
Profit excluding the impact of discount rate and abnormal items
Discount rate effect - (2.9) (6.1)
Net impact of abnormal items [2] (0.7) 30.7 (16.0)
Reported net profit after tax [3] 13.1 44.2 (9.8)
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1. FY13 periods includes profits from significant part of life business sold in FY13

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refocused
business
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• Health, Investment and majority of Life business sold in prior financial year

• Corporate expenses reduced, with first half reflecting higher costs associated with shareholder meetings and communications

• One-off abnormal items (refer to Appendix) had an unfavourable impact of $0.7m largely reflecting impact of repatriating Australian capital

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1. Abnormal items for HY14 include net sale related gains $0.6m, Canterbury earthquakes ($0.1m) and foreign exchange impact of Australian revaluation ($1.2m) 3. A number of items are classified as discontinued operations in the Group financial statements

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TOWER Life (N.Z.) Retained life business

NPAT of $3.7m, well above full year plan expectations of $2.8m due to one-off earning improvements

Stable business with a focus on customer service (NPS introduced) and productivity

Closed book in run off with no new business being written

Moved to new Wellington premises with centralised support

Book value of $39.1m at 31 March 2014 (including $15m minimum solvency margin)

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focus on
shareholder
value
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Balance sheet summary

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Balance as at
$ millions Mar 2014 Mar 2013 Sep 2013
Cash & call deposits 286.6 255.2 350.0
Total investment assets 809.6 936.4 821.3
Deferred acquisition costs 18.4 17.6 18.2
Intangible assets 32.3 36.9 30.2
Other operational assets (liabilities) 398.4 656.8 476.9
Total assets [1] 1,545.3 1,902.9 1,696.6
Policy liabilities and insurance provisions (1,077.0) (1,181.7) (1,161.1)
External debt (83.2) (82.4) (82.8)
Other operational (liabilities) assets (57.5) (114.6) (71.6)
Total liabilities [1] (1,217.7) (1,378.7) (1,315.5)
Total equity 327.6 524.3 381.1
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well
capitalised
business
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• Drivers of equity change to pcp: - Capital repayments of $171.8m - Dividend payments of $22.8m

• Significant changes in operational assets as a result of divesture of Investments and majority of Life businesses

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1. A number of items are assets or liabilities of disposal groups classified as held for sale in the Group financial statements

Adverse weather impacts

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underlying
results
strong
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NZ LARGE CLAIM EVENTS[1] (EXCLUDING EARTHQUAKES) ($m)

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10
8
Apr-14
6
4
HY14
2
0
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14YTD
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• Weather events have a significant impact

• The last two years has seen a spike in claims for the industry

• Continuous improvement in underwriting

• Pricing for risk

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19

1. Large claim events have only been separately itemised in financial analysis since FY09. Amounts prior to this have been extracted from claims system

Capital and customer focus – Canterbury rebuild

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on
track
for end of
2015
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TOWER continues to lead the industry in settling earthquake claims with 81%[1] by number and 71% by value of all claims now settled and closed. TOWER’s construction programme for rebuilds and repairs continues to build momentum, with 87 rebuild and major repairs completed over the period.

• No changes in net provisions

TOWER is on track to substantially settle and complete all Canterbury earthquake related claims by the end of 2015.

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TOTAL PROPERTIES WITH CLAIMS
AS AT MARCH 2014
10,617 9459
89%
in progress
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PROPERTIES TO BE REBUILT
AS AT MARCH 2014
1,096 938
86%
in progress
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Cash settled 70% Work completed 8% In construction 2% Pre-construction 9%

Cash settled 52% Work completed 7% In construction 7% Pre-construction 20%

• Progress to date supports review of minimum solvency margin

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1. Some properties have multiple claims. 81% of all claims have been settled representing 78% of all properties

Capital protection – reinsurance

REINSURANCE EXPENSE[1]

REINSURANCE CATASTROPHE COVER

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$m $m $m
30 17.8% 700 21
16.2% 16.9% 600 585 18
25 16.6% 500 525
15.5% 500 15
20
11.6% 400 325 12 12
15 10.0% 300 240 260 290 10 9
10 8
200 6
5 5 5 5
5 100 3
10.2 13.3 20.0 21.2 23.5 24.4 23.5
0 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 0 FY08 FY09 FY10 FY11 FY12 FY13 FY14 0
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Total cover ($m) Retention ($m)

Reinsurance expense ($m) Percent of GWP (%)

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costs
easing
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• Reinsurance expense easing following large increases as a result of Canterbury earthquakes

• Current catastrophe cover (two events) $585m with $10m retention

• Maximum retention per individual risk is NZ$1m (or US$1m for American Samoa)

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21

1. Excludes impact of Canterbury earthquakes

Capital management

Moving forward

Achievements to date

–––

–––

• Buy back offers completed with $171.8m returned to investors recently

• Ongoing capital management remains a priority

• April 2013 $119.2m

• Options with regard to small parcel shareholders in progress

• January 2014 $ 52.6m

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capital
management a
priority
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• Dividend policy implemented with payout ratio of 90-100% of NPAT

• Australian business closed and capital repatriated

• Bond redemption of $81.8m completed in April 2014

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Capital and solvency General Insurance

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long
term solvency
surplus
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TOWER has a long term policy of retaining within its licensed General Insurance entity 175% of the minimum solvency capital (MSC) required under the Insurance (Prudential Supervision) Act 2010.

Given the miniumum solvency margin (MSM) requirement, while the Canterbury rebuild completes, TOWER has not been able to implement this policy. However, TOWER continues to hold significant capital above the current solvency minimums required by the Reserve Bank of New Zealand and those required under its long term policy.

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SOLVENCY SOLVENCY GENERAL INSURANCE
CURRENT POSITION BASED ON 175% TARGET
Currently holds
$43m
$74m $43m
General
Insurance $80m Current solvency position
above regulatory minimum
Equity $49m
$192m Or
$66m $66m
$74m
$3m $3m
Surplus above target
Capital above regulatory minimum Surplus above long term target based on long term policy
Miniumum solvency margin Target margin
Minimum solvency capital Minimum solvency capital
Deductions Deductions
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In addition, at 31 March 2014 there was $118.9m of cash held at Corporate level of which $83.5m has been used to repay bonds and interest in April 2014, leaving a balance of $35.4m.[1]

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Plus Corporate
currently holds
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$35m

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Cash held at Corporate level after repaying bonds 1
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23

1. Will be partially used to fund payment of dividend and small shareholder buyback

Strategy and outlook

24

TOWER leading light

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improved
returns
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The path to improving shareholder returns

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Management of
risk and capital
Staff engagement
and
efficiency
The
Vision leading light
in New Zealand
general insurance
Customer
satisfaction
Staff Net promoter score
Strategic pillars engagement
AonHewitt survey
Financial Financial
Leadership in performance
Capital
Pacific markets Key enablers bundlingValue-addedProduct services DataefficiencieschannelsDirect + alliance performance
insights
Outcomes Shareholder
Returns
Customer focus to Industry
consolidation
unlock brand potential
opportunity
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25

Strategic initiatives

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driving
shareholder
returns
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▪Continue to drive staff engagement ▪Building a customer focused culture and efficiency and delivering on claims and risk management ▪Utilisation of technology to lower costs and support service and better ▪Grow share of motor value proposition ▪Growing distribution capability via - SmartDriver new alliances - growing online sales ▪Pursuing growth opportunities in the Pacific - new computer system step-change in cost ratios in medium-term ▪Examine further capital release for shareholders where possible

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26

Outlook

Industry

–––

• ▪Reinsurance costs and premiums easing post Canterbury

• ▪Increasing cost of compliance and regulation

• ▪Technology shift improving service and risk management

• ▪Customers highly informed and mobile with price and service to remain key drivers of customer choice

• ▪Industry consolidation

• ▪New entrant risk

TOWER

–––

▪Revenue growth and cost containment focus continues in second half

▪New product development

• ▪On track to go live with new core system

▪Weather events remain a concern, with April 2014 claims unfavourable

▪Pacific marketing reinvigoration paying off

▪Progress towards 2015 completion in Canterbury

further progress on strategy

▪Capital management a key driver of shareholder returns

27

28

Appendices 29

General Insurance New Zealand overview

HY14 GWP INFORCE POLICIES BREAKDOWN BY PRODUCT

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Home 40% Motor 23% Contents 26% Other 11%

HY14 GWP INFORCE POLICIES BREAKDOWN BY DISTRIBUTION CHANNEL

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Direct 59% Fintel 6% Alliances 35%

HY14 NEW BUSINESS GWP BY DISTRIBUTION CHANNEL

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TOWER and FinTel phone sales 64% Online 2%

Small and medium enterprises 9% Rural 4% Alliances 21%

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30

Underlying performance General Insurance

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$ millions Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11
Gross earned premiums 139.1 136.4 130.8 125.0 113.9 106.2 102.1
Reinsurance (23.5) (24.4) (23.5) (21.2) (20.0) (13.3) (10.2)
Net premiums 115.6 112.0 107.3 103.8 93.9 92.9 91.9
Net incurred claims [1] (53.4) (48.7) (52.6) (46.4) (44.9) (41.7) (44.6)
- -
Large claim events [2] (4.8) (6.2) (3.3) (0.2) (1.1)
Management and sales expenses (43.9) (41.3) (41.7) (40.0) (38.8) (35.0) (35.9)
13.5 15.7 9.7 17.2 9.1 16.2 11.4
Underwriting profit
Investment income 5.7 3.9 4.2 7.9 4.5 7.5 4.0
19.2 19.6 13.9 25.1 13.6 23.7 15.4
Profit before tax – normal trading
Income tax expense (6.1) (6.5) (8.0) (6.9) (5.0) (9.0) (5.4)
13.1 13.1 5.9 18.3 8.6 14.7 10.0
Profit (loss) after tax before impact of Canterbury
earthquakes and revaluation of Australian liabilities
Impact of Canterbury earthquakes (0.1) (0.5) (14.7) (10.4) (3.2) (16.8) (5.4)
Revaluation of Australian liabilities and foreign exchange loss (1.2) (1.1) (6.0) - - - -
Profit (loss) after tax [3] 11.8 11.5 (14.8) 7.8 5.4 (2.1) 4.6
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Underlying ratios Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11
Combined ratio 88.3% 85.9% 91.0% 83.4% 90.3% 82.6% 87.6%
Claims ratio 50.4% 49.0% 52.1% 44.9% 49.0% 45.0% 48.5%
Expense ratio 37.9% 36.9% 38.9% 38.5% 41.3% 37.6% 39.1%
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1. Net incurred claims includes $1.8m of suspected arson fires in Cook Islands

1. Claim events >$1m

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31

1. The impacts of the Canterbury earthquakes and the discontinuation of the Australian business are classified differently in the Group financial statements

Reported profit General Insurance

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$ millions Mar-14 Sep-13 Mar-13 Sep-12 Mar-12 Sep-11 Mar-11
Gross earned premiums 139.1 136.3 130.8 125.0 113.9 106.2 102.1
Reinsurance (23.5) (24.4) (23.5) (21.2) (20.0) (13.3) (10.2)
- - - -
Catastrophe reinsurance reinstatement (0.7) (14.9) (2.7)
Net premiums 115.6 111.2 107.3 103.8 93.9 78.0 89.2
Net incurred claims [1] (53.4) (49.8) (58.6) (46.4) (44.9) (41.7) (44.6)
- -
Large claim events [2] (4.8) (6.2) (3.3) (0.2) (1.1)
Impact of Canterbury Earthquakes (0.1) 0.0 (20.4) (14.5) (4.4) (9.1) (5.0)
Management and sales expenses [3] (45.8) (41.3) (41.7) (40.0) (38.8) (35.0) (35.9)
Underwriting profit 11.5 13.9 (16.6) 2.7 4.7 (7.8) 3.7
Investment Income 5.7 3.9 4.2 7.9 4.5 7.5 4.0
Profit before tax 17.2 17.8 (12.4) 10.6 9.2 (0.3) 7.7
Income tax expense (5.4) (6.2) (2.5) (2.8) (3.8) (1.8) (3.1)
Profit (loss) after tax 11.8 11.5 (14.8) 7.8 5.4 (2.1) 4.6
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1. Claim events > $1m

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1. Net incurred claims includes $1.8m of suspected arson fires in Cook Islands

2. Management and sales expenses includes $1.9m of foreign exchange losses relating to release of Australian liabilities 4. See underlying profit represented on page 31

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Balance sheet

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As at March 2014
$ millions GI TLNZ Corp Total Group
Cash and call deposits 159.0 8.7 118.9 286.6
Total investment assets 133.4 676.2 - 809.6
Deferred acquisition costs 18.4 - - 18.4
Intangible assets - - 32.3 32.3
Other operational assets/(liabilities) 322.9 43.0 32.5 398.4
Total assets [1] 633.7 727.9 183.7 1,545.3
-
Policy liabilities and insurance provisions (397.9) (679.1) (1,077.0)
External debt - - (83.2) (83.2)
Other operational (liabilities)/assets (43.6) (9.7) (4.2) (57.5)
Total liabilities [1] (441.5) (688.8) (87.4) (1,217.7)
Total equity 192.2 39.1 96.3 327.6
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1. A number of items are assets or liabilities of disposal groups classified as held for sale in the Group financial statements

Abnormal items

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$ millions (net of tax) Half year ended March 2014
Net sale related gains [1] 0.6
Australian revaluation and foreign exchange loss [2,3] (1.2)
Impact of Canterbury earthquakes [2] (0.1)
Net impact of one off items (0.7)
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1. Adjustments to gains on sale for Health, Life and Investment business sales

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1. Reflected as adjustments in underlying profit in General Insurance business

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1. Reflects foreign exchange loss on release of capital following sale of Australian liabilities