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TARGET COMPANy STATEMENT

IMPORTANT INFORMATION FOR TOWER SHAREHOLDERS

Prepared pursuant to Rule 46 of the Takeovers Code in relation to a partial takeover offer by GPG Twenty One Limited, a subsidiary of Guinness Peat Group plc. 30 May 2008

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This document was sent to you because you are a TOWER shareholder. you should read it carefully.

This document contains, in Section 3, TOWER’s Financial Report for the six months ended 31 March 2008. The company’s obligation to publish and make available its Financial Report to shareholders in accordance with Stock Exchange Listing Rules has, by this means, been satisfied. The March 2008 Financial Report may also be accessed at www.towerlimited.com

Section	1:Letter from Independent Directors	1
Section	2:StatutoryInformation	3
Section	3:TOWER Half Year Report 2008	11
Section	4:Independent Adviser’s Report	23
TOWER	Directory	81

Section 1: Letter from Inde endent Directors p

Dear Shareholders

You will have received an offer from GPG Twenty One Limited, a wholly owned subsidiary of Guinness Peat Group Plc (GPG) to purchase 15.3% of the ordinary shares in TOWER Limited (TOWER) at a price of NZ$2.30 per share.

You will also be aware that GPG made a statement to the market on 28 May that its offer was full and final and that the price would not be increased, nor the offer period extended.

If successful, the offer will take GPG’s shareholding from its current 19.7% to 35%.

The offer requires approval under the Takeovers Code (the Code). This means TOWER shareholders who vote to approve the offer must hold more voting rights than those who vote against. Approval of the offer being made, does not commit shareholders to accepting the offer.

On receipt of the Notice of Offer from GPG the TOWER directors not associated with GPG, appointed a Committee to manage TOWER’s obligations under the Code, and appointed Grant Samuel & Associates Limited (Grant Samuel) as Independent Adviser to report on the merits of the offer. Their report is included in this Target Company Statement issued by TOWER in accordance with the Code.

Grant Samuel has assessed the underlying value of TOWER’s shares in the range of NZ$2.45 to NZ$2.89 per share. This is the price Grant Samuel assesses an entity would be expected to pay to acquire the company as a whole and it accordingly includes a premium for control.

Their report notes that the GPG offer represents:

a premium of approximately 11% relative to the closing price of NZ$2.07 per share on 1 May 2008 (being the day prior to the announcement of the GPG offer);
a premium of 20.4% to the volume weighted average share price (VWAP) over the 30 trading days prior to the announcement;
a 10% premium to the 6 month VWAP; and
a 2.1% premium to the 12 month VWAP.

Grant Samuel notes that it should not be expected that TOWER’s shares will trade within its assessed value range if the GPG offer were accepted, and that a market discount may well apply.

The directors have no insights into GPG’s motives for making the offer beyond the observations made by GPG in the Letter to Shareholders accompanying the offer – that the offer would give GPG the ability to invest more money in TOWER and increase the value of its investment to a more optimal investment size.

They note however that GPG has been an important investor in TOWER since joining the company’s register in 2003, having supported the company with capital raising initiatives, its separation from TOWER Australia, and, through its board representation, the restructuring of the New Zealand business. While it is usual for insurance company shareholdings to be widely held, TOWER is a small insurance company and a cornerstone shareholder is not inappropriate. GPG has played a valued role in this capacity.

For this reason the directors recommend that shareholders approve GPG making an offer to acquire a further 15.3% of the company’s shares. This does not commit shareholders to accepting the offer, but does create the opportunity for the offer to be considered.

The directors do not recommend that shareholders accept the offer at a price of NZ$2.30 per share.

While this price does represent a premium on the recent trading history of the company’s shares, as outlined above, it does not fall within Grant Samuel’s valuation range.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

As shareholders are aware, since the separation of TOWER Australia Limited late in 2006, TOWER has been steadily rebuilding the New Zealand business, as reflected in an NPAT of NZ$14.1 million in the year ending 30 September 2006, NZ$34.6 million in the year ending 30 September 2007 and NZ$20.1 million for the 6 months ending 31 March 2008. In brief, while challenges remain ahead, as disclosed in the Grant Samuel Report, the directors expect the company to continue on its present path, and that once consistent earnings growth has been established this will be recognised in TOWER’s value.

The directors agree with Grant Samuel’s evaluation of the merits of the GPG offer, and conclude that it should reflect the value that Grant Samuel sees in the company. None of the directors intend to accept the offer in respect of their own shares.

That said, it is a matter for individual shareholders to assess according to their own situations. In this regard the directors note that while the GPG offer undervalues the company, it provides an opportunity for some shareholders to liquidate some of their shares and to retain the balance for future growth.

No other offers for all or part of the shareholding of TOWER have been received.

William Falconer

Chairman – Committee of Independent Directors

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Section 2: Statutor Information y

This Target Company Statement has been prepared by TOWER Limited pursuant to Rule 46 and Schedule 2 of the Takeovers Code in relation to a partial takeover offer made by GPG Twenty One Limited

Note: unless stated otherwise, all references to dollars or $ in this Target Company Statement are to New Zealand dollars.

1 DATE

1.1 This target company statement ( Statement ) is dated 30 May 2008.

2 OFFER

2.1 This Statement relates to a partial takeover offer by GPG Twenty One Limited ( GPG 21 ) to purchase 15.30% of the fully paid ordinary shares ( TOWER shares ) in TOWER Limited ( TOWER ) for a cash purchase price of $2.30 per share (the Offer ). The Offer closes (subject to any extension) at 7.00pm New Zealand time (being 5.00pm AEST) on 19 June 2008. GPG 21 have advised they do not propose to extend the offer period.
2.2 GPG 21’s ultimate parent company is Guinness Peat Group plc ( GPG ). Another of GPG’s subsidiaries, Ithaca (Custodians) Limited currently holds 19.70% of TOWER shares. If the Offer is successful, GPG will control 35% of TOWER shares.
2.3 GPG has been a substantial shareholder in TOWER since early 2003. It has had representation on TOWER’s board since March of that year and has been a supportive investor. TOWER’s Chairman, Tony Gibbs is also a director of GPG.
2.4 The terms of the Offer are set out in GPG 21’s offer document dated 19 May 2008 ( Offer Document ) sent to TOWER shareholders.

3 TARGET COMPANY

3.1 The name of the target company is TOWER Limited.

4 DIRECTORS OF TOWER

4.1 The directors of TOWER are:
5.2 Except as set out in Schedule One, no other person referred to in paragraph 5.1 holds or controls any equity securities in TOWER.
5.3 No equity securities in TOWER have, during the two year period ending on the date of this Statement, been issued to the directors or senior officers (as listed in Schedule One) of TOWER or their associates, other than options that have been issued pursuant to TOWER’s Executive Share Option Plan as set out in Schedule Two.
5.4 The number and the percentage of equity securities of TOWER held or controlled by any other person known by TOWER to hold or control more than 5% of the equity securities of TOWER are set out in Schedule Three.

5.5 The number of TOWER equity securities in which the directors or senior officers of TOWER or their associates have, in the two year period ending on the date of this Statement, obtained a beneficial interest under TOWER’s Executive Share Option Plan is set out in Schedule Two.

6 TRADING IN TOWER EQUITY SECURITIES

6.1 Details of all other acquisitions or disposals of equity securities in TOWER by any director or senior officer of TOWER or their associates, or any person holding or controlling 5% of the equity securities of TOWER, during the six month period before the latest practicable date before the date of this Statement, being 30 May 2008 ( Reference Date ), are set out in Schedule Four, including the number of equity securities acquired or disposed of, consideration for, and the date of, each transaction.

ACCEPTANCE OF OFFER

7

As at the date of this Statement, none of TOWER’s directors or senior officers that own TOWER shares have accepted or indicated that they intend to accept the Offer. However, each of TOWER’s directors or senior officers that own TOWER shares have indicated that they intend to vote their respective TOWER shares in favour of the resolution approving GPG 21 making the offer to acquire a further 15.3% of TOWER shares.

7.1
(a) William John Falconer
(b) Robin Albert Flannagan (Managing Director)
(c) Anthony Ian Gibbs (Chairman)
(d) Michael Leslie Jefferies
(e) John Lewis Spencer
(f) Susannah Adair Staley
(g) Denis Michael Wood
(h) Anthony Eisen (as alternate for Anthony Ian Gibbs and Michael Leslie Jefferies)

5 OWNERSHIP OF EQUITY SECURITIES OF TOWER

5.1 The number and the percentage of equity securities in TOWER held or controlled by the directors and senior officers of TOWER and their associates are set out in Schedule One.

8 OWNERSHIP OF EQUITY SECURITIES OF GPG 21

Anthony Ian Gibbs is a director of GPG and various related companies, including GPG 21. He is also a director of TOWER. Michael Jefferies is also a director of TOWER and he and Anthony Eisen (an alternate director of TOWER) are associated with related companies of GPG.

8.2 Apart from the interests disclosed under 8.1, neither TOWER, nor any director or senior officer of TOWER or any of their associates, holds or controls any equity securities in GPG 21.

9 TRADING IN EQUITY SECURITIES OF GPG 21

9.1 Neither TOWER, nor any director or senior officer of TOWER or any of their associates, has acquired or

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

disposed of any equity securities in GPG 21 during the six month period before the Reference Date.

10 ARRANGEMENTS BETWEEN GPG 21 (AND GPG 21’S ASSOCIATES) AND TOWER (AND TOWER’S RELATED COMPANIES)
10.1 No agreement or arrangement (whether legally enforceable or not) has been made, or is proposed to be made, between GPG 21 or any associates of GPG 21 and TOWER or any related company of TOWER, in connection with, in anticipation of, or in response to, the Offer.
11 RELATIONSHIP BETWEEN GPG 21 (AND GPG 21’S ASSOCIATES), AND DIRECTORS AND OFFICERS OF TOWER AND TOWER’S RELATED COMPANIES
11.1 To the best of TOWER’s knowledge or belief, no agreement or arrangement (whether legally enforceable or not) has been made, or is proposed to be made, between GPG 21 or any associates of GPG 21, and any of the directors or senior officers of TOWER or any related company of TOWER in connection with, in anticipation of, or in response to, the Offer.
11.2 Other than Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen, no directors or senior officers of TOWER are also directors or senior officers of GPG 21, or any related company of GPG 21.
12 AGREEMENT BETWEEN TOWER (AND TOWER’S RELATED COMPANIES), AND DIRECTORS AND OFFICERS OF TOWER (AND TOWER’S RELATED COMPANIES)
12.1 No agreement (whether legally enforceable or not) has been made between TOWER or any related company of TOWER, and any of the directors or senior officers or their associates of TOWER or its related companies, under which a payment or other benefit may be made or given by way of compensation for loss of office, or as to their remaining in or retiring from office in connection with in anticipation of, or in response to, the Offer.
13 INTERESTS OF DIRECTORS AND OFFICERS AND SUBSTANTIAL SECURITY HOLDERS OF TOWER IN CONTRACTS WITH GPG 21 (AND GPG 21’S RELATED COMPANIES)
13.1 To the best of TOWER’s knowledge and belief, no director or senior officer of TOWER or their associates nor any other person who, to the knowledge of the directors or the senior officers of TOWER, holds or controls more than 5% of any class of equity securities of TOWER, has any interest in any contract to which GPG 21, or any related company of GPG 21, is a party. The relationship of Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen to GPG 21 is set out at 8.1

14 ADDITIONAL INFORMATION

14.1 TOWER’s board (excluding the directors associated with GPG) has delegated authority to a committee of TOWER’s independent directors ( Committee ) to attend to matters associated with the Offer. The Committee consists of William John Falconer and Denis Michael Wood.
14.2 Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen consider that they should abstain from making any recommendation in relation to the Offer because they are all associated with GPG.
14.3 Other than the observations made by Grant Samuel & Associates Limited ( Grant Samuel ) in the Independent Adviser’s Report under Rule 21 of the Takeovers Code ( Independent Adviser’s Report ) which accompanies this Statement, the Committee confirms that, in its opinion, no additional information known by TOWER under clause 14 of Schedule 2 of the Takeovers Code is required to be disclosed to make the Offer Document correct or not misleading.

15 RECOMMENDATION

15.1 TOWER’s board (excluding Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen) recommend to TOWER’s shareholders that: (a) they approve GPG 21 making the offer to acquire a further 15.3% of TOWER shares, but notes that this does not commit the shareholders to accept the Offer;
(b) they do not accept the Offer at a price of $2.30 per TOWER share.
15.2 TOWER’s board (excluding Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen, who have abstained from making any recommendation in relation to the Offer because they are all associated with GPG) has considered the merits of the Offer and the Independent Adviser’s Report in reaching its recommendation to shareholders. These merits are discussed further in the letter from the independent directors in Section 1 of this Statement.
15.3 As GPG 21’s Offer price of $2.30 is below the $2.45 to $2.89 range determined by Grant Samuel, TOWER’s board (excluding Anthony Ian Gibbs, Michael Leslie Jefferies and Anthony Eisen) does not recommend that TOWER shareholders accept the Offer.
15.4 TOWER will update shareholders in relation to progress of:
(a) voting by shareholders to approve or object to GPG 21 making the Offer; and
(b) the proportion of shareholders (by number of shares held) that have agreed to accept the Offer.

16 ACTIONS OF TOWER

16.1 There are no material agreements or arrangements (whether legally enforceable or not) entered into by TOWER and its related companies as a consequence of, in response to, or in connection with the Offer.
16.2 There are no negotiations underway, as a consequence of, in response to, or in connection with, the Offer that relate to, or could result in:
(a) an extraordinary transaction (such as a merger, amalgamation, or reorganisation) involving TOWER or any of its related companies; or
(b) the acquisition or disposition of material assets by TOWER or any of its related companies; or
(c) an acquisition of equity securities by, or of, TOWER or any related company of TOWER; or

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

(d) a material change in equity securities on issue, or policy related to distributions, of TOWER.

17 EQUITY SECURITIES OF TOWER

17.1 There are currently 191,780,721 TOWER shares on issue. These are fully paid. Each TOWER share confers the following rights:
(a) the right to an equal share in dividends authorised by TOWER’s board;
(b) the right to an equal share in distribution of surplus assets of TOWER;
(c) subject to TOWER’s constitution, the right to participate in any further issues of equity securities by TOWER; and
(d) subject to TOWER’s constitution, the right to cast one vote on a show of hands or the right to cast one vote on a poll (for each share held) on any resolution, including a resolution to:
- (i) appoint or remove a director;
- (ii) alter TOWER’s constitution;
- (iii) approve a major transaction by TOWER;
- (iv) approve an amalgamation involving TOWER (other than an amalgamation of a wholly owned subsidiary); and
- (v) put TOWER into liquidation.
17.2 There are currently 6,745,240 options on issue under the TOWER Executive Share Option Plan that, subject to certain hurdles being met, are convertible into TOWER shares. The material terms applicable to the options are set out in Schedule Two to this Statement.

18 FINANCIAL INFORMATION

18.1 Every person to whom the Offer is made is entitled to obtain a copy of TOWER’s most recent annual report for the year ended 30 September 2007 by printing a copy that is available on TOWER’s website, www.towerlimited.com. Alternatively, by written request to:
Company Secretary TOWER Limited PO Box 90347 AUCKLAND 1142
18.2 A copy of TOWER’s most recent half-year report for the six months ended 31 March 2008 accompanies this Statement.
18.3 The material changes in the financial or trading position or prospects of TOWER from 30 September 2007 to 31 March 2008 are as follows:
(a) TOWER reported a profit of $20.2 million after tax from continuing operations for the half year to 31 March 2008. This is an increase of 28% on the corresponding period last year. A loss from discontinued operations of $0.3 million resulted in an overall net profit for the half year of $19.9 million.
(b) The net profit attributable to shareholders was $19.7 million, which was a 90.8% decrease on the corresponding period last year. The decrease in net profit attributable to shareholders was due to the one off gain of $198.8m from the de-merger of the Australian business that was recognised in the prior period.
(c) TOWER’s half year result to 31 March 2008 reflects the solid progress being made since the de-merger of its Australian business. Earnings per share were 10.59 cents, an improvement of 27% on the corresponding period last year. Annualised return on equity improved from 14.4% to 15.4%.
(d) Operating earnings from the combined Health & Life business lifted solidly to $15.1 million, up from $11.8 million in the same period last year - an increase of 28%. Claims ratios tracked positively through strong claims management and management/sales expenses decreased in absolute and relative terms.
(e) The performance of General Insurance was also encouraging with operating earnings well ahead of the previous period. Net profit after tax lifted to $7.7 million and key ratios showed marked improvements. Both the New Zealand and the Pacific Islands businesses performed well.
(f) The Investments business saw total income rise, however the net profit after tax was lower at $2.3 million compared to $3.6 million in the same period last year. This was due to increased project expenses and compliance costs with KiwiSaver and the Portfolio Investment Entity regime, together with lower investment returns in the current market.
18.4 Other information about TOWER is reflected in the Independent Adviser’s report which accompanies this Statement.
18.5 Other than as set out above, there is no other information about the assets, liabilities, profitability and financial affairs of TOWER that could reasonably be expected to be material to the making of a decision by shareholders to accept or reject the Offer.
19 INDEPENDENT ADVICE ON MERITS OF THE OFFER
19.1 Grant Samuel has prepared the Independent Adviser’s Report. Grant Samuel’s appointment as independent adviser was approved by the Takeovers Panel on 12 May 2008. A full copy of the Independent Adviser’s Report accompanies this Statement.

20 ASSET VALUATION

There is no valuation of assets contained in this Statement relevant to clause 20 of Schedule 2 of the Takeovers Code.

21 PROSPECTIVE FINANCIAL INFORMATION

21.1 There is no prospective financial information contained in this Statement.
22 MARKET PRICES OF TOWER SHARES
22.1 The closing price:
(a) on the New Zealand stock market operated by NZX ( NZSX ) of TOWER shares on:
- (i) 28 May 2008, being the latest practicable working day before the date on which this Statement is sent to shareholders, was $2.19; and

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

  - (ii)  1 May 2008, being the last day on which NZSX was open for business before the date on which TOWER received GPG’s takeover notice, was $2.07.

(b) on the Australian stock market operated by ASX ( ASX ) of TOWER shares on:
- (i) 28 May 2008, being the latest practicable working day before the date on which this Statement is sent to shareholders, was A$1.83; and
- (ii) 1 May 2008, being the last day on which ASX was open for business before the date on which TOWER received GPG’s takeover notice, was A$1.72.
22.2 The highest and lowest closing market price of TOWER shares on:
(a) NZSX and the relevant dates during the 6 months before the date on which TOWER received GPG’s takeover notice were as follows:
- (i) the highest closing market price was NZ$2.40 on 27 December 2007 and
- (ii) the lowest closing market price was NZ$1.73 on 20 March 2008.
(b) ASX and the relevant dates during the 6 months before the date on which TOWER received GPG’s takeover notice were as follows:
- (i) the highest closing market price was A$2.11 on 27 December 2007 and
- (ii) the lowest closing market price was A$1.54 on 18 March 2008.
22.3 On 29 November 2007, TOWER announced a fully imputed full year divided of 6 cents per share. The record date for the divided was 25 January 2008, and the dividend was paid on 5 February 2008. The announcement and payment of the full year dividend may have affected the market prices referred to in this section 22.
22.4 Other than TOWER shares issued under TOWER’s dividend reinvestment plan on or about 5 February 2008, there were no issues of equity securities of TOWER or changes in the equity securities on issue that could have affected the market prices referred to in this section 22.

23 OTHER INFORMATION

23.1 The Offer is subject to conditions set out in clause 6 of the Offer Document. One condition is that TOWER’s board confirms to GPG 21 that it will not refuse or delay registration of an Acceptance Form if registration would result in a shareholder holding TOWER shares of less than a minimum holding (100 TOWER shares). TOWER’s board has confirmed this to GPG 21 and has advised its shareholders of its confirmation.
23.2 GPG 21 is seeking approval under Rule 10 of the Takeovers Code to make the Offer for 15.30% of voting rights in TOWER not already held or controlled by it or its associates. The approval is required because the total percentage of voting rights that will be held or controlled by GPG 21 and its associates if the offer becomes unconditional (being 35%) is not greater than 50%. The Offer is conditional upon approval under Rule 10 of the

Takeovers Code being obtained. That approval will be obtained if TOWER shareholders who approve GPG 21 making the Offer hold more voting rights in TOWER than are held by those TOWER shareholders who object to GPG making the Offer.

23.3 The New Zealand Takeovers Panel has taken the view that only those holders of TOWER shares on TOWER’s share register as at the record date of 14 May 2008 should be able to vote to approve or object to the Offer under Rule 10. Therefore, a holder of TOWER Shares cannot vote under Rule 10 in respect of TOWER Shares acquired after 14 May 2008, but may still participate in the Offer.
23.4 A holder of TOWER shares may vote (in respect of TOWER shares held on 14 May 2008) to approve or object to the Offer regardless of whether they intend to accept the Offer or to sell TOWER shares before the Offer closes. They may also elect not to vote but still participate in the Offer.

24 APPROVAL OF TARGET COMPANY STATEMENT

24.1 This Statement has been approved by the Committee who have been delegated authority from TOWER’s board (excluding the directors associated with GPG) to deal with all matters relating to the Offer.

25 CERTIFICATE

25.1 To the best of our knowledge and belief, after making proper enquiry, the information contained in or accompanying this Statement is, in all material respects, true and correct and not misleading, whether by omission of any information or otherwise, and includes all the information required to be disclosed by TOWER under the Takeovers Code.

SIGNED BY:

RObIN AlbERT FlANNAGAN Managing Director (being the person fulfilling the role of CEO)

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DONNA MAREE WEbSTER Group Chief Financial Officer

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WIllIAM JOHN FAlCONER Director

DENIS MICHAEl WOOD Director

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

SCHEDULE ONE

Ownership of equity securities in TOWER at 28 May 2008 (Paragraph 5.1)

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Designation of Number of equity securities
Name equity security held or controlled Percentage of class (%) [1]
Directors
William John Falconer Ordinary Shares 5,664 -
Robin Albert Flannagan Ordinary Shares 500 -
Anthony Ian Gibbs [2] Ordinary Shares 598 -
Michael Leslie Jefferies Ordinary Shares 2,191 -
John Lewis Spencer Ordinary Shares 14,009 0.01
Susannah Adair Staley Ordinary Shares 5,577 -
Denis Michael Wood Ordinary Shares 83,238 0.04
Senior Officers
Steven John Boomert Options 800,000 11.86
Tony Dixon Options 200,000 2.97
James Earl Douglas Options 200,000 2.97
Robin Albert Flannagan Options 3,000,000 44.48
Donna Maree Webster Options 200,000 2.97
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Notes: 1. Percentages are based on 191,780,721 ordinary shares and 6,745,240 options to purchase TOWER shares and are calculated to two decimal places. 2. Anthony Ian Gibbs is a director of GPG which has a beneficial interest in the 37,785,486 TOWER shares held by Ithaca (Custodians) Limited.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

SCHEDULE TWO

Options to purchase TOWER shares issued to senior officers under the TOWER Executive Share Option Plan (Paragraphs 5.3 and 5.5)

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Name of Senior Officers Number of options held Issue Price
Steven John Boomert (1), (2), (4) 800,000 $0.00
Tony Dixon (4) 200,000 $0.00
James Earl Douglas (4) 200,000 $0.00
Robin Albert Flannagan (3) 3,000,000 $0.00
Donna Maree Webster (4) 200,000 $0.00
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Notes: (1) 300,000 options issued August 2005 with an exercise price of $2.13 between August 2008 and August 2011. The share price performance hurdle has been met.

(2) 300,000 options issued August 2005 with an exercise price of $2.13 between August 2009 and August 2012. The share price performance hurdle has been met.
(3) Issued December 2006 with an exercise price of $2.03 between December 2009 and December 2012. Two million options are exercisable only if TOWER’s Total Shareholder Return exceeds 10% per annum compounded annually during the option period. The remaining options are only exercisable if TOWER achieves certain stretch profit targets.

(4) 200,000 options issued December 2007 with an exercise price of $2.19 between December 2010 and December 2013. Options are exercisable only if TOWER’s Total Shareholder Return equals or exceeds 10% pa compounded annually between December 2007 and December 2013.

Options confer no voting rights. On exercise each option is convertible into one fully paid share.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

SCHEDULE THREE

Persons who hold or control more than 5% of any class of equity securities in TOWER (Paragraph 5.4)

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Number of equity securities held Percentage of total number
Name Type of equity security or controlled of equity securities
Guinness Peat Group plc
(Ithaca (Custodians) Limited) (1) Ordinary shares 37,785,486 19.7
Paradice Investment
Management Pty Limited (1) Ordinary Shares 17,851,535 9.31
Macquarie Group Limited (1) Ordinary shares 14,262,527 7.43
HSBC Custody Nominees
(Australia) Limited (2) Ordinary Shares 11,384,148 5.94
Orbis MIS – Orbis/SM
Australia Equity Fund (1) Ordinary Shares 11,384,148 5.94
TOWER Option Scheme
Limited (3) Options 6,945,240 options 100% of options
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Notes: (1) This information is taken from substantial security holder notices filed with NZX, as at 28 May 2008.

(2) Taken from TOWER’s share register as at 28 May 2008.

(3) Trustee of the TOWER Share Option Plan.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

SCHEDULE FOUR

Shares acquired or disposed of since 1 December 2007 by Directors and Senior Officers or their Associates and by Substantial Securityholders (Paragraph 6.1)

Part A: Directors and Senior Officers or their Associates

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Name Date Number Acquired / (Disposed) Weighted average consideration
William John Falconer 5-Feb 155
Robin Albert Flannagan 10-Apr 500 1.95
Anthony Ian Gibbs 5-Feb 16
Michael Leslie Jefferies 5-Feb 76
John Lewis Spencer 7-Dec 10,000 2.22
John Lewis Spencer 5-Feb 383
Susannah Adair Staley 5-Feb 153
Denis Michael Wood 6-Dec 30,000 2.24
Denis Michael Wood 5-Feb 2,278
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Shares issued under dividend reinvestment plan at a strike price of NZ$2.132.

Part b: Substantial Securityholders

Name	week ended Number Acquired / (Disposed)	Weighted Average Consideration	Weighted Average Consideration
Macquarie Group Limited 8-Dec 200,000 2.22 15-Dec 8,106 AUD2.02 22-Dec 15,899 2.39
450,058 AUD2.22
5-Jan (11,790) AUD2.06
12-Jan 415,437 2.25
19-Jan 63,642 2.14 26-Jan 216,752 2.22 9-Feb 202,026 1.90
(8,059) AUD1.84
16-Feb 207,500 2.05
23-Feb 276,000 2.06
1-Mar (47,000) 2.15 8-Mar 673,351 1.95 (6,334) AUD1.27
15-Mar 1,075,000 1.85
29-Mar 167,000 1.78
(250,000) 1.62
5-Apr (24,308) 1.56 19-Apr 7,485 2.18
Orbis MIS - Orbis/SM Australia Equity Fund (1) 15-Dec 25,954 22-Dec (8,461) 5-Jan (11,790 ) 19-Jan (945,281)
26-Jan 112,629
9-Feb 363,675
16-Feb 86,817
23-Feb 35,474 1-Mar 1,191 8-Mar 16,793
15-Mar 44,973			not disclosed
22-Mar 85,500
29-Mar 70,700
5-Apr 72,727 12-Apr 9,712 19-Apr 27,953
26-Apr 95,182
3-May 48,900
17-May 1,134
24-May 5,837

Notes: (1) HSBC Custody Nominees (Australia) Ltd is the registered holder of these shares Other Substantial Securityholders

Guinness Peat Group plc - no change notified during the period
Paradice Investment Management Pty Ltd - no change notified during the period

Dollar amounts above are NZD unless stated otherwise.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Section 3:

tower HALF YeAr report

SIX MoNtHS eNDeD 31 MArCH 2008

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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Highlights	13
Financial Statements	14-21
Accountant’s Report	22

TOWER Group

Health & Life Insurance General Insurance Investments KiwiSaver

This Half Year Report is dated 21 May 2008. All amounts in this Annual Report, unless stated otherwise, are in New Zealand dollars.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Hi hli hts g g

 ➢ GROup pROfiT fROm COnTinuinG OpERaTiOnS up 28.6% TO $20.2m

 ➢ HEalTH & lifE OpERaTinG EaRninGS up by $3.2m

 ➢ GEnERal inSuRanCE OpERaTinG EaRninGS up by $3.8m

 ➢ fiRST dividEnd SinCE 2002 WiTH 6cps paid TO SHaREHOldERS

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Consolidated income Statement

For the half year ended 31 March 2008

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Consolidated Half Year ended
31 March 31 March
2008 2007
Unaudited Unaudited
Note
NZ$000 NZ$000
Continuing operations
Premium revenue from insurance contracts 2 200,627 189,567
Less: Outwards reinsurance expense 2 (15,476) (13,875)
Net premium revenue 185,151 175,692
Investment (loss) / revenue 3 (1,213) 39,843
Fee and other revenue 4 20,966 25,026
Net operating revenue 204,904 240,561
Claims expense 128,743 124,538
Less: Reinsurance recoveries (7,868) (11,075)
Net claims expense 120,875 113,463
Change in health and life insurance contract liabilities (29,454) (3,113)
Change in life investment contract liabilities (2,443) 2,246
Amortisation expense 458 572
Management and sales expenses 91,773 94,365
Net claims and operating expenses 181,209 207,533
Financing costs 3,755 2,218
Profit before taxation 19,940 30,810
Income tax (credit) / expense 8 (251) 15,114
Profit from continuing operations 20,191 15,696
(Loss) / profit from discontinued operations (332) 198,804
Profit for the half year 19,859 214,500
Profit attributable to: Shareholders of TOWER Limited 19,735 214,333
Minority Interest 124 167
19,859 214,500
Cents Cents
Basic Earnings per share [(1)] 10.44 91.79
Basic Earnings per share continued operations [(1)] 10.61 6.72
Basic Earnings per share discontinued operations [(1)] (0.18) 85.07
Diluted Earnings per share continued operations [(2)] 10.59 8.33
Diluted Earnings per share discontinued operations [(2)] (0.18) 85.07
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Notes

(1) Basic Earnings per share for 31 March 2008 and 31 March 2007 are based on the weighted average number of ordinary shares outstanding during the period.

(2) Diluted Earnings per share for 31 March 2008 and 31 March 2007 are based on the diluted weighted average number of shares outstanding during the period.

The Consolidated Income Statement should be read in conjunction with the accompanying notes

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Consolidated balance Sheet

As at 31 March 2008

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Consolidated
31 March 30 September 31 March
2008 2007 2007
Unaudited Audited Unaudited
NZ$000 NZ$000 NZ$000
Assets
Cash and cash equivalents 60,642 64,237 54,179
Receivables 142,557 136,413 131,007
Financial assets at fair value through profit or loss 1,086,919 1,130,081 1,318,435
Assets of disposal group classified as held for sale 2,674 3,148 -
Investment property 2,200 2,158 10,527
Deferred acquisition costs 50,140 51,567 52,136
Property, plant and equipment 4,567 5,375 4,510
Assets arising from reinsurance contracts 23,515 21,886 17,755
Non current tax asset 51,871 50,274 50,163
Deferred tax asset 43,347 47,340 1,213
Intangible assets 33,531 33,714 33,692
Total Assets 1,501,963 1,546,193 1,673,617
liabilities
Payables 65,922 68,127 262,512
Current tax liabilities 13,064 10,634 618
Liabilities of disposal group classified as held for sale 660 342 -
Provisions 5,122 8,092 4,794
Interest bearing liabilities 87,254 87,151 86,964
Insurance liabilities 241,386 243,602 235,108
Deferred tax liabilities 59,409 69,725 31,847
Other liabilities 22,307 21,128 21,222
Life insurance contract liabilities 697,166 730,400 741,343
Life investment contract liabilities 39,569 45,095 47,054
Total liabilities 1,231,859 1,284,296 1,431,462
Net Assets 270,104 261,897 242,155
Equity
Contributed equity 465,193 460,595 459,368
Reserves (111,863) (110,735) (111,763)
Retained profits / (accumulated loss) (86,082) (91,680) (108,707)
Total equity attributed to: Shareholders of TOWER Limited 267,248 258,180 238,898
Minority interests 2,856 3,717 3,257
Total Equity 270,104 261,897 242,155
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The financial statements were approved for issue by the Board on 21 May 2008.

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Tony Gibbs John Spencer
Chairman Director
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The Consolidated Balance Sheet should be read in conjunction with the accompanying notes

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Consolidated Statement of Chan es in E uit g q y

For the half year ended 31 March 2008

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Consolidated Half Year ended
31 March 31 March
2008 2007
Unaudited Unaudited
NZ$000 NZ$000
Total equity at the beginning of the half year 261,897 629,373
Profit for the half year 19,859 214,500
Movements in retained profits:
Post-acquisition retained earnings of disposed subsidiaries - 26,508
Other 582 -
Dividend paid (14,844) -
Total movements in retained profits (14,262) 26,508
Movements in reserves:
Movement in exchange differences on translation of foreign operations (1,556) (2,502)
Separation reserve on demerger of TOWER Australia - (113,000)
Movement in share options reserve 429 (526)
Realisation of FCTR on disposed subsidiaries - (57,538)
Total movements in reserves (1,127) (173,566)
Total recognised income and expense for the half year 4,470 67,442
Transactions with equity holders in their capacity as equity holders:
Shares issued 4,598 -
Shares cancelled on demerger of TOWER Australia - (454,000)
Change in minority interest (861) (660)
Movements in equity for the half year 8,207 (387,218)
Total equity at the end of the half year 270,104 242,155
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The Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Consolidated Statement of Cash flows

For the half year ended 31 March 2008

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Consolidated Half Year ended
31 March 31 March
2008 2007
Unaudited Unaudited
Note
NZ$000 NZ$000
Cash flows from operating activities
Premiums received 200,217 192,494
Interest received 23,732 16,249
Dividends received 13,974 1,381
Investment income 81,329 10,559
Non-life company fee income 14,083 16,261
Reinsurance received 4,507 7,639
Reinsurance paid (14,603) (13,875)
Claims expense (133,412) (162,546)
Payments to suppliers and employees (97,606) (86,091)
Interest paid (2,860) (2,218)
Income tax paid (5,254) (9,762)
Net cash inflow / (outflow) from operating activities 6 84,107 (29,909)
Cash flows from investing activities
Net (payments) / receipts for financial assets [(1)] (77,515) (59,713)
Proceeds from disposal of business - 203,364
Payments for purchase of property, plant and equipment (505) (948)
Net cash (outflow) / inflow from investing activities (78,019) 142,703
Cash flows from financing activities
Proceeds from issue of equity share capital 951 -
Borrowings received - 86,335
Borrowings repaid - (197,806)
Dividend paid (10,607) -
Net cash (outflow) from financing activities (9,656) (111,471)
Net (decrease) / increase in cash and cash equivalents (3,568) 1,323
Cash and cash equivalents at beginning of half year 64,210 52,856
Cash and cash equivalents at end of half year 60,642 54,179
Comprising:
Cash at bank 60,642 54,179
60,642 54,179
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Notes

(1) TOWER considers that knowledge of gross receipts and payments is not essential to understanding certain activities of TOWER and it is considered acceptable to report only the net changes in cash flows for these items. This is based on the fact that either the turnover of these items is quick, the amounts are large and the maturities are short or in the case of property, plant and equipment the value of the sales are immaterial.

The Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

notes to the financial Statements

For the half year ended 31 March 2008

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Entities reporting

The financial statements presented are those of TOWER Limited (the Company) and its subsidiaries (the Group).

Statutory base

TOWER Limited is a company domiciled in New Zealand, registered under the Companies Act 1993 and listed on the New Zealand and Australian Stock Exchanges. The Company is an issuer under the Financial Reporting Act 1993.

basis of preparation

These interim financial statements have been prepared in accordance with New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS), Companies Act 1993 and the Financial Reporting Act 1993.

Changes in Accounting Policies

The principal accounting policies adopted in the preparation of the financial statements are unchanged from the audited annual report as at 30 September 2007 with the exception of the reclassification of deferred tax on policy liabilities as noted below.

Deferred Tax on Policy liabilities

The Group has changed the classification of the deferred tax on policy liability during this interim financial reporting period. Taxable temporary differences embedded within policy liabilities, which can be reliably measured, have been recognised and disclosed separately from the underlying policy liabilities. These represent a reclassification between life insurance policy liabilities and deferred tax liabilities with no impact on underlying net profit, total assets or total liabilities of the Group.

Compliance with International Financial Reporting Standards (IFRS)

Compliance with NZ IFRS ensures that the consolidated financial statements and notes of TOWER Limited comply with IFRS.

These interim financial statements comply with International Accounting Standard (IAS) 34 and NZ IAS 34 – Interim Financial Reporting.

The financial statements have been prepared on a fair value basis with any exceptions noted in the accounting policies below and should be read in conjunction with the annual report for the year ended 30 September 2007.

The financial statements were approved by the Board of Directors on 21 May 2008.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of TOWER Limited as at 31 March 2008 and the results of all subsidiaries for the period then ended. TOWER Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities over which the consolidated entity has control, being the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the consolidated entity controls another entity.

The results of any subsidiaries acquired during the year are consolidated from the date on which control is transferred to the consolidated entity and the results of any subsidiaries disposed of during the year are consolidated up to the date control ceases.

The acquisition of controlled entities is accounted for using the purchase method of accounting.

The share of net assets of controlled entities attributable to minority interests is disclosed separately in the balance sheet and income statement.

Intercompany transactions and balances between Group entities are eliminated on consolidation.

Comparatives

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

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

notes to the financial Statements

For the half year ended 31 March 2008

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Consolidated Half Year ended
31 March 31 March
2008 2007
Unaudited Unaudited
2. PREMIUM REVENUE
NZ$000 NZ$000
Life insurance premiums 39,875 35,639
Life investment premiums 350 388
Total premiums 40,225 36,027
Less: Deposits recognised as an increase in policy liabilities (3,747) (3,482)
life insurance contract premiums recognised as revenue 36,478 32,545
General insurance premiums 101,670 99,733
Health insurance premiums 62,479 57,289
200,627 189,567
Less: Reinsurance ceded (15,476) (13,875)
Total net premium revenue 185,151 175,692
3. INVESTMENT REVENUE
Fixed interest
Interest 23,732 16,249
Realised gains / (losses) 531 (3,101)
Unrealised gains / (losses) 391 (6,337)
Total investment revenue from fixed interest 24,654 6,811
Equities
Dividend income 13,974 1,381
Realised gains / (losses) 26,864 (6,969)
Unrealised (losses) / gains (76,391) 6,545
Total investment revenue from equities (35,553) 957
Property
Rents, interest and recoveries 1,357 1,501
Realised gains / (losses) 21,913 (1)
Unrealised (losses) / gains (18,821) 6,306
Total investment revenue from property 4,449 7,806
Other investment revenue
Realised gains 30,664 19,796
Unrealised (losses) / gains (25,427) 4,473
Total other investment revenue 5,237 24,269
Total investment (loss) / revenue (1,213) 39,843
4. FEE AND OTHER REVENUE
Investment and management fees 20,868 25,02
Other revenue 98 -
Total fee and other revenue from continuing operations 20,966 25,026
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

notes to the financial Statements

For the half year ended 31 March 2008

				Other
	TOWER	TOWER		(Holding
	Health	General	TOWER	companies
	& life	Insurance	Investments	& Australia)	Total
5. SEGMENTAL REPORTING	NZ$000	NZ$000	NZ$000	NZ$000	NZ$000
2008
Profts from operations
Profts / (losses) from continued operations	15,078	7,716	2,267	(4,870)	20,191
(Losses) from discontinued operations	-	-	-	(332)	(332)
Profts including discontinued operations	15,078	7,716	2,267	(5,202)	19,859
Revenue
Segment revenues	77,058	97,811	28,633	1,402	204,904
Revenue from continuing operations	77,058	97,811	28,633	1,402	204,904
2007
Profts from operations
Profts / (losses) from continued operations	11,831	3,961	3,625	(3,721)	15,696
Profts from discontinued operations	-	-	-	198,804	198,804
Profts including discontinued operations	11,831	3,961	3,625	195,083	214,500
Revenue
Segment revenues	108,990	97,513	32,821	1,237	240,561
Revenue from continuing operations	108,990	97,513	32,821	1,237	240,561
Revenue from discontinued operations	-	-	-	216,568	216,568
Total revenue including discontinued operations	108,990	97,513	32,821	217,805	457,129

Description of segments

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

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31 March 31 March
2008 2007
Unaudited Unaudited
6. NOTE TO THE CONSOLIDATED STATEMENT OF CASHFLOWS NZ$000 NZ$000
Reconciliation of operating cash flows to profit
Net profit from continued operations for the half year after tax 20,191 15,696
Add non-cash items:
Unrealised loss / (gain) on financial assets 120,248 (10,986)
Depreciation and amortisation 1,497 1,322
Net policy liabilities and reinsurance (40,390) (32,902)
Changes in net assets and liabilities, net of effects from acquisition / disposal of businesses:
Receivables (5,817) (6,059)
Share based payments 429 -
Tax provisions 833 5,330
Deferred tax (6,323) 210
Creditors and provisions (5,095) (2,520)
Accrued interest 89 -
FX Movements (1,555) -
Net operating cash flows 84,107 (29,909)
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

notes to the financial Statements

For the half year ended 31 March 2008

7. CONTINGENT LIABILITIES

Taxation - over paid tax

In February 2004, the Inland Revenue Department (IRD) refunded TOWER $30 million in respect of over paid tax. The IRD now believes it ought not to have paid this refund and have written to TOWER disputing TOWER's entitlement to this refund. The IRD has not issued demand for payment. TOWER has received strong legal advice that it is fully entitled to the refund.

TOWER has commenced IRD's formal dispute resolution process in relation to the refund paid plus potential use of money interest and penalty amounts. The IRD has agreed that no tax in respect of this matter will be payable until this process is complete which is expected to take up to two years. In the unlikely event that TOWER is unsuccessful, the $30 million could be repaid to the IRD. Such a payment would represent an increase in the prepaid tax balance available to offset future tax liabilities.

Taxation - use of money interest

The IRD has advised TOWER it is considering TOWER’s entitlement to use of money interest paid to TOWER for the income tax years 1996 to 2005 in respect of some prepaid assets at that time. The amount of interest involved is NZ$12m. TOWER has received independent advice supporting the position taken by TOWER and will defend its position if the matter is formally challenged by the IRD.

8. CURRENT TAXATION

The Group produced a tax credit for the six months to 31 March 2008. This result has arisen from TOWER Health & Life. Under New Zealand law, life insurers pay tax on behalf of shareholders and policyholders. As a result of investment market movements over the period, policyholders have recorded an investment loss which has caused the overall tax credit. But for this investment loss attributable to the policyholders, the profit before tax for the period would have been higher.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

accountants Report

Accountants’ Report

To the Shareholders of TOWER Limited

We have reviewed the financial statements on pages 14 to 21. The financial statements provide information about the past financial performance and cash flows of the Company and its controlled entities (the Group) for the period ended 31 March 2008 and its financial position as at that date. This information is stated in accordance with the accounting policies of the Company as referred to on page 18.

Directors’ responsibilities

The Company’s Directors are responsible for the preparation and presentation of the financial statements that present fairly the financial position of the Group as at 31 March 2008 and its financial performance and cash flows for the period ended on that date.

Accountants’ responsibilities

We are responsible for reviewing the financial statements presented by the Directors in order to report whether, in our opinion and on the basis of the procedures performed by us, anything has come to our attention that would indicate that the financial statements do not present fairly the matters to which they relate.

Basis of opinion

A review is limited primarily to enquiries of company personnel and analytical review procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit on the financial statements and, accordingly, we do not express an audit opinion.

We have reviewed the financial statements of the Group for the period ended 31 March 2008 in accordance with the Review Engagement Standards issued by the Institute of Chartered Accountants of New Zealand.

We have no relationship with or interests in the Company or any of its subsidiaries other than in our capacity as accountants conducting this review.

Review opinion

Based on our review, nothing has come to our attention that causes us to believe that the financial statements do not present fairly the financial position of the Group as at 31 March 2008 and its financial performance and cash flows for the period ended on that date.

Our review was completed on 21 May 2008 and our review opinion is expressed as at that date.

Chartered Accountants

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half year Report 2008 | SECTION 4: Independent Adviser’s Report

Section 4: Independent Adviser’s Report

Tower Limited Independent Adviser’s Report

On the Partial Takeover Offer from GPG

May 2008

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

1.	The GPG Proposal ..................................................................................................................................................................... 4	The GPG Proposal ..................................................................................................................................................................... 4
	1.1	Overview of the GPG Offer ............................................................................................................................................... 4
	1.2	Requirements of the Takeovers Code .............................................................................................................................. 5
	1.3	Background - Guinness Peat Group and Tower .............................................................................................................. 6
2.	Scope of the Report .................................................................................................................................................................. 7
	2.1	Purpose of the Report ...................................................................................................................................................... 7
	2.2	Basis of Evaluation............................................................................................................................................................ 7
3.	Evaluation of the Merits of the GPG Offer.............................................................................................................................. 8
	3.1	The Value of the GPG Offer .............................................................................................................................................. 8
	3.2	Framework of the GPG Offer ............................................................................................................................................ 8
	3.3	Implications for Tower Shareholders if the GPG Offer is Successful .............................................................................. 10
	3.4	Other Merits of the GPG Offer ........................................................................................................................................ 11
	3.5	Summary ........................................................................................................................................................................ 13
	3.6	Acceptance or Rejection of the GPG Offer..................................................................................................................... 14
4.	Profile of Tower........................................................................................................................................................................ 15
	4.1	Background .................................................................................................................................................................... 15
	4.2	General Insurance........................................................................................................................................................... 16
	4.3	Tower Health & Life......................................................................................................................................................... 17
	4.4	Tower Investments.......................................................................................................................................................... 20
	4.5	Consolidated Financial Performance .............................................................................................................................. 23
	4.6	Consolidated Financial Position ...................................................................................................................................... 25
	4.7	Capital Structure and Ownership.................................................................................................................................... 26
	4.8	Share Price Performance................................................................................................................................................ 27
5.	Valuation of Tower................................................................................................................................................................... 28
	5.1	Summary ........................................................................................................................................................................ 28
	5.2	Methodology................................................................................................................................................................... 29
	5.3	General Insurance........................................................................................................................................................... 31
	5.4	Tower Health & Life......................................................................................................................................................... 32
	5.5	Tower Investments.......................................................................................................................................................... 33
	5.6	Corporate costs .............................................................................................................................................................. 34
	5.7	Other assets.................................................................................................................................................................... 34
	5.8	Capitalisation Multiples Analysis...................................................................................................................................... 35
6.	Qualifications, Declarations & Consents.............................................................................................................................. 38
	6.1	Qualifications................................................................................................................................................................... 38
	6.2	Limitations and Reliance on Information ......................................................................................................................... 38
	6.3	Disclaimers...................................................................................................................................................................... 39
	6.4	Independence................................................................................................................................................................. 39
	6.5	Information...................................................................................................................................................................... 40
	6.6	Declarations .................................................................................................................................................................... 40
	6.7	Consents......................................................................................................................................................................... 41
	APPENDIX A – Transaction Evidence - Insurance
	APPENDIX B – Sharemarket Evidence – Insurance
	APPENDIX C – Transaction Evidence – Financial Services
	APPENDIX D – Sharemarket Evidence – Financial Services
	APPENDIX E – Appraisal Value

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Glossary

ASX Australian Stock Exchange AWM Australian Wealth Management Limited Bridges Bridges Financial Services EBIT Earnings before interest and tax EBITA Earnings before interest, tax and amortisation EBITDA Earnings before interest, tax, amortisation and depreciation FUM Funds Under Management General Insurance Tower Insurance Limited GPG Guinness Peat Group Plc GPG 21 GPG Twenty One Limited Grant Samuel Grant Samuel & Associates Limited IAG Insurance Australia Group IRD Inland Revenue Department Ithaca Ithaca (Custodians) Limited MoS Margin on Services NTA Net tangible assets NPAT Net profit after tax NZSX New Zealand Stock Exchange PE Price earnings Russell Frank Russell Company TAL Tower Australia Limited TLNZ Tower Life New Zealand Limited TMI Tower Medical Insurance Limited Tyndall Tyndall Australia Limited

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

1. The GPG Proposal 1.1 Overview of the GPG Offer

On 2 May 2008 GPG Twenty One Limited ( GPG 21 ), a wholly owned subsidiary of Guinness Peat Group Plc ( GPG ), announced its intention to make a partial takeover offer to purchase 15.3% of the ordinary shares in Tower Limited ( Tower ) at a price of NZ$2.30 per share ( the GPG Offer ).

GPG currently controls 19.7% of the ordinary shares in Tower through its wholly owned subsidiary Ithaca (Custodians) Limited ( Ithaca ) and wishes to increase its shareholding to 35%. Accordingly, the GPG Offer is only for a further 15.3% of the shares in Tower, or approximately one fifth of the remaining shares in Tower not already controlled by GPG. For the purposes of this report GPG, Ithaca and GPG21 are referred to as GPG.

The GPG Offer is subject to the following conditions that may not be waived by GPG:

the 35% shareholding level being achieved; and
Tower shareholders approving, by way of a simple majority of the voting rights exercised, GPG making the GPG Offer. GPG will not be able to vote its existing shareholding in relation to approving the GPG Offer.

Both conditions must be satisfied for the GPG Offer to succeed.

The GPG Offer is subject to a number of further conditions which may be waived at GPG’s discretion. These discretionary conditions principally relate to material changes to the Tower business and capital structure but also include the following condition:

neither the Tower share price or the NZX 50 Index declining to a level 7.5% below their closing levels on the day prior to the Notice Date, being 1 May 2008, on any three trading days (whether or not consecutive), or for a continuous period of less than three trading days commencing at any point up to three days in advance of the date the GPG Offer must be declared unconditional.

Tower shareholders are therefore required to make two decisions:

whether to accept or reject the GPG Offer at NZ$2.30 per share for some of all of their shares; and
whether to approve or reject GPG making an offer which would result in GPG controlling 35% of the voting rights of Tower.
If a simple majority of shares voted do not support the shareholder resolution GPG will not be able to acquire any shares regardless of whether or not GPG has received sufficient acceptances to its Offer.

Because the GPG Offer is a partial offer (rather than a full offer for all of the shares in Tower) shareholders can elect what proportion, if any, of their shares they wish to accept into the GPG Offer. If GPG receives acceptances in respect of more than 15.3% of the issued shares in Tower (equivalent to 19.05% of those shares not owned by GPG) then it will take up the lesser of:

15.3% of the shares held by each accepting shareholder; or
the number of shares the accepting shareholder has accepted into the GPG Offer.

To the extent there is a shortfall under this mechanism, but the total acceptances exceed the 35% threshold, GPG will acquire further shares from those shareholders who accepted more than 15.03% of their shares into the GPG Offer.

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4
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

If GPG receive acceptances for less than 15.3% of the shares in Tower the GPG Offer will lapse and GPG will acquire no additional shares.

A shareholder can elect to sell none, some or all of their shares into the GPG Offer but separately support GPG becoming the controller of 35% of the shares in GPG or vice versa. The decision to sell and the vote on GPG becoming the controller of 35% of the shares in Tower are not linked.

Grant Samuel expects that Tower will inform the market as to the status of the vote to consider whether GPG is endorsed to become the holder of 35% of the shares in Tower.

1.2 Requirements of the Takeovers Code

The Takeovers Code came into effect on 1 July 2001. The Takeovers Code seeks to ensure that all shareholders are treated equally and on the basis of proper disclosure are able to make informed decisions on shareholding transactions that may impact on their own holdings.

The fundamental rule of the Takeovers Code states that a person who holds or controls:

no voting rights, or less than 20% of the voting rights, in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company unless, after that event, that person and that person's associates hold or control in total not more than 20% of the voting rights in the code company;
20% or more of the voting rights in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company.

Rule 7 of the Takeovers Code sets out the exceptions to the fundamental rule. Rule 7 states that a person may become the holder or controller of an increased percentage of the voting rights in a code company under the following circumstances:

by an acquisition under a full offer;
by an acquisition under a partial offer;
by an acquisition by the person of voting securities in the code company or in any other body corporate from one or more other persons if the acquisition has been approved by an ordinary resolution of the code company in accordance with the code;
by an allotment to the person of voting securities in the code company or in any other body corporate if the allotment has been approved by an ordinary resolution of the code company in accordance with the code, if:
(i) the person holds or controls more than 50%, but less than 90%, of the voting rights in the code company; and
(ii) the resulting percentage held by the person does not exceed by more than 5 the lowest percentage of the total voting rights in the code company held or controlled by the person in the 12month period ending on, and inclusive of, the date of the increase;
if the person already holds or controls 90% or more of the voting rights in the code company.

The procedure to be followed by GPG in making the partial offer is governed by Rule 10 which states:

the takeover notice and the GPG Offer must include a statement that approval is sought under Rule 10 of the Takeovers Code and that the GPG Offer is conditional on approval being obtained;
the GPG Offer must be accompanied by a separate approval document providing for Tower shareholders (excluding GPG) to approve or object to GPG making an offer for 50% or less of the voting rights in Tower; and

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

approval under Rule 10 is obtained if the Tower shareholders (excluding GPG) approving the GPG Offer hold more voting rights in Tower than are held by the Tower shareholders (excluding GPG) so objecting.
1.3 Background - Guinness Peat Group and Tower

GPG is an investment holding company with a diversified global portfolio of investments spanning sectors including financial services, thread manufacturing, foodstuff manufacturing and building services. GPG is listed on the London, Australian and New Zealand stock exchanges. As at 31 December 2007, it had a market capitalisation of approximately £854 million.

GPG first took an interest in Tower in 1998 in the lead up to Tower’s pending demutualisation. GPG approached Tower with an alternative proposal to the planned demutualisation, proposing that Tower back its business into GPG’s Australian based subsidiary, financial services company Tyndall Australia Limited ( Tyndall ). In return Tower policyholders who would have become shareholders under the demutualisation would receive Tyndall shares. The Board of Tower rejected the GPG proposal in favour of demutualisation. GPG persisted in its efforts and promoted its scheme to the High Court. Following a review of the GPG proposal the Court rejected it and gave approval for the demutualisation to proceed. Between December 2002 and February 2003 GPG acquired a 9.9% interest in Tower in a series of onmarket purchases.

During the second half of 2003, due to poor financial performance and resultant pressure from the company’s bankers to accelerate repayment of its debt facilities, Tower raised $210 million of equity through a rights issue to all shareholders. The rights issue was underwritten by GPG. As a result of the overall recapitalisation and a small quantum of on-market purchases, GPG increased its shareholding in Tower to approximately 19.9%. GPG has had representation on the Board of Tower since March 2003 and has been an active investor in the business since it bought in. This has included the underwrite of rights issues and the stated support for the proposals that ultimately resulted in the separation of Tower’s Australian Wealth Management ( AWM ) and Tower Australia Limited ( TAL ) businesses.

GPG has a stated investment policy of:

“making selective investments, predominantly in public companies, for the purpose of enhancing and realising value by means of appropriate levels of shareholder influence and control. This could involve the restructuring of the financing or management of the companies in which GPG invests. GPG’s role may also encompass initiating and facilitating mergers within the relevant industry to achieve constructive rationalisation”.

If the GPG Offer is designed to encourage an alternative offer for Tower then it would be consistent with this investment philosophy.

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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

2. Scope of the Report

2.1 Purpose of the Report

The Directors of Tower (independent of GPG) have engaged Grant Samuel & Associates Limited ( Grant Samuel ) to prepare an Independent Adviser’s Report to comply with the Takeovers Code in respect of the GPG Offer. Grant Samuel is independent of Tower and GPG and has no involvement with, or interest in, the outcome of the GPG Offer.

Rule 21 of the Takeovers Code requires the Independent Adviser to report on “the merits of an offer”. The term “merits” has no definition either in the Takeovers Code itself or in any statute dealing with securities or commercial law in New Zealand. While the Takeovers Code does not prescribe a meaning of the term “merit”, it suggests that “merits” include both positives and negatives in respect of a transaction.

A copy of the report will accompany the Target Company Statement to be sent to all Tower shareholders. This report is for the benefit of the shareholders of Tower other than GPG. The report should not be used for any purpose other than as an expression of Grant Samuel’s opinion as to the merits of the GPG Offer.

2.2 Basis of Evaluation

Grant Samuel has evaluated the GPG Offer by reviewing the following factors:

the estimated value range of Tower and the price of the GPG Offer when compared to that estimated value range;
the likelihood of an alternative offer and alternative transactions that could realise fair value;
the likely market price and liquidity of Tower shares in the absence of the GPG Offer;
any advantages or disadvantages for Tower shareholders of accepting or rejecting the GPG Offer;
any advantages or disadvantages for Tower shareholders of approving or rejecting GPG being allowed to make the GPG Offer to increase its control of Tower from 19.7% to 35%;
the current trading conditions for Tower;
the timing and circumstances surrounding the GPG Offer;
the attractions of Tower’s business; and
the risks of Tower’s business.

Grant Samuel’s opinion is to be considered as a whole. Selecting portions of the analyses or factors considered by it, without considering all the factors and analyses together, could create a misleading view of the process underlying the opinion. The preparation of an opinion is a complex process and is not necessarily susceptible to partial analysis or summary.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

3. Evaluation of the Merits of the GPG Offer

3.1 The Value of the GPG Offer

The value of the GPG Offer can be benchmarked against a range of parameters:

Grant Samuel’s assessment of the full underlying value of the shares. In Grant Samuel’s opinion the full underlying value of Tower shares is in the range of NZ$2.45 to NZ$2.89 per share as set out in Section 5. The full underlying value is the price a person or entity would be expected to pay to acquire the company as a whole and accordingly includes a premium for control. In Grant Samuel’s opinion the price offered should be equivalent to the full underlying value of the company given that, if the GPG Offer is successful, GPG will own 35% of Tower and will have significant influence, if not control over the business;
the premium implied by the GPG Offer. The GPG Offer represents a premium of approximately 11% relative to the closing price of $2.07 per share on 1 May 2008, being the day prior to the announcement of the GPG Offer and a premium of 20.4% to the volume weighted average share price (V WAP) over the 30 trading days prior to the announcement. Over the longer term the GPG Offer represents a 10.0% premium to the 6 month VWAP and a 2.1% premium to the 12 month VWAP. The premium for control is below the majority of premiums for control observed in successful takeovers of other listed companies; and
comparable company and comparable transaction data. The GPG Offer implies multiples of 12.7 times historical net profit after tax (NPAT) and 11.3 times current consensus broker forecast NPAT for 2008. Grant Samuel’s analysis suggests these multiples are below multiples paid for comparable insurance companies.

The GPG Offer price is below Grant Samuel’s assessment of the full underlying value of Tower. The multiples of earnings implied by the GPG Offer price are below the earnings multiples implied by recent transactions in the insurance sector and the share prices of other listed insurers.

3.2 Framework of the GPG Offer

The GPG Offer is a partial takeover offer to acquire shares in Tower to take the total shareholding controlled by GPG to 35%. A partial offer has a number of implications for shareholders:

without the prior approval of non-related shareholders GPG cannot control a shareholding in Tower of between 20% and 50%. As required by Rule 10 of the Takeovers Code GPG is seeking approval from Tower shareholders to make an offer to increase its control to 35% simultaneously with the GPG Offer being made. If GPG is not successful in securing the approval of shareholders then it cannot proceed and acquire any shares accepted into to the GPG Offer;
in the event GPG does not receive acceptances sufficient to take its shareholding up to 35% of the shares in Tower, then GPG will not be able to purchase any shares under the GPG Offer;
there is no certainty what proportion of their own shares an accepting shareholders will be able to sell if the GPG Offer is successful.

GPG is seeking to acquire 15.3% of all Tower shares on issue. It already controls 19.7% of the shares on issue through a related party, Ithaca. Ithaca cannot participate in the GPG Offer.

For the GPG Offer to succeed GPG must therefore acquire 19.05% of all the Tower shares on issue held by unrelated parties. Under the Takeovers Code if GPG receives acceptances in respect of

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

more than 19.05% of the ordinary Tower shares that are not already controlled by GPG then it will first take up the lesser of:

15.3% of the shares held by each accepting shareholder; and
the number of shares the accepting shareholder has accepted into the GPG Offer.

The number of shares acquired by GPG under this mechanism will always be less than the number of shares required for the GPG Offer to succeed (i.e. there will be a shortfall). To address the shortfall GPG will acquire further shares, from each accepting shareholder that accepted the GPG Offer for more than 15.3% of their shares held, in the same proportion as the total shortfall bears to the total surplus acceptances received.

The table below shows the number of shares and the percentage of shares accepted into the GPG Offer that would be acquired by GPG (assuming shareholders vote in its favour) under:

different percentages of the total number of Tower shares on issue that are accepted into the GPG Offer by all Tower shareholders; and
various levels of shares that are accepted into the GPG Offer by an individual shareholder owning a total of 1,000 Tower shares.

Number & % of shares accepted into the GPG Offer that would be acquired by GPG

		% of total Tower shares accepted into the GPG Offer by all Tower Shareholders	% of total Tower shares accepted into the GPG Offer by all Tower Shareholders	% of total Tower shares accepted into the GPG Offer by all Tower Shareholders	% of total Tower shares accepted into the GPG Offer by all Tower Shareholders
		15.3%	25.0%	50.0%	80.3%1
	1,000	1,000	354	221	191
No. of shares		100.0%	35.4%	22.1%	19.1%
accepted into	500	500	235	181	na
GPG Offer by		100.0%	47.1%	36.1%	na
an individual	191	191	162	156	na
shareholder		100.0%	85.0%	81.9%	na
with a total of	153	153	153	153	na
1,000 shares		100.0%	100.0%	100.0%	na
	100	100	100	100	na
		100.0%	100.0%	100.0%	na

The table shows that each shareholder that accepts the GPG Offer will sell as a minimum the lesser of 15.3% of their total shareholding in Tower and the number of shares accepted into the GPG Offer. It also shows that if exactly 15.3% of all the shares in Tower on issue are accepted into the GPG Offer then shareholders will not be subject to any scaling regardless of their individual acceptance level.

If the GPG Offer is successful at any level over the 15.3% threshold (recognising that it is highly unlikely that acceptances from exactly 15.3% will be received), Tower shareholders who accept the GPG Offer in respect of more than 15.3% of their entire shareholding will not be able to sell all of the accepted shares into the GPG Offer as excess acceptances will be scaled back. The example above shows that if acceptances in respect of 25% of Tower’s shares are received then a shareholder who owns 1,000 shares in Tower and accepts all of his shares into the GPG Offer will only have 354 of his shares (35.4% of those he accepted in respect of) acquired under the GPG Offer. The level of scaling is highest for a shareholder accepting a high proportion of their shares into the GPG Offer when the overall acceptance level is also high e.g. if all Tower shareholders (other than Ithaca) accept the GPG Offer, GPG will only acquire 19.05% of each shareholder’s shares;

1 The maximum percentage is 80.3% as Ithaca cannot accept its 19.7% shareholding into the GPG Offer.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

approximately 40% of the issued shares in Tower are owned by the top 20 shareholders or custodians (excluding entities associated with GPG). The vast majority of these shareholders are institutions or nominee companies. Grant Samuel understands that some institutions have indicated to GPG that they will accept the GPG Offer when it is made. The decisions of the institutional shareholders on whether or not to accept the GPG Offer could be instrumental in whether the GPG Offer is successful or not;
the GPG Offer is subject to a number of conditions, which may be waived at GPG’s discretion. These discretionary conditions principally relate to material changes to the Tower business and capital structure but also include the specific condition that neither the Tower share price or the NZX 50 Index decline to a level 7.5% below their closing levels on the day prior to the Notice Date, being 1 May 2008, on any three trading days (whether or not consecutive), or for a continuous period of less than three trading days commencing at any point up to three days in advance of the date the GPG Offer must be declared unconditional. From 1 May to 27 May 2008 the Tower share price has traded in the range $2.07 - $2.26 and the NZX50 index has varied from 3630 on 1 May 2008 to 3551 on 27 May 2008. Barring a major market change or the disclosure of price sensitive information, it appears that these market measurement conditions are unlikely to be breached.

As the GPG Offer is a partial offer there is no certainty what proportion of each accepting shareholder’s shares in Tower will be bought if the GPG Offer is successful. Given that excess acceptances will be scaled down, it is almost certain that if the GPG Offer is successful accepting shareholders will not be able to sell all their shares into the GPG Offer. This lack of certainty is problematic for communications with shareholders but is in line with the rules of the Takeover Code. If the GPG Offer is unsuccessful in achieving sufficient acceptances to increase GPG’s shareholding to 35%, no shares will be bought from accepting shareholders.

In the covering letter that accompanied the announcement of GPG’s intention to make the GPG Offer GPG executive director, Mr Tony Gibbs, who is also Chairman of Tower said:

“he expected the Offer to be extremely well supported by both large and small shareholders. In particular small shareholders, many of whom hold uneconomic parcels, will have the opportunity to sell their shares at a premium price without incurring disproportionately large brokerage costs to dispose of their shares. The reduction of the number of small size shareholders would in turn assist Tower to reduce administrative costs of maintaining and communicating with such a large number of shareholders”

This statement is largely incorrect as, for the reasons noted above, it is highly unlikely that any one shareholder will be able to divest an entire shareholding.

3.3 Implications for Tower Shareholders if the GPG Offer is Successful

If the GPG Offer is successful then Tower will remain a listed company with GPG controlling a cornerstone shareholding. In that circumstance it is almost certain that all existing shareholders in Tower, even if they have accepted all their shares into the GPG Offer, will still hold shares in Tower (albeit with smaller shareholdings in the case of accepting shareholders). In these circumstances:

it is generally accepted that a shareholding of around 40% or greater in a widely held public listed company such as Tower would give that holder control or at a minimum, significant influence. A 35% shareholding is sufficient to block a special resolution of shareholders and heavily influence the outcome of any ordinary resolution. GPG’s current shareholding of 19.7% does not afford it these benefits;
GPG has stated that it has no current plans to appoint any further directors to the Tower board if the GPG Offer is successful. However, GPG already has significant representation on the Tower board

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

with two (plus one alternate) out of the current seven board members including the Chairman already being GPG representatives;

the liquidity of Tower shares is likely to be adversely affected. The size of the total public pool of shareholders is likely to reduce (depending on the profile of acceptances) and as a result there would be expected to be a lower level of trading in Tower shares;
GPG will not be able to acquire any further shares in Tower without making a further partial or full takeover offer. For a further partial offer to be made up to a shareholding level of 50% (i.e. up to a further 15% of issued shares if the GPG Offer is successful) would also require the prior approval of other shareholders. If GPG sought a shareholding greater than 50% it could make a partial or full takeover offer for Tower without the requirement for prior approval of other shareholders;
equally if GPG owns between 20% and 50% of Tower then it will not be able to sell its shareholding to another party unless either Tower shareholders approve the transaction or the other party makes a full or partial offer conditional upon meeting acceptances of more than 50%;
the attraction of Tower as a takeover target could be impacted both positively and negatively if the GPG Offer is successful. For any subsequent takeover offer for 100% of the company from another party to be successful, it would require GPG to sell its current, or any increased shareholding, in Tower to the new offeror. The profile and business model of GPG should be considered in the context of this statement. GPG is an investment company with a successful track record of acquiring and selling shareholdings in a diverse range of companies. By any measure it would be considered an aggressive investor. It could therefore be argued that while a 35% shareholding would almost certainly require GPG to sell all (or at least a majority) of its holding into an alternative takeover offer for that offer to be successful, the opportunity to secure a 35% shareholding would also be of significant appeal to a potential acquirer of the business. Given GPG’s profile as a financial investor that has bought and sold strategic shareholdings in various entities a potential acquirer of Tower may come to the conclusion that the GPG shareholding would be “able to be acquired” at a price. As a consequence it is reasonable to conclude that the future actions and decisions of GPG will be instrumental in determining the fate of any future takeover offer for the business. Some market commentators have suggested the partial offer by GPG may simply be a mechanism to “flush out” a bidder or bidders for all of Tower, and that the ultimate effect of the announcement is to essentially put the company “in play”. This concept is consistent with GPG’s investment and trading nature. To date however, GPG has not disclosed its intentions with respect to its investment in Tower, and nor would it be expected to do so while the GPG Offer is open for acceptance.

Control over a 35% shareholding in Tower will give GPG significant influence but not necessarily control over Tower. To acquire the additional 15.3% in Tower under the GPG Offer will cost GPG NZ$67.5 million at NZ$2.30 per share. GPG has a proven record as an investor and business manager and in Grant Samuel’s opinion would have only committed to make this level of additional financial investment on the basis that it expects to make a good return on its investment.

The GPG Offer was made on 19 May 2008 and will be open until 19 June 2008. The GPG Offer period may be extended by a maximum of 60 further days at GPG’s discretion.

If the GPG Offer is successful GPG will have significant influence over Tower. Such a shareholding level may even enhance the takeover prospects for the company.

3.4 Other Merits of the GPG Offer

In assessing the other merits of the GPG Offer Grant Samuel considered the following factors:

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

if GPG is not successful in increasing its interest in Tower to 35% at its current offer price it may or may not choose to increase the offer price. If GPG chooses to increase its current offer price while the GPG Offer is still open the increased value will be available to all shareholders even if they have already accepted the current offer price;
the existing GPG shareholding of 19.7% already creates an impediment to an alternative offer. It is possible that an alternative and higher offer could be made for the shares in Tower while the GPG Offer is open or if the GPG Offer is unsuccessful. However, it is unlikely that a third party would make such an offer without first securing the acceptance of GPG;
the GPG Offer will initially be open for 30 days and can be extended for up to a further 60 days. As the closing date gets closer the market will pay close attention to the outcome of the vote and the level of acceptances. A recent example of a similar circumstance was the Canadian Pension Plan Offer for 40% of Auckland International Airport Limited. If it looks likely that the 35% level will be achieved, institutional shareholders are in Grant Samuel’s opinion more likely to accept as they have a fiduciary responsibility to maximise the return on their clients’ funds. This will require an assessment of alternative investment opportunities and the likely price and liquidity of Tower post the GPG Offer should they choose to buy back into Tower. Tower is not required to disclose the approvals in regard to GPG becoming a 35% shareholder until the end of the GPG Offer period, but Grant Samuel expects that Tower will wish to keep the market fully informed. If it does not it will add to the uncertainty surrounding the GPG Offer;
the Tower share price has traded slightly below the GPG Offer price since the GPG Offer was announced;
for those shareholders wishing to have an equity investment in the insurance and fund management sectors there are no other comparable investment opportunities in New Zealand;
as with any equity investment there are risks associated with the market in which the company operates. The risks and opportunities associated with an investment in Tower include:

Opportunities

Tower has a strong share of the health and life insurance market and is well positioned to capture increased market share if it can exploit more direct channels to the customer. Broker commissions have become excessive industry wide and cannot be maintained in Grant Samuel’s opinion. A rebalancing appears inevitable. If that eventuates insurance companies should make better margins on life premiums in particular;
Tower is a small insurance company relative to its peers with a market capitalisation of only $420 million. The insurance market globally has experienced a marked period of mergers and acquisitions activity which has resulted in considerable consolidation in the sector. Australasia has not been immune from the consolidation which has seen a number of transactions in the past 5 years including the A$8.7 billion takeover offer by QBE for IAG in Australia which was abandoned on 21 May 2008. It is likely, given the activity in the sector generally, that Tower could ultimately be caught up in that takeover activity. Tower is likely to offer synergy opportunities to a number of financial institutions;
after a period of management change Tower Investments is now poised to grow again and one of its clear opportunities is to take advantage of its Kiwisaver default provider status. The number of Kiwisaver schemes (currently 54) is widely expected to consolidate as the relatively low fees require economics of scale to justify an operation in the sector;
in part due to the substantial change within Tower (primarily the separations of AWM and TAL) the company has been left with a cost base that is high relative to the size of the underlying business. As a result there is opportunity and indeed a requirement to reduce the overhead structure of the business.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Risks

approximately 35% of Tower’s General business is sourced from its alliances with ANZ and National Bank, TSB and Kiwibank. The loss of any of these relationships could have a negative impact over time on the earnings of this division and its value;
General Insurance and Tower Investments are not sufficiently large to be operating at what would be considered an optimum efficiency level. Tower Investments, for example, could potentially double the funds under management (FUM) without having to significantly increase its operating infrastructure. While this is an opportunity, until the imbalance is corrected this business unit’s profitability is constrained. There is a risk that in the current competitive environment these business units cannot be grown sufficiently to address the current operating inefficiencies;
the Tower IT system is integral to the operation of the entire business. It is due for replacement or a major upgrade in the near term which will result in material capital expenditure of $25 - $35 million although the expenditure will yield cost savings and performance advantages. As with all IT implementations there is a risk that the business is compromised if the solution is not installed efficiently; and
the current level of sales of new life and health policies are well below budget. If this trend continues for any length of time the long term profitability of these businesses will be severely impacted.

An issue confronting shareholders is whether accepting the GPG Offer will produce a superior outcome as opposed to retaining their shareholdings in Tower and in particular whether the GPG offer enhances or diminishes the probability of a subsequent offer for Tower by GPG or any other party.

3.5 Summary

GPG has made a partial offer of NZ$2.30 per share for 15.3% of the shares in Tower. The GPG Offer is below Grant Samuel’s assessment of the full underlying value of Tower of NZ$2.45 to NZ$2.89 per share. The multiples of earnings implied by the GPG Offer price are below multiples implied by recent transactions in the non banking financial services sector and the share prices of other listed companies operating in this sector. As GPG is an active investment business this partial offer may well have the effect of putting the company “in play”. This may or may not be consistent with GPG’s investment thesis. It is possible that the GPG investment thesis may never become apparent to the market.

There are only two outcomes of the GPG Offer for GPG – it will retain its existing 19.7% shareholding in Tower (if either shareholders do not approve the GPG Offer proceeding or the GPG Offer fails to achieve acceptances sufficient to take GPG’s shareholding to 35%), or it will control 35% of the shares in Tower if the GPG Offer is successful AND a simple majority of shares voted to approve GPG making the Offer. No other outcomes are possible for GPG.

Unfortunately there are multiple outcomes for Tower shareholders. As the GPG Offer is a partial offer there is no certainty as to what proportion of each accepting shareholder’s shares in Tower will be bought if the GPG Offer is successful. Given that excess acceptances will be scaled down, it is almost certain that if the GPG Offer is successful that accepting shareholders will not be able to sell all of their shares into the GPG Offer. This lack of clarity is problematic for communications with shareholders but is consistent with the rules of the Takeover Code. If the GPG Offer is not approved by shareholders or the GPG Offer is unsuccessful in achieving an increase in GPG’s shareholding to 35%, no shares will be bought from accepting shareholders. In the event GPG is unsuccessful with the GPG Offer it may choose to exit its shareholding. GPG has been a supportive shareholder of Tower providing

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

both capital and capital market expertise. If it were not replaced by another supportive shareholder it is possible that Tower would suffer a loss of shareholder confidence. Equally if GPG is not successful with the GPG Offer it may make a partial offer conditional on getting to 50.1% or a full offer conditional on getting to 100%.

3.6 Acceptance or Rejection of the GPG Offer

Acceptance or rejection of the GPG Offer is a matter for individual shareholders based on their own views as to value and future market conditions, risk profile, liquidity preference, portfolio strategy, tax position and other factors. In particular, taxation consequences will vary widely across shareholders. Shareholders will need to consider these consequences and, if appropriate, consult their own professional adviser. Acceptance or rejection of the GPG Offer is a separate decision from approving or rejecting GPG making the GPG Offer. By not approving GPG making the Offer shareholders will prevent GPG from increasing its shareholding. In all likelihood the approval or rejection will depend on the major shareholders, other than GPG, as it is unlikely that many of the small shareholders will exercise their rights. Voting in favour of GPG making the Offer does not mean that shareholders have to accept the Offer.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

4. Profile of Tower

4.1 Background

Tower is a financial services company listed on the NZX and ASX and is headquartered in Auckland, New Zealand. Tower dates back to 1869 when the Government Life Insurance Office was established, with its initial capital provided by the New Zealand Government. Government Life subsequently became a separate statutory body and was renamed Tower Corporation in 1987. In 1990 Tower’s mutual status was recognised. Tower was demutualised in 1999 and listed on the Australian and New Zealand stock exchanges in September of that year. At that time a cap of 10% was put in place as the maximum shareholding that any single shareholder could hold in Tower.

Following listing Tower embarked upon a growth strategy to diversify the range of products and services it offered and by significantly expanding its interests in Australia. In the subsequent two years Tower acquired three companies, - Bridges Financial Services ( Bridges ), IOOF Trustees in Australia and AXA Health in New Zealand.

Following poor financial results and asset write-downs in late 2002/early 2003, Tower undertook a recapitalisation involving a pro rata rights issue fully underwritten by GPG, with the proceeds used to repay maturing senior debt. As a result of the overall recapitalisation and a small quantum of on market purchases, GPG increased its shareholding in Tower to approximately 19.9% of all ordinary shares on issue. In 2004 Tower fully repaid its senior debt obligations with proceeds from a $75 million subordinated capital notes issue by wholly owned subsidiary Tower Finance Limited.

In 2005 AWM (which at that time comprised Tower Trust and Bridges) was separated as a stand alone ASX listed company with the new shares in AWM allocated to Tower shareholders in return for a court approved cancellation of Tower shares.

In 2006 Tower acquired Prefsure Life Limited for A$128 million, establishing Tower as a major participant in the Australian life insurance industry.

In August 2006 Tower announced a major proposal to implement the geographic and legal separation of its Australian and New Zealand businesses into two separate listed entities. The separation was approved by shareholders and became effective in November, resulting in the creation of Tower Australia Group ( TAL ) which continues to be listed on the Australian Stock Exchange ( ASX ) and Tower which is listed on the ASX and New Zealand Stock Exchange ( NZSX ). Tower comprises the New Zealand and Pacific Islands businesses. The separation of Tower followed the successful spin off of AWM and enabled a further A$160 million of new equity to be raised for TAL (which at the time was underwritten by GPG).

The GPG Offer is specific to Tower. While Tower shareholders may also own shares in AWM and TAL, the outcome of the GPG Offer has no impact on TAL or AWM. The companies are entirely separate and unrelated entities.

The operations of Tower today comprise the following core business units:

General Insurance , providing home, car and travel insurance to the retail and commercial markets in New Zealand and the Pacific Islands;
Tower Health & Life , providing health and life insurance to the retail and group markets in New Zealand; and
Tower Investments, specifically wholesale and retail funds management and individual and group superannuation in New Zealand.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

4.2 General Insurance

Each of these business units is profiled in more detail in the following sections of this report.

Overview

Tower provides general insurance in New Zealand and in the Pacific Islands. Approximately 80% of its premium revenue is generated in New Zealand where it has a market share of approximately 5%[2] . The market share in the Pacific Islands is estimated by Tower to be in excess of 30%. The company’s main products are personal line insurance products such as home and contents insurance and private motor vehicle insurance. The company also sells travel insurance, offers a number of rural and farming insurance products, and sells fire insurance in the commercial market in the Pacific Islands. Approximately 60% of sales are made direct to consumers with the balance through strategic partners with whom General Insurance has retained alliances for a number of years. Strategic partners include ANZ and National Bank, TSB and Kiwibank. General Insurance is based in Auckland and employs approximately 317 people.

Financial Performance

General Insurance has a consistent history of growth, profitability and good customer retention. Summarised financial results are shown below:

General Insurance –	Financial Performance (NZ$ millions)
Year to 30 Sept	2005 2006 2007 6 months to 31 March 08
Revenue Business unit operating earnings Intercompany investment income Investment Income Profit before tax Tax expense Profit after tax from continuing operations Profit from discontinued operations	189.1 189.0 197.3 97.8 1.6 7.2 9.6 7.8 - - 1.1 - 10.4 9.2 11.3 4.7
	12.0 16.4 22.0 12.5 (5.1) (8.5) (9.6) (4.8)
	6.9 7.9 12.4 7.7 - - (0.1) -
Profit after tax	6.9 7.9 12.3 7.7

The following comments are relevant to an analysis of the financial performance of the General Insurance business:

approximately 80% of division revenue is derived from New Zealand with the balance from the Pacific Islands business. Tower’s Pacific Islands business enjoys a very strong market share and has in recent years produced strong financial results;
premium income growth, particularly for home insurance has not kept pace with increases in building costs. The consequence of this is that this insurance product is not as profitable as it once was. It is expected that home insurance premiums will increase over the next 12 months. The market leader in home insurance (IAG) commented recently that it expected premium increases of 10% to 20% over the next year;
the General insurance market is competitive with a number of large players and little to differentiate between product offerings. An insurance company’s ability and efficiencies in dealing with claims can have a large bearing on customer lapse rates. Tower experienced low levels of customer

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2 Source: Insurance Council of NZ
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

satisfaction in 2005 and 2006. Significant management effort has addressed this situation with improvements in satisfaction levels being recorded across all divisions;

market shares within the insurance industry are typically reasonably resilient given the competitive nature of the products and the reluctance/apathy of customers to change service providers once policies are put in place;
it is common in the insurance industry for insurance companies to re-insure their books to offset the assessed claims liabilities. This is a significant but essential cost to Tower; and
for the six months to 31 March 2008 General Insurance produced a strong underwriting result in both New Zealand and the Pacific Islands.

Issues and Opportunities

the quality of assessors can have a material bearing on payout ratios as the assessors are effectively the gatekeeper to claims being approved and paid. Tower has outsourced claims assessment but is in the process of bringing 80% of this function in house;
the frequency of adverse weather events appears to be increasing globally. Ultimately this increases the insurance industry’s financial risk and will result in higher premiums. Insurance companies are affected differently by adverse weather events, depending on their exposure to the geography. In the short term insurance company profitability can be compromised. In the first six months of the current financial year Tower experienced a low level of claims, however with the onset of winter it anticipates a return to more normal level of claims; and
approximately 35% of Tower’s General Insurance business is sourced from its alliances with ANZ and National Bank, TSB and Kiwibank. Tower’s alliance with ANZ has been in place for approximately 14 years and its alliance with National Bank for approximately 15 years. The loss of one or more of these relationships could have a negative impact over time on the earnings of this division and its value.

4.3 Tower Health & Life

Overview

Tower’s Life & Health business provides a range of health insurance products. Approximately 32.6% of New Zealanders have some form of health insurance. Both health and life insurance products in New Zealand are risk weighted with the premium reflecting the relevant risk factors such as age and state of health. Tower’s Life & Health business is based in Auckland where it employs approximately 229 people.

Health

Tower became the second largest health insurer in New Zealand (behind Southern Cross) following the acquisition of AXA Health in 2000, and has preserved that market position ever since. Tower is estimated to have a market share of approximately 15.5% based on total premiums paid. In contrast to Southern Cross which predominantly offers comprehensive medical coverage though Group Schemes, Tower has historically provided medical insurance through third party distributors.

All health insurance business is written through Tower Medical Insurance Limited ( TMI ). The health business divides into Group Schemes for employers and retail for individuals. The products now offered for sale comprise:

Premier Health; and
Easy Health.

Easy Health is only available to the retail market. Health insurance is a relatively low margin business and depends on volume to make a profit. Historically Tower’s medical insurance business has not performed well from a financial perspective despite a strong market share. More recently performance has improved

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

because of premium increases and improved claims experience. In common with life insurance the commissions being paid to generate new retail business are very high and will in Grant Samuel’s opinion need to be reduced if the business is to achieve satisfactory profitability without passing the costs on to the consumers. Price inflation for health procedures is currently more than double the rate of inflation and for some procedures significantly higher. Inflationary increases will continue to be passed on in premium increases. It is noticeable that Tower’s sales of new policies over the last 18 months have fallen short of budget and the number of policies is declining but in force premium revenue, because of premium increases, is continuing to increase. The sharply deteriorating economic outlook in New Zealand may see lapse rates increase. Evidence for the first half of the financial year does not support this contention with lower lapse rates being experienced.

Life

Life insurance is either term or permanent. Term life insurance provides cover for a specified term of years for a specified premium. The policy does not accumulate a cash value. Term insurance premiums are relatively low because of the low likelihood of a claim. Tower sells its term and other life insurance products largely through intermediaries who are paid on a commission basis.

In the past Tower offered endowment and whole of life insurance to policy holders through Tower Life New Zealand Limited. These lines are essentially closed to new business, with the only new policies coming as a result of contractual obligations such as Convertibility or Guaranteed Insurability Options on already existing policies. A share of the profits arising on the participating book are distributed to participating policyholders by way of reversionary and terminal bonuses. Reversionary bonus increases are guaranteed once declared and payable on the occurrence of the insured event. Terminal bonuses, usually expressed as a percentage of total reversionary bonus allocated to date, are payable on claims paid due to death or maturity. The rate of terminal bonus is not guaranteed. Shareholders are entitled to 20% of the total profit distributed.

In addition to life cover Tower Health & Life offers cover for:

trauma;
income protection; and
permanent disability.

All of these covers are paid whilst the insured is alive.

Tower uses reinsurance to:

limit exposure to large sums insured (surplus arrangements);
limit exposure to accumulations of insurance risk (catastrophe reinsurance); and
limit exposure to volatile claims experience (quota share with surplus overlays).
Catastrophe reinsurance has become significantly more expensive since September 2001.

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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Financial Performance

As of 31 March 2008, Tower Health & Life had $122.3 million of in force health premiums and $76.0 million of in force life premiums and a market share of approximately 15.5% and 5.4% in these respective markets.

The financial performance of Tower Health & Life is summarised below:

Tower Health & Life	– Financial Performance (NZ$ millions)
	Year ended 30 September 6 months to
	2005 2006 2007 31 March 08
Revenue - external Revenue - internal Total Revenue Business unit operating earnings Investment Income Profit before tax Tax expense Profit after tax from continuing operations Profit from discontinued operations	235.6 231.3 221.1 77.1 4.9 2.1 - -
	240.5 233.4 221.1 77.1 11.8 16.3 25.7 18.2 2.2 3.5 4.2 (7.5)
	14.0 19.8 29.9 10.7 (1.0) (0.7) (7.2) 4.4
	13.0 19.1 22.7 15.1 - - (0.4) -
Profit after tax	13.0 19.1 22.3 15.1

The following comments are relevant to an analysis of the financial performance of the Tower’s Health & Life business:

the net decline in external revenue is a result of lower policyholder investment returns being only partially offset by higher in force premium income;
the commission rates payable to brokers on life and health insurance policies have become excessive and are in themselves contributing to higher premiums for customers. The broker community is accustomed to incentive driven targets for putting in place policies that can result in elaborate travel and holiday awards that have become the market norm. Ultimately the customer is funding this arrangement through higher premiums. Some market commentators observe that resistance to such arrangements by insurance companies is increasing, which could result in more direct to customer marketing initiatives. This is yet to commence and may in part explain the general contraction in the number of new policies being issued;
strong and trusted brands are instrumental in influencing a customer’s decision as to who to insure with, a market dynamic which favours large companies with reputable payout performances. Tower falls into that category; and
both the life and medical businesses are experiencing below budget and below last year sales performance. Tower management have advised that industry growth has been slow in the first half of the year especially in the Group Risk and Health markets where employers have been focused on compulsory Kiwisaver contribution introduction on 1 April 2008. Both life and medical insurance is to a large extent discretionary expenditure and a deteriorating economic outlook combined with premium increases is likely to be a contributing factor to the unsatisfactory sales performance. Tower management is confident that improvements to sales levels will result from a number of initiatives that have been or will shortly be implemented.

Issues and Opportunities

The very high commission structures prevalent in the industry is having a negative impact on Tower’s Life business. Under current tax legislation term life insurance enjoys some unique tax advantages which

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4.4 Tower Investments

somewhat mitigate the extraordinarily high costs of acquisition. The Government has signalled that the tax benefits are to be removed and a working party of industry and Government officials is reviewing possible changes to legislation and the transition process to the new regime. The removal of the tax benefit will have a negative impact on Tower and all providers of life insurance.

Overview

Tower’s Investment business operates in wholesale and retail funds management and individual and group superannuation. It had $3,916 million under management and administration as at 31 March 2008 representing approximately 8.5% of the total New Zealand market giving a ranking of 4[th] .

The investment business is divided into three operations:

retails funds management which offers a range of superannuation and retirement products. The retail market is targeted primarily through a network of financial planners. The main source of income is fees derived from managed investment products. Approximately 97% of these fees are directly related to the level of funds under management, and as a consequence this source of income is exposed to the state of investment markets generally and the level of funds flow that the company receives;
wholesale funds management which provides investment management services to institutional investors, charitable trusts, and to other divisions of Tower. Funds from other Tower divisions currently account for 27% of total FUM;
individual and group superannuation – Tower is a default “Kiwisaver” provider with an approximate 9% market share.

Tower is currently ranked 4[th] in terms of total FUM in the New Zealand market and 8[th] in terms of retail funds.

Total FUM in the New Zealand managed funds sector reached $46.86 billion as at 31 March 2008[3] , a 7.9% fall from September 2007. Retail investments represent approximately 15.5% of Tower’s FUM, with the balance being superannuation (20%), wholesale (37.5%) and funds from other Tower divisions (27%). A current key focus of the industry is Kiwisaver, where Tower has been appointed as one of the 5 default providers. Kiwisaver provides retail investors with access to a wholesale product line.

3 Source: FundSource 20

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Financial Performance

The tables below show the movement in FUM over the past two full financial years and the half year to 31 March 2008:

Tower Investments – Funds Under Management (NZ$ millions)	Tower Investments – Funds Under Management (NZ$ millions)
	FY06 FY07 1H08
Retail Superannuation Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Unit Trusts Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Wholesale Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Workplace Superannuation Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Life Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Kiwisaver Opening balance Net fund inflows (outflows) Investment returns after tax Closing balance Total Opening balance Net fund inflows (outflows) Investment returns after tax	511 518 526 (31) (35) (16) 38 42 (46)
	518 525 464 926 841 828 (180) (70) (186) 95 57 (36)
	841 828 606 2,417 2,596 2,331 31 (573) (754) 148 308 (103)
	2,596 2,331 1,474 292 267 270 (40) (20) 9 15 23 (17)
	267 270 262 1,042 1,058 1,079 (33) (49) 8 49 70 (35)
	1,058 1,079 1,052 - 60 (3)
	57 5,188 5,280 5,033 (253) (747) (878) 345 500 (239)
Closing balance	5,280 5,033 3,915

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

The recent decline in FUM has principally been driven by a net outflow of invested funds due primarily to the Government Superannuation Fund withdrawing its funds from Tower following the departure of key executives and Frank Russell Company ( Russell ) removing Tower from its recommended list. Grant Samuel notes that Russell will be reviewing this decision in the near future. The reduction in FUM has negatively impacted the Investment division’s profitability as shown in the table below:

Tower Investments	– Financial Performance (NZ$ millions)
Year to 30 Sept	2005 2006 2007 6 months to 31 March 08
Revenue - external Revenue - internal Total Revenue Business unit operating earnings Investment income Profit before tax Tax expense Profit after tax from continuing operations Profit from discontinued operations	47.6 50.8 51.2 23.0 18.5 16.5 12.7 5.6
	66.1 67.3 63.9 28.6 6.6 9.8 11.8 2.8 0.4 0.9 0.3 0.1
	7.0 10.7 12.1 2.9 (2.1) (3.9) (4.5) (0.6)
	4.9 6.8 7.6 2.3 (0.3) -
Profit after tax	4.9 6.8 7.3 2.3

The following comments are relevant to an analysis of the financial performance of the Tower’s Investment business:

in 2007 Tower Investments lost two key executives which resulted in a loss of some key funds. The process to replenish the management has commenced with key appointments having been made which should stabilise the remaining FUM and provide opportunities for further growth;
the investment business has historically been operating with a high cost base which became more inefficient as the FUM contracted in 2007. Tower Investments employs 80 people to manage $4 billion of FUM. Unless the FUM base of the business can be expanded in the short to medium term, management acknowledge that the cost base of the division may need to be reduced; and
Tower Investments has a good reputation due to consistently good investment performance. Tower management believes that it can use this reputation to increase FUM and restore profitability to historical levels reasonably quickly.

Issues and Opportunities

the legislation surrounding Kiwisaver is quite complex and has resulted in higher costs being incurred by Kiwisaver providers than perhaps was originally anticipated. It is becoming apparent that an efficient Kiwisaver business will require a minimum volume level to be justified. There are currently 54[4] Kiwisaver schemes in New Zealand which is considered unsustainable given the cost bases being incurred. As a default provider Tower is well placed to benefit from the expected consolidation;
Tower Investments has expended a considerable sum over the last 18 months on establishing Kiwisaver compliant superannuation schemes and on complying with the PIE tax structure. This expenditure was necessary for Tower to ensure it remained competitive. Whether the expenditure will contribute to additional FUM is not clear at this stage; and
Tower Investments under new direction is focusing on:
rejuvenating sales performance;

4 Source: MED – Kiwisaver Schemes Register

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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

removing costs through product rationalisation, consolidation of IT systems and eliminating unprofitable product offerings; and
establishing a dedicated Kiwisaver marketing team.

4.5 Consolidated Financial Performance

The historical consolidated financial performance of Tower for the financial years ended 30 September 2006 (FY06) and 2007 (FY07) and the half-year result for the six months ended 31 March 2007 (1H07) and 2008 (1H08) are summarised below:

Tower Earnings Profile (NZ$ millions)	Tower Earnings Profile (NZ$ millions)
	FY06 FY07	1H07 1H08
Revenue from continuing operations Premium revenue from insurance contacts Less: Outwards reinsurance expense Net premium revenue Investment revenue Fee and other revenue Expenses Claims expense Less: Reinsurance recoveries revenue Net claims expense Change in health and life insurance contract liabilities Change in life investment contract liabilities Management and sales expenses	363.8 388.6 (28.2) (29.6)	189.6 200.6 (13.9) (15.5)
	335.6 359.0 87.8 74.6 49.0 47.6	175.7 185.1 39.8 (1.2) 25.0 21.0
	472.4 481.2 (250.0) (257.2) 7.6 9.8	240.5 204.9 (124.5) (128.7) 11.1 7.8
	(242.4) (247.4) 6.1 10.2 (3.5) (4.2) (177.4) (178.2)	(113.4) (120.9) 3.1 29.5 (2.2) 2.4 (94.4) (91.8)
	(417.2) (419.6)	206.9 (180.8)
Net operating profit from continuing operations	55.2 61.6	33.6 24.1
Amortisation Financing costs	(1.1) (1.2) (15.2) (5.6)	(0.6) (0.4) (2.2) (3.8)
Profit before taxation	39.9 54.8	30.8 19.9
Taxation	(23.6) (19.6)	(15.1) 0.3
Net profit from continuing operations	15.3 35.2	15.7 20.2
Less: Profit attributable to minority interests	(1.1) (0.6)	(0.2) (0.1)
Profit from continuing operations attributable to Tower shareholders	14.2 34.6	15.5 20.1
Profit from discontinued operations	49.4 198.0	198.8 (0.3)
Profit attributable to Tower shareholders	63.6 232.6	214.3 19.8

The following points should be taken into consideration when reviewing the table above:

the profit from discontinued operations represents the earnings from TAL which was separated in November 2006. The profit from discontinued operations for the year ended 30 September 2007 includes a gain on sale of $198.4 million;
the 28% reduction in net profit from operations in the six months ended 31 March 2008 was due to the dramatic reduction in investment income from $39.8 million to a loss of $1.2 million reflecting the adverse investment market conditions prevailing in local and international markets. The reduction in investment income of $41 million was offset by a reduction in policyholder liabilities and an improved underwriting result;

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

accounting standards prescribe that obligations arising from life insurance policies or policy liabilities are recognised as the net present value of future receipts from and payments to policyholders, including participating benefits and planned margins of revenues over expenses relating to services yet to be provided. This is commonly referred to as the Margin on Services (M o S) method. Under the MoS approach changes in policy liabilities are reported in the profit and loss statement. The intention of the MoS method is to release the profits planned on life insurance policies over the term of the policy as the services are provided. Policy liabilities are determined by an actuary based on “best estimates” of planned margins, which are updated annually. Significantly, with poor returns from investments and net withdrawals (defined as more policies being surrendered than new business written) the result is a net decrease in policy liabilities or a credit to the profit and loss statement, that for a large part offsets the reduction in investment income;
the tax credit in the six months to 31 March 2008 is predominantly a consequence of imputation credits which reduced income tax payable by a net $4.3 million and the benefits of the favourable tax treatment of life insurance companies giving rise to a reduction in income tax payable of $6.9 million;
in the absence of a major claim the results for the second half of the year are likely to be similar at the NPAT line as the first half of the year and in line with brokers current forecasts; and
over the longer term Tower’s earnings can be expected to benefit from the initiatives management are implementing to simplify the business, reduce costs and to take advantage of Tower’s core strengths of:
a strong brand;
the conservative policy of laying off significant risk through reinsurance; and
the potential to cross sell across the three operating businesses.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

4.6 Consolidated Financial Position

The statements of financial position of Tower as at 30 September 2007 and 31 March 2008 are summarised below:

Tower – Financial	Position (NZ$ millions)
	30 September 2007 31 March 2008
Assets Cash Receivables Financial assets at fair value through profit or loss Investment property Deferred acquisition costs Property, plant and equipment Assets arising from reinsurance revenue contracts Prepaid tax asset Deferred tax asset Intangible assets Sub total Assets of disposal group classified as held for sale Liabilities Payables Current tax liabilities Provisions Interest bearing liabilities Insurance liabilities Deferred tax liabilities Other liabilities Life insurance contract liabilities Life investment contract liabilities Sub total Liabilities of disposal group classified as held for sale	64.2 60.6 136.4 142.6 1,130.1 1,086.9 2.1 2.2 51.6 50.1 5.4 4.6 21.9 23.5 50.3 51.9 47.3 43.4 33.7 33.5
	1,543.0 1,499.3 3.1 2.7
	1,546.1 1,502.0 (68.1) (65.9) (10.6) (13.1) (8.1) (5.1) (87.2) (87.3) (243.6) (241.4) (51.0) (59.4) (21.1) (22.3) (749.2) (697.2) (45.1) (39.5)
	(1,284.0) (1,231.2) (0.3) (0.7)
	(1,284.3) 1,231.9
Net assets	261.9 270.1
Contributed equity Accumulated losses Reserves Total equity attributable to Tower shareholders Minorityinterests	460.6 465.2 (91.7) (86.1) (110.7) (111.9)
	258.2 267.2 3.7 2.9
Total equity	261.9 270.1

The following points are relevant when considering the above table:

the decline in the fair value of financial assets reflects the condition of the financial markets in the first half of the financial year. The decline is to a large extent mirrored in the decline in life insurance liabilities; and

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

the convertible preference shares structure in General Insurance was unwound in November 2007 and the cross shareholding between TLNZ and General Insurance no longer exists..
4.7 Capital Structure and Ownership

As at 16 May 2008 Tower had 191,780,721 fully paid ordinary shares on issue held by a total of approximately 58,000 shareholders. The major shareholders as at 16 May 2008 are set out in the table below:

Tower – Top 20 Shareholders as at 16	May 2008
Shareholder	Shares (000s)	%
Ithaca (Custodians) Limited	37,785	19.7%
HSBC Custody Nominees (Australia) Limited	11,518	6.0%
J P Morgan Nominees Australia Limited	8,669	4.5%
National Nominees New Zealand Limited - A/C NZCSD	6,482	3.4%
TEA Custodians Limited - A/C NZCSD	6,171	3.2%
National Nominees Limited	6,159	3.2%
Citibank Nominees (New Zealand) Limited - A/C NZCSD	5,237	2.7%
Hsbc Nominees (New Zealand) Limited - A/C NZCSD	4,789	2.5%
Accident Compensation Corporation - NZCSD	4,505	2.3%
ANZ Nominees Limited - Cash Income A/C	3,878	2.0%
Nz Superannuation Fund Nominees Limited - A/C NZCSD	3,736	1.9%
Irrewarra Investments Pty Ltd - Strategic 1 A/C	3,339	1.7%
Asteron Life Limited - NZCSD	1,892	1.0%
New Zealand Equity Nominee Pool - NZCSD	1,627	0.8%
ANZ Nominees Limited - A/C NZCSD	1,466	0.8%
UBS Nominees Pty Limited	1,282	0.7%
AMP Investments Strategic Equity Growth Fund - A/C NZCSD	1,262	0.7%
NZGT Nominees Limited - AIF Equity Fund - A/C NZCSD	1,046	0.5%
Westpac NZ Shares 2002 Wholesale Trust - A/C NZCSD	1,017	0.5%
Cogent Nominees Pty Limited	1,010	0.5%
Top 20 Shareholders	112,870	58.6%
Other Shareholders	78,911	41.4%
Total	191,781	100.0%

The increase in shares on issue since 30 September 2007 has been as a result of option holders exercising options and new shares being issued under Tower’s dividend reinvestment programme.

Tower currently has approximately 6.7 million options on issue at exercise prices ranging from $1.40 to $2.55 per share. The options have been issued at different times to key employees under six executive share option schemes. Approximately 1.1 million of the options on issue are currently exercisable.

In addition to GPG’s subsidiary, Ithaca the following entities have an interests in greater than 5% of Tower’s issued share capital:

Macquarie Bank Limited 7.43%
� Paradice Investments Management Pty Limited 9.31% � Orbis MIS 5.94%

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

4.8 Share Price Performance

The share price and trading volume history of Tower shares is depicted graphically below:

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Tower - Price Performance
January 2005 to May 2008 Volume Traded
Share Price (cents)
(000s)
400
50,000
350
300
40,000
250
30,000
200
150 20,000
100
10,000
50
0 0
Jan 05 May 05 Sep 05 Feb 06 Jun 06 Nov 06 Mar 07 Aug 07 Dec 07 May 08
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Tower’s share price against the NZX50 Capital index is shown in the graph below:

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Tower vs NZX 50 Capital Index
Relative Over/Under Relative Performance Graph - January 2005 to May 2008
Peformance
70%
60%
50%
40%
30%
20%
Base line represents NZX 50
10%
0%
-10%
-20%
-30%
Jan 05 May 05 Sep 05 Feb 06 Jun 06 Nov 06 Mar 07 Aug 07 Dec 07 May 08
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

5. Valuation of Tower

5.1 Summary

Grant Samuel’s valuation of the equity in Tower is NZ$2.45 - NZ$2.89 per share and is summarised below:

Tower – Valuation Summary	Tower – Valuation Summary
$ million except where otherwise stated	Section	Low	High
General Insurance	5.3	180	205
Tower Health & Life	5.4	310	350
Tower Investments	5.5	65	85
Corporate costs	5.6	(45)	(50)
Other assets	5.7	50	55
Ungeared value of business units		560	645
Interest bearing debt at 31March 2008		(87)	(87)
Equity value		473	558
Diluted shares on issue (million)		193	193
Value per share ($)		$2.45	$2.89

A value range of $473 - $558 million has been attributed to Tower as a whole. This valuation range is an overall judgement having regard to:

multiples of net profit after tax and net tangible assets (NTA) implied by acquisition prices paid in recent transactions and trading prices for listed insurance companies. Grant Samuel’s estimate of the equity value of Tower implies the following multiples:

Tower - Implied Multiples
	Valuation Range
	Low	High
Multiple of net profit after tax
Reported historical for the year ended 30 September 2007	13.7	16.0
Broker’s consensus forecast for the year ending 30 September 2008	12.2	14.2
Multiple of NTA (geared)
As at 30 September 2007	2.1	2.4
As at 31 March 2008	2.0	2.3

At 31 March 2008 Tower reported geared NTA of $239.8 million, which is largely represented by income generating assets recorded at current market values; and

At 31 March 2008 Tower reported its appraisal value had increased to $426.1 million. Appraisal values for Tower’s insurance subsidiaries have been internally assessed based on management’s “best estimates” for persistency, morbidity, morality, investment returns and management expenses and by applying a discount rates ranging from 11.5% to 14.2%.

The valuation represents the estimated full underlying value of Tower assuming 100% of the company was available to be acquired and includes a premium for control. The value exceeds the price at which, based on current market conditions, Grant Samuel would expect Tower shares to trade on the NZX in the absence of a takeover offer or proposal similar in nature to the GPG Offer.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

5.2 Methodology

Overview

Grant Samuel’s valuation of Tower has been estimated on the basis of fair market value as a going concern, defined as the estimated price that could be realised in an open market over a reasonable period of time assuming that potential buyers have full information. The valuation of Tower is appropriate for the acquisition of the company as a whole and accordingly incorporates a premium for control. The value is in excess of the level at which, under current market conditions, shares in Tower could be expected to trade on the sharemarket. Shares in a listed company normally trade at a discount of 15% - 25% to the underlying value of the company as a whole, but the extent of the discount (if any) depends on the specific circumstances of each company.

The most reliable evidence as to the value of a business is the price at which the business or a comparable business has been bought and sold in an arm’s length transaction. In the absence of direct market evidence of value, estimates of value are made using methodologies that infer value from other available evidence. There are four primary valuation methodologies commonly used for valuing businesses:

capitalisation of earnings or cash flows;
discounting of projected cash flows;
industry rules of thumb; and
estimation of the aggregate proceeds from an orderly realisation of assets.

Each of these valuation methodologies has application in different circumstances. The primary criterion for determining which methodology is appropriate is the actual practice adopted by purchasers of the type of business involved.

Capitalisation of Earnings

Capitalisation of earnings or cash flows is most appropriate for businesses with a substantial operating history and a consistent earnings trend that is sufficiently stable to be indicative of ongoing earnings potential. This methodology is not particularly suitable for start-up businesses, businesses with an erratic earnings pattern or businesses that have unusual expenditure requirements. This methodology involves capitalising the earnings or cash flows of a business at a multiple that reflects the risks of the business and the stream of income that it generates. These multiples can be applied to a number of different earnings or cash flow measures including EBITDA, EBITA, EBIT or net profit after tax. These are referred to respectively as EBITDA multiples, EBITA multiples, EBIT multiples and price earnings multiples. Price earnings multiples are commonly used in the context of the sharemarket. EBITDA, EBITA and EBIT multiples are more commonly used in valuing whole businesses for acquisition purposes where gearing is in the control of the acquirer.

Where an ongoing business with relatively stable and predictable earnings is being valued Grant Samuel uses capitalised earnings or operating cash flows as a primary reference point. Application of this valuation methodology involves:

estimation of earnings or cashflow levels that a purchaser would utilise for valuation purposes having regard to historical and forecast operating results, non-recurring items of income and expenditure and known factors likely to impact on operating performance; and
consideration of an appropriate capitalisation multiple having regard to the market rating of comparable businesses, the extent and nature of competition, the time period of earnings used, the quality of earnings, growth prospects and relative business risk.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

The choice between the parameters is usually not critical and should give a similar result. Reported profits are at best an imperfect indicator of the underlying profitability and value of insurance businesses. Accordingly, valuations of the insurance businesses based on capitalisation of earnings are subject to inherent uncertainty and the outcomes from the analysis need to be treated with care.

Determination of the appropriate earnings multiple is usually the most judgemental element of a valuation. Definitive or even indicative offers for a particular asset or business can provide the most reliable support for selection of an appropriate earnings multiple. In the absence of meaningful offers, it is necessary to infer the appropriate multiple from other evidence.

The usual approach is to determine the multiple that other buyers have been prepared to pay for similar businesses in the recent past. However, each transaction will be the product of a unique combination of factors. A pattern may emerge from transactions involving similar businesses with sales typically taking place at prices corresponding to earnings multiples within a particular range. This range will generally reflect the growth prospects and risks of those businesses. Mature, low growth businesses will, in the absence of other factors, attract lower multiples than those businesses with potential for significant growth in earnings.

An alternative approach used in valuing businesses is to review the multiples at which shares in listed companies in the same industry sector trade on the sharemarket. This gives an indication of the price levels at which portfolio investors are prepared to invest in these businesses. Share prices reflect trades in small parcels of shares (portfolio interests) rather than whole companies and it is necessary to adjust for this factor.

The analysis of comparable transactions and sharemarket prices for comparable companies will not always lead to an obvious conclusion as to which multiple or range of multiples will apply. There will often be a wide spread of multiples and the application of judgement becomes critical. Moreover, it is necessary to consider the particular attributes of the business being valued and decide whether it warrants a higher or lower multiple than the comparable companies. This assessment is essentially a judgement.

Discounted Cash flow

Discounting of projected cash flows has a strong theoretical basis. It is the most commonly used method for valuation in a number of industries, and for the valuation of start-up projects where earnings during the first few years can be negative. DCF valuations involve calculating the net present value of projected cash flows. This methodology is able to explicitly capture the effect of a turnaround in the business, the ramp up to maturity or significant changes expected in capital expenditure patterns. The cash flows are discounted using a discount rate, which reflects the risk associated with the cash flow stream. Considerable judgement is required in estimating future cash flows and it is generally necessary to place great reliance on medium to long term projections prepared by management. The discount rate is also not an observable number and must be inferred from other data (usually only historical). None of this data is particularly reliable so estimates of the discount rate necessity involve a substantial element of judgment. In addition, even where cash flow forecasts are available the terminal or continuing value is usually a high proportion of value. Accordingly, the multiple used in assessing this terminal value becomes the critical determinant in the valuation (i.e. it is a “de facto” cash flow capitalisation valuation).

The net present value is typically extremely sensitive to relatively small changes in underlying assumptions, few of which are capable of being predicted with accuracy, particularly beyond the first two or three years. The arbitrary assumptions that need to be made and the width of any value range mean the results are often not meaningful or reliable. Notwithstanding these limitations, DCF valuations are commonly used and can at least play a role in providing a check on alternative methodologies, not least because explicit and relatively detailed assumptions need to be made as to the expected future performance of the business operations.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Net Assets/Realisation of Assets

Valuations based on an estimate of the aggregate proceeds from an orderly realisation of assets are commonly applied to businesses that are not going concerns. They effectively reflect liquidation values and typically attribute no value to any goodwill associated with ongoing trading. Such an approach is not appropriate in Tower’s case.

Industry Rules of Thumb

Industry rules of thumb are commonly used in some industries. These are generally used by a valuer as a “cross check” of the result determined by a capitalised earnings valuation or by discounting cash flows, but in some industries rules of thumb can be the primary basis on which buyers determine prices. In any event, it should be recognised that rules of thumb are usually relatively crude and prone to misinterpretation.

Preferred Approach

Grant Samuel has valued Tower by aggregating estimates of market values of each of the company’s operating businesses together on an ungeared basis with the realisable value other assets and deducting interest bearing debt. In determining a value for the Tower businesses, Grant Samuel has had regard to the PE multiples implied by the valuation range for the individual businesses and to the PE multiples implied by the valuation ranges for the company as a whole, compared to the PE multiples derived from an analysis of comparable listed companies and transactions involving comparable businesses.

Valuations of life insurance businesses are commonly prepared by reference to actuarial valuation techniques. Grant Samuel had regard to Tower’s internal assessment of embedded value and appraisal value of the life businesses of Tower (refer Appendix E).

In addition, Grant Samuel reviewed the multiples of ungeared NTA and gross written premium or revenue multiples implied by the valuations of Tower’s business units, as a further cross check of the valuation conclusions. NTA multiples are more meaningful in the insurance and banking sectors than for other businesses, because net assets of insurance and banking businesses generally represent income generating assets and (for capital adequacy reasons) that are correlated with the overall size of the businesses. NTA multiples are accordingly an indicator of the productivity of a banking or insurance business relative to the shareholders’ funds employed to support the business.

5.3 General Insurance

Grant Samuel has valued Tower’s General Insurance businesses on an ungeared basis in the range of $180 million to $205 million. The valuation range implies the following valuation metrics:

General Insurance – Valuation Metrics	General Insurance – Valuation Metrics
	Low	High
Multiple of Gross Written Premiums
Actual results for the year ended 30 September 2007	0.88	1.00
Multiple of Insurance result
Actual results for the year ended 30 September 2007	17.2	19.6
PE multiple
Actual results for the year ended 30 September 2007	14.6	16.6
Broker’s consensus forecast for FY 2008	14.6	16.7
Multiple of NTA (ungeared)
NTA as at 31 March 2008	1.7	2.0

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Grant Samuel’s assessment of the ungeared value of Tower’s General Insurance businesses is an overall judgement having considered:

Tower has internally assessed the economic value of its General Insurance business unit at $175.1 million. Tower management adopted a similar approach to assess the economic value of Tower’s General Insurance business unit as that used to determine appraisal values, with value ascribed as three components:
- net assets of $119.9 million at 31 March 2008;
- net present value of future earnings after tax derived from insurance activities in excess of the cost of capital employed of $18.7 million; and
- an assessment of the market value of imputation credits arising on future earnings of $36.5 million.
Tower management applied discount rates of between 12.2% and 14.6% depending on the jurisdiction in which the underlying cash flows are derived; and
included within the NTA of Tower’s General Insurance business unit are substantial investment assets that are tied to policyholder liabilities from closed books of general insurance policies written in Australia, UK and USA. The total carrying value of these assets is significantly higher than Tower’s current actuarial assessment of total related policyholder liabilities. Grant Samuel has valued these net assets separately from Tower’s New Zealand and Pacific operations at carrying value.
5.4 Tower Health & Life

Grant Samuel has valued the Tower Health & Life business unit on an ungeared basis in the range of $310 million to $350 million. The valuation of Tower Health & Life implies the following valuation metrics:

	Tower Health & Life – Valuation Metrics	Tower Health & Life – Valuation Metrics
		Low	High
PE multiple
Actual results for the year ended	30 September 2007	13.7	15.4
Broker’s consensus forecast for FY 2008		11.7	13.2
Multiple of Embedded Value
Embedded value as at 31 March	2008	1.2	1.4
Multiple of NTA (ungeared)
NTA as at 31 March 2008		2.4	2.7

Grant Samuel’s assessment of the ungeared value of Tower Health & Life is an overall judgement having considered:

Tower’s internal assessment of the appraisal value of Tower Health & Life, which totalled to $264.5 million at 31 March 2008. Tower Management has advised that the methodology and policies as outlined in the notes to the financial statements for the year ended 30 September 2007 have been consistently applied in arriving at estimates of appraisal value at 31 March 2008. The key underlying assumptions include:
new medical insurance business volume growth of 3.5% p.a.;
medical claims cost and premium inflation of 7% p.a. until year ten. Thereafter medical premiums are assumed to increase at a rate that is 1% lower than medical claims cost inflation;
an adjustment factor to lower profit margins on medical insurance by 5% pa to correct for a positive bias in projecting profitability when high levels of claim cost and premium inflation are assumed;
investment earnings (before tax) 6.2% to 8.3%;

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

persistency, mortality and morbidity factors based on company experience;
per policy expense inflation of 3.5% p.a. for medical and 2% p.a. for life;
an average medical claim cost of $1,842 per claim (in real terms);
a risk discount rate of 11.5% for Tower’s Life Insurance subsidiaries and 13.0% for TMI; and
a multiple of the value of one year’s new business of 4 times for Tower’s life Insurance businesses and discounted cash flow approach for TMI.
in Grant Samuel’s opinion, a multiple of less than 5 times Management’s “best estimate” of one year’s distributable earnings from new life insurance business is conservative, particularly given the current low estimates for distributable earnings from one year’s new business sales.

Grant Samuel also believes that discount rates of 11.5% and 13% are conservative. Applying a multiple of 6 times to Tower Management’s best estimate of the value of one year’s new business and a risk discount rate of 10.5% (and keeping all other assumption the same), would increase the estimated appraisal value for Tower’s Health & Life business unit from $264.5 million to $305.7 million; and

The reported appraisal values for Tower’s Health & Life business unit are based on internal assessments of solvency requirements that are then used to derive estimates net worth. At 31 March 2008 these estimates of net worth for Tower’s Health & Life business unit (including TMI) totalled to $23.2 million.
5.5 Tower Investments

Grant Samuel has valued Tower Investments on an ungeared basis in the range of $65 million to $85 million. The valuation of Tower Investments implies the following valuation metrics:

Tower Investments – Valuation Metrics	Tower Investments – Valuation Metrics
	Low	High
% of FUM
At 30 September 2007	1.48%	1.93%
At 31 March 2008	1.66%	2.17%
Revenue multiple
Actual results for the year ended 30 September 2007	1.0	1.3
Broker’s consensus forecast for FY 2008	1.4	1.9
PE multiple
Actual results for the year ended 30 September 2007	8.6	11.2
Broker’s consensus forecast for FY 2008	8.4	11.0

Grant Samuel’s assessment of the ungeared value of Tower Investments is an overall judgement having considered:

Tower has not internally assessed the economic value of its Investments business unit and instead adopted as a proxy the carrying value of net assets of $22.4 million at 31 March 2008 for the purposes of estimating a market value for Tower as a whole. Grant Samuel does not consider the net assets of this business unit, which comprise mainly intercompany receivables to be an appropriate measure of market value given the bulk of the underlying assets bear no relationship to earnings potential of this service based business unit; and
Tower Investments has experienced a significant reduction in FUM over the last 12 months and is now in a rebuilding phase. Current year earnings are noticeably lower than they have been in the recent past.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

5.6 Corporate costs

Grant Samuel has deducted an amount of $45 million to $50 million to reflect the capitalised cost of unallocated corporate overheads and expenditure incurred by Tower outside its three business units. Grant Samuel has applied multiples of 9-10 times after tax unallocated corporate costs of $5 million.

5.7 Other assets

Tower has substantial investment assets (mainly cash and fixed interest investments) in various holding companies outside its core operating business units from which it derives additional investment income. These investment assets have built up over time as the underlying operating businesses have built up net assets in excess of the minimum required to meet solvency standards or self imposed capital adequacy requirements and been able to pay dividends upstream. Grant Samuel has valued these assets at their carrying value at 31 March 2008.

At 31 March 2008 Tower had a prepaid tax asset of $51.9 million relating to tax paid within New Zealand by various Tower companies and a net group tax liability of $13.1 million in relation to current year earnings. The prepaid tax asset relates primarily to Tower’s life insurance businesses, where tax is paid on behalf of both the life policyholders and Tower group. Tower is currently pursuing the refund by the Inland Revenue Department ( IRD ) of prepaid tax balances. Should it succeed the prepaid tax assets plus use of money interest would convert to cash balances within the various Tower subsidiary companies.

Grant Samuel has considered the underlying net asset position of each company and believes the prepaid tax asset, if refunded by the IRD would result in surplus cash within Tower Life New Zealand Limited ( TLNZ ), THL and TMI that could be potentially be released upstream to Tower companies. Accordingly, Grant Samuel has ascribed a value to these surplus tax assets, risk weighted against the probability of successfully obtaining a refund from the IRD.

Tower group’s current year tax liability relates primarily to Tower’s General Insurance and Health & Life business units. In the case of General Insurance the tax liability nets off against underlying cash assets held within these businesses. At 31 March 2008, in addition to cash assets TLNZ had a substantial prepaid tax asset, which more than offsets its current year tax liability.

Tower management have identified the need to replace the various IT systems and move all businesses within New Zealand to a single IT platform. Grant Samuel has made provision for the substantial increase in capital expenditure over the next three years on the basis that it is anticipated the Board will approve the investment and Tower will proceed to build a new IT platform.

Grant Samuel’s value range for other assets also provides for an amount of $1.4 million cash that Tower would receive if all holders of Tranche A options elected to exercise their options. Tower has 6.7 million options on issue of which only Tranche A options are currently exercisable. Grant Samuel has adjusted the total number of Tower shares on issue to allow for the exercise of Tranche A options. It is noted that the remaining options on issue have exercise prices ranging from $2.03 to $2.55. The dilutionary impact of the exercise of these options at the current Tower share price would be minimal.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

5.8 Capitalisation Multiples Analysis

Interpretation of Multiples

Earnings multiples are normally benchmarked against two primary sets of reference points:

the multiples implied by the share prices of listed peer group companies; and
the multiples implied by the prices paid in acquisitions of other companies in the same industry.

In interpreting and evaluating such data it is necessary to recognise that:

multiples based on listed company share prices do not include a premium for control and are therefore often (but not always) less than multiples that would apply to acquisitions of controlling the interests in similar companies. However, while the premium paid to obtain control in takeovers is observable (typically in the range 20-35%) it is inappropriate to simply add a premium to listed multiples. The premium for control is an outcome of the valuation process, not a determinant of value. Premiums are paid for reasons that vary from case to case and may be substantial due to synergy or other benefits available to the acquirer. In other situations premiums may be minimal or even zero. There are transactions where no corporate buyer is prepared to pay a price in excess of the prices paid by sharemarket investors;
acquisition multiples from comparable transactions are therefore usually seen as a better guide when valuing 100% of a business but the data tends to be less transparent and information on forecast earnings is often unavailable;
the analysis will give a range of outcomes from which averages or medians can be determined but it is not appropriate to simply apply such measures to the company being valued. The most important part of valuation is to evaluate the attributes of the specific company being valued and to distinguish it from its peers so as to form a judgement as to where on the spectrum it belongs;
acquisition multiples are a product of the economic and other circumstances at the time of the transaction. However, each transaction will be the product of a unique combination of factors, including:
economic factors (e.g. economic growth, inflation, interest rates) affecting the markets in which the company operates;
strategic attractions of the business – its particular strengths and weaknesses, market position of the business, strength of competition and barriers to entry;
the company’s own performance and growth trajectory;
rationalisation or synergy benefits available to the acquirer;
the structural and regulatory framework;
investment and sharemarket conditions at the time, and
the number of competing buyers for a business.
acquisitions and listed companies in different countries can be analysed for comparative purposes, but it is necessary to give consideration to differences in overall sharemarket levels and rating between countries, economic factors (economic growth, inflation, interest rates) and market structure (competition etc) and the regulatory framework. It is not appropriate to adjust multiples in a mechanistic way for differences in interest rates or sharemarket levels; and
acquisition multiples are based on the target’s earnings but the price paid normally reflects the fact that there were cost reduction opportunities or synergies available to the acquirer (at least if the acquirer is a “trade buyer” with existing businesses in the same or a related industry). If the target’s earnings were adjusted for these cost reductions and/or synergies, the effective multiple paid by the acquirer would be lower than that calculated on the target’s earnings.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Sharemarket Evidence

The following table sets out sharemarket evidence for a selection of stock exchange listed companies operating in the insurance and wealth management sectors:

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Sharemarket Ratings of Selected Listed Companies
Price Earnings Multiple Gross Written Premium UngearedNTA
(times) Multiple (times)
(times)
Forecast Forecast Forecast Forecast
Historical Historical Historical
Year 1 Year 2 Year 1 Year 2
Insurance
Minimum 11.8 11.7 9.5 1.1 1.0 1.0 1.7
Maximum 15.7 38.1 15.1 3.6 2.1 2.0 3.1
Median 13.3 23.0 12.0 1.7 1.5 1.5 2.5
Simple average 13.1 19.4 11.6 2.0 1.6 1.5 2.4
Wealth management
Minimum 5.2 6.2 5.1 1.2 0.9 0.8 2.3
Maximum 28.4 20.0 16.9 5.0 5.2 4.1 32.3
Median 15.3 15.0 13.7 3.6 3.2 2.3 11.7
Simple average 16.1 14.5 12.3 3.0 3.1 2.4 12.7
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A description of each of the selected listed companies used to calculate the above multiples is set out in Appendices B and D.

When observing the table above the following points should be noted:

the multiples are based on closing share prices as at 23 May 2008. The share prices, and therefore the multiples, do not include a premium for control. Shares in a listed company normally trade at a discount to the underlying value of the company as a whole;
the companies selected have varying financial year ends with the vast majority at 30 June. The data presented above is for the most part the recent annual historical results (see column headed Historical) plus the subsequent forecast year or the consensus forecast to 30 June 2008 (see Forecast Year 1) plus the subsequent forecast year to 30 June 2009 (see Forecast Year 2). The reason for including two years forecasts is that the most recent full year actual results are now less meaningful due to the time elapsed since June 2007; and
there are considerable differences between the operations and scale of the comparable companies when compared with Tower. In addition, care needs to be exercised when comparing multiples of New Zealand companies with internationally listed companies. Differences in regulatory environments, sharemarket and broader economic conditions, taxation systems and accounting standards hinder comparisons.

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36
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SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Recent transaction evidence

The following table sets out recent transaction evidence involving businesses operating in the insurance and wealth management sectors:

Recent Transaction Evidence	Recent Transaction Evidence	Recent Transaction Evidence
Date	PE Multiple (times)	Ungeared NTA Multiple (times)
	Historical Forecast
Insurance Minimum Maximum Median
	8.1 7.2	1.0
	20.2 23.7	5.7
	13.4 15.4	2.4
Wealth Management Minimum Maximum Median
	4.3 15.1	7.0
	40.0 33.0	12.1
	16.3 20.9	8.2

Appendix A and C provide more details on recent transaction evidence involving insurance and wealth management businesses. Each transaction has its own unique set of circumstances. As such it is often very difficult to identify trends or draw any meaningful conclusions.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

6. Qualifications, Declarations & Consents

6.1 Qualifications

The Grant Samuel group of companies provides corporate advisory services (in relation to mergers and acquisitions, capital raisings, corporate restructuring and financial matters generally), property advisory services and manages property development funds. One of the primary activities of Grant Samuel is the preparation of corporate and business valuations and the provision of independent advice and expert’s reports in connection with mergers and acquisitions, takeovers and capital reconstructions. Since inception in 1988, Grant Samuel and its related companies have prepared more than 350 public expert and appraisal reports.

The persons responsible for preparing this report on behalf of Grant Samuel are Michael Lorimer, BCA, CA, Simon Cotter, BCom, MAppFin, F Fin, Peter Jackson, B.Com, CA and Alexa Michau, BBus, CA. Each has a significant number of years of experience in relevant corporate advisory matters.

6.2 Limitations and Reliance on Information

Grant Samuel’s opinion is based on economic, market and other conditions prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time. The report is based upon financial and other information provided by the directors, management and advisers of Tower. Grant Samuel has considered and relied upon this information. Grant Samuel believes that the information provided was reliable, complete and not misleading and has no reason to believe that any material facts have been withheld.

The information provided has been evaluated through analysis, enquiry, and review for the purposes of forming an opinion as to the underlying value of Tower. However in such assignments time is limited and Grant Samuel does not warrant that these inquiries have identified or verified all of the matters which an audit, extensive examination or “due diligence” investigation might disclose.

The time constraints imposed by the Takeovers Code are tight. This timeframe restricts the ability to undertake a detailed investigation of Tower. In any event, an analysis of the merits of the GPG Offer is in the nature of an overall opinion rather than an audit or detailed investigation. Grant Samuel has not undertaken a due diligence investigation of Tower. In addition, preparation of this report does not imply that Grant Samuel has audited in any way the management accounts or other records of Tower. It is understood that, where appropriate, the accounting information provided to Grant Samuel was prepared in accordance with generally accepted accounting practice and in a manner consistent with methods of accounting used in previous years.

An important part of the information base used in forming an opinion of the kind expressed in this report is the opinions and judgement of the management of the relevant enterprise. That information was also evaluated through analysis, enquiry and review to the extent practicable. However, it must be recognised that such information is not always capable of external verification or validation.

The information provided to Grant Samuel included projections of future revenues, expenditures, profits and cashflows of Tower prepared by the management of Tower. Grant Samuel has used these projections for the purpose of its analysis. Grant Samuel has assumed that these projections were prepared accurately, fairly and honestly based on information available to management at the time and within the practical constraints and limitations of such projections. It is assumed that the projections do not reflect any material bias, either positive or negative. Grant Samuel has no reason to believe otherwise.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

However, Grant Samuel in no way guarantees or otherwise warrants the achievability of the projections of future profits and cashflows for Tower. Projections are inherently uncertain. Projections are predictions of future events that cannot be assured and are necessarily based on assumptions, many of which are beyond the control of management. The actual future results may be significantly more or less favourable.

To the extent that there are legal issues relating to assets, properties, or business interests or issues relating to compliance with applicable laws, regulations, and policies, Grant Samuel assumes no responsibility and offers no legal opinion or interpretation on any issue. In forming its opinion, Grant Samuel has assumed, except as specifically advised to it, that:

the title to all such assets, properties, or business interests purportedly owned by Tower is good and marketable in all material respects, and there are no material adverse interests, encumbrances, engineering, environmental, zoning, planning or related issues associated with these interests, and that the subject assets, properties, or business interests are free and clear of any and all material liens, encumbrances or encroachments;
there is compliance in all material respects with all applicable national and local regulations and laws, as well as the policies of all applicable regulators other than as publicly disclosed, and that all required licences, rights, consents, or legislative or administrative authorities from any government, private entity, regulatory agency or organisation have been or can be obtained or renewed for the operation of the business of Tower, other than as publicly disclosed;
various contracts in place and their respective contractual terms will continue and will not be materially and adversely influenced by potential changes in control; and
there are no material legal proceedings regarding the business, assets or affairs of Tower, other than as publicly disclosed.

6.3 Disclaimers

It is not intended that this report should be used or relied upon for any purpose other than as an expression of Grant Samuel’s opinion as to the merits of the GPG Offer. Grant Samuel expressly disclaims any liability to any Tower security holder who relies or purports to rely on the report for any other purpose and to any other party who relies or purports to rely on the report for any purpose whatsoever.

This report has been prepared by Grant Samuel with care and diligence and the statements and opinions given by Grant Samuel in this report are given in good faith and in the belief on reasonable grounds that such statements and opinions are correct and not misleading. However, no responsibility is accepted by Grant Samuel or any of its officers or employees for errors or omissions however arising in the preparation of this report, provided that this shall not absolve Grant Samuel from liability arising from an opinion expressed recklessly or in bad faith.

Grant Samuel has had no involvement in the preparation of the Target Company Statement issued by Tower and has not verified or approved any of the contents of the Target Company Statement. Grant Samuel does not accept any responsibility for the contents of the Target Company Statement (except for this report).

6.4 Independence

Grant Samuel and its related entities do not have any shareholding in or other relationship or conflict of interest with Tower or GPG that could affect its ability to provide an unbiased opinion in relation to the GPG Offer. Grant Samuel had no part in the formulation of the GPG Offer. Its only role has been the preparation of this report. Grant Samuel will receive a fixed fee for the preparation of this report. This fee is not contingent on the outcome of the GPG Offer. Grant Samuel will receive no other benefit for the preparation of this report. Grant Samuel considers itself to be independent for the purposes of the Takeovers Code.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

6.5 Information

Grant Samuel has obtained all the information that it believes is desirable for the purposes of preparing this report, including all relevant information which is or should have been known to any Director of Tower and made available to the Directors. Grant Samuel confirms that in its opinion the information provided by Tower and contained within this report is sufficient to enable Tower security holders to understand all relevant factors and make an informed decision in respect of the GPG Offer. The following information was used and relied upon in preparing this report:

Publicly Available Information

annual reports of Tower for the years ended 30 September 2006 and 2007;
investor reports for the years ended 30 September 2005 and 2006;
investor presentations and Value & Capital analysis for the year ended 30 September 2007 and six months ended 31 March 2007;
information from Tower’s website; and
other information on the insurance and wealth management sectors including publicly available information on other listed companies broadly comparable to Tower including annual reports, interim financial results, press reports, industry statistics and information regarding the prospective financial performance of such companies.

Non Public Information

recent board papers of Tower, which include amongst other papers monthly CEO, CFO and individual business reports;
detailed consolidation schedules for Tower at 30 September 2006 and 2007 and 31 March 2008;
budget and revised forecast for Tower for the year ending 30 September 2008;;
financial models supporting appraisal values for Tower Health & L9ife and General Insurance; and
other confidential work papers, reports and information provided by Tower executives. Grant Samuel also held discussions with and obtained information from senior executives of Tower.

Grant Samuel believes it has obtained all information desirable for the purposes of preparing the report.

6.6 Declarations

Tower has agreed that it will indemnify Grant Samuel and its employees and officers in respect of any liability suffered or incurred as a result of or in connection with the preparation of the report. This indemnity will not apply in respect of the proportion of any liability found by a Court to be primarily caused by any conduct involving gross negligence or wilful misconduct by Grant Samuel. Tower has also agreed to indemnify Grant Samuel and its employees and officers for time spent and reasonable legal costs and expenses incurred in relation to any inquiry or proceeding initiated by any person. Where Grant Samuel or its employees and officers are found to have been grossly negligent or engaged in wilful misconduct Grant Samuel shall bear the proportion of such costs caused by its action. Any claims by Tower are limited to an amount equal to the fees paid to Grant Samuel.

Advance drafts of this report were provided to the directors and executive management of Tower. Certain changes were made to the drafting of the report as a result of the circulation of the draft report. There was no alteration to the methodology, evaluation or conclusions as a result of issuing the drafts.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

6.7 Consents

Grant Samuel consents to the issuing of this report in the form and context in which it is to be included in the Target Company Statement to be sent to shareholders of Tower. Neither the whole nor any part of this report nor any reference thereto may be included in any other document without the prior written consent of Grant Samuel as to the form and context in which it appears.

GRANT SAMUEL & ASSOCIATES LIMITED

29 May 2008

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Appendix A

Transaction Evidence - Insurance

Overview

The Australasian insurance market has experienced a significant amount of corporate activity over the last 10 years, with significant transaction activity taking place during a period of industry consolidation around 1998 and a number of transactions occurring in 2001 in the wake of the HIH collapse in March of that year. Analysis of these transactions produces a relatively wide spread of implied valuation multiples, which is a reflection of the following:

whilst premium revenue is relatively predictable, the inherent exposure to large losses arising from weather events, disasters and occasional large scale re-estimation of provisions (such as asbestos related losses) can result in large movements in profits from year to year;
a number of the transactions took place when the target company was distressed or experiencing losses, either because a sale (and recapitalisation) was necessary or reflecting opportunistic timing on the part of the acquirer;
multiples of net tangible assets can vary significantly between transactions for fundamental valuation reasons (such as earnings quality, operational performance, scale, market exposure and outlook); and
the combination of insurance businesses often provides opportunities for the achievement of significant cost synergies. On occasion the potential value of targeted synergy benefits can exceed the stand-alone value of the business acquired. Synergy benefits are available through the rationalisation of processing systems, claims handling, distribution networks, back office and head office costs and duplicated product lines. Significant changes in net earnings can result from the application of the acquirer’s actuarial assumptions and provisioning policies to the business acquired.

Moreover, publicly available information regarding an insurance company’s earnings and net assets is not always reflective of its underlying business, an assessment of which may require detailed actuarial review. Accordingly, the multiples below should be considered in the context of the commentary on each transaction and, in any case, caution should be exercised in inferring evidence from these transaction multiples as to the value of the insurance businesses.

Valuation Evidence from Transactions

Set out below is a summary of transactions since 1998 involving Australasian companies with insurance operations for which there is sufficient information to calculate meaningful valuation parameters. The transactions provide some evidence of prices that acquirers have been willing to pay for insurance businesses in recent years:

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Recent Transaction Evidence – General Insurance	Recent Transaction Evidence – General Insurance	Recent Transaction Evidence – General Insurance
Date Target Acquirer Equity Consideration (millions)	PE Multiple (times)	Ungeared NTA Multiple (times)
	Historical Forecast
Dec 07 MBF Australia BUPA 2,410.0 Oct 06 Promina Suncorp 7,414.2 Sep 06 OAMPS Wesfarmers 700.3 May 06 Vero Lenders Mortgage Insurance Glenworth Financial Mortgage Insurance 219.0 May 04 QBE Mercantile Mutual JV QBE 765.0 Jun 03 Edward Lumley Holdings Wesfarmers 359.1 Oct 02 CGU & NZI IAG 1,925.0 Jun 01 CGU Lenders Mortgage Insurance PMI 107.0 Jun 01 Fortis Australia CGNU 329.4 Jun 01 GIO and AMP general insurance businesses Suncorp 1,411.0 Mar 01 HIH workers compensation portfolio NRMA 130.0 Feb 01 State Insurance NZ NRMA NZ$405.0 Aug 01 NRMA Demutualisation and Listing 4,457.8 Sep 99 GIO (43%) AMP 1,730.3 Oct 98 MMI (32% capital reduction) Allianz 161.0 Sep 98 SGIO NRMA* 440.1 Aug98 GIO(57%) AMP 3,325.0	13.6 na 15.1 17.2 16.3 15.4 na na 11.8 10.9 9.8 8.9 20.2 nmc 9.1 7.2	2.3 3.6 nc 1.1 nc 2.1 2.5 1.0
	9.3 na	nc
	18.6 na	3.6
	8.1 na	nmc
	13.1 na	2.2
	13.9 23.7	1.4
	nmc na	1.6
	na na	nc
	nmc 18.3	5.7
	nmc nmc	2.6
*Minimum* *Maximum* *Median*	*8.1* *7.2*	*1.0*
	*20.2* *23.7*	*5.7*
	*13.4* *15.4*	*2.4*

NRMA Insurance Group changed its name to Insurance Australia Group ( IAG ) in January 2002.

A summary of each transaction is set out below:

MBF / BUPA

On 14 December 2007 MBF Australia announced that it had agreed to merge its group businesses with BUPA Australia, effected by BUPA Australia paying $2.41 billion for all the shares in MBF. The MBF Group provides health, travel and life insurances plus a range of wealth management services. BUPA Australia is a wholly owned subsidiary of British United Provident Association Limited, a global health and care organisation with customers in approximately 180 countries. It is the third largest private health insurer in Australia behind Medibank Private and MBF.

Promina / Suncorp

On 21 October 2006 Promina and Suncorp announced a merger agreement under which Suncorp agreed to acquire all the ordinary shares in Promina for consideration of 0.2618 Suncorp ordinary shares plus $1.80 in cash for each Promina ordinary share. The consideration represented an approximate 15% premium to the closing price of Promina the day before the announcement. Promina is an insurance and financial services company with operations in Australia and New Zealand. It has a portfolio of companies engaged in the provision of general insurance, life insurance, wealth management and financial services. It is the second largest general insurer in both Australia and New Zealand.

OAMPS / Wesfarmers

On 5 September 2006, Wesfarmers Limited ( Wesfarmers ) announced its intention to make a full takeover offer for OAMPS Limited ( OAMPS ) at $4.50 per share. The offer represented a 17% premium to the closing price of OAMPS the day before the offer announcement. OAMPS is the largest publicly owned insurance broker in Australia and a specialist underwriter of liability, motor, property, accident, health, product warranty and builder’s warranty insurance. It is also engaged in the provision of financial

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

services and the administration of its own commercial superannuation fund. The transaction provided the potential for Wesfarmers to achieve some cost synergies particularly in reinsurance arrangements, which may have influenced the multiple paid. The OAMPS balance sheet carried a relatively large proportion of intangible assets, resulting in an implied Price/NTA multiple well above comparable transactions in the sector.

Vero LMI / Glenworth Financial Mortgage Insurance

In May 2006, Promina announced the sale of its subsidiary, Vero Lenders Mortgage Insurance ( Vero LMI ), to Glenworth Financial Mortgage Insurance for consideration of $220 million ($219 million at settlement). Vero LMI was engaged in the provision of lenders mortgage insurance to mortgage lenders and issuers of mortgage backed investment securities. The operations of Vero LMI had been discontinued prior to the IPO of Promina in 2003. The insurance book had consequently been in run-off and was acquired at a slight premium to net tangible asset value.

QBE Mercantile Mutual / QBE

On 13 May 2004, QBE announced an agreement to acquire ING’s 50% interest in the QBE Mercantile Mutual joint venture (an indirect commercial insurance underwriter) and ING’s general insurance underwriting business for $740 million plus a further $25 million subject to targeted liability run-off. The transaction represented an historical gross written premium multiple of 1.1 times and a net earned premium multiple of 1.3 times. QBE expected to achieve pre-tax savings of approximately $40 million from the transaction, which also provided the potential to release surplus cash held in the acquired company’s balance sheet (estimated to have been $150-200 million).

Edward Lumley Holdings / Wesfarmers

On 1 August 2003, Wesfarmers announced an agreement to acquire Edward Lumley Holdings, the parent company of Lumley Insurance Group Limited ( LIG ), a provider of general insurance, including associated finance and information technology services, in Australia and New Zealand. Final consideration paid was approximately $359 million. Wesfarmers expected the acquisition to be EPS accretive from the date of acquisition and also expected to achieve synergies in head office expenses, IT and some earnings uplift from lower utilisation of reinsurance.

CGU & NZI / IAG

In October 2002, IAG announced an agreement to acquire Aviva’s Australian and New Zealand general insurance businesses, CGU and NZI, for $1,925 million (including transaction costs of $70 million). Both CGU and NZI had significant involvement in commercial insurance. The transaction constituted a gross written premium multiple of 0.9 times and net earned premium multiple of 1.1 times. It was regarded as fully priced on the basis of an historical PE multiple of 21.8 times and a geared Price/NTA multiple of 2.2 times. However the price reflected, in part, targeted pre-tax synergy benefits of $160 million, which was in excess of the businesses’ total prior year pre-tax profit. Synergies were primarily targeted from scale benefits and cost rationalisations from the combination of the respective commercial and private insurance portfolios of the merged group. A forecast PE multiple is not meaningful due to forecast losses at the time.

CGU Lenders Mortgage Insurance / PMI

On 29 June 2001, Aviva plc announced the sale of its Australian and New Zealand lenders mortgage insurance business, CGU Lenders Mortgage Insurance Limited ( CGU LMI ), to The PMI Group Inc ( PMI ) for consideration of £39 million (A$107 million). CGU LMI was the fourth-largest lenders mortgage insurance provider in Australia and the largest in New Zealand. The transaction constituted an historical gross written premium multiple of 2.7 times. Although no profit forecasts were provided, subsequently released accounts indicated that PMI achieved a 59% increase in underwriting profit, predominantly as a result of an actuarial review and changes to the premium earnings pattern and claims provisioning.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Fortis Australia / SGNU

On 14 June 2001, SGNU plc (since renamed Aviva) announced an agreement to acquire Fortis Australia Limited ( Fortis Australia ) from the Fortis Group for £124 million (A$329 million at announcement). Fortis Australia was the tenth largest general insurer in Australia, primarily providing short tail personal and commercial lines, with the portfolio weighted towards motor insurance. The company also provided life insurance to a limited degree. SGNU expected to achieve synergy benefits from integration with its Australian insurance operations however no estimates were provided. Grant Samuel estimates the transaction represented a gross premium multiple of 1.1 times.

GIO and AMP General Insurance / Suncorp

In June 2001, Suncorp announced an agreement to acquire the Australian general insurance business of GIO and AMP, including AMP’s 50% interests in insurance joint venture operations with the RACQ and RAA motoring associations. The acquired businesses produced annual gross written premiums of $1.2 billion (including home, motor, CTP, commercial and workers compensation insurance), making the combined group the second largest general insurer in Australia. As part of the deal, AMP entered into an agreement to exclusively distribute Suncorp general insurance products to its Australian customer base. Total consideration payable by Suncorp was approximately $1.4 billion plus approximately 15 million cash settled options. The options were exercisable in 3-5 years and had an exercise price of $16.38 (17% above the pre announcement share price). No value has been attributed to the options for the purposes of this transaction analysis although it is noted that they were eventually settled in September 2005 for $73 million in Suncorp shares. Suncorp expected to achieve annual synergies of $240 million from the transaction within two years (representing over 40% of the acquired businesses’ cost base) primarily through IT systems integration, service support and product distribution efficiencies. The transaction implied multiples of gross written premium and net earned premium of 1.2 times and 1.5 times respectively. Earnings figures used in multiple calculations exclude earnings from joint ventures.

HIH Workers Compensation / NRMA

On 14 March 2001, NRMA announced an agreement to take on NRMA’s Australian workers compensation portfolio. The acquired portfolio comprised certain HIH operating subsidiaries, the right to renew existing HIH policies as they come up and the contract to manage the existing workers compensation liabilities of HIH. The portfolio businesses also earned management fees for the management of government underwritten schemes. NRMA did not assume any of the existing insurance liabilities of HIH. Consideration of $130 million included $15 million conditional on the achievement of policy renewal targets. The price paid may have reflected, in part, the timing of the deal (which was announced the day before the provisional liquidation of HIH) and NRMA’s view that earnings under NRMA ownership may be lower due to more conservative claims provisioning than HIH. A small amount of synergies were expected.

State Insurance / NRMA

On 8 February 2001, NRMA announced an agreement to acquire State Insurance Limited ( State Insurance ) for NZ$405 million (A$325 million). State Insurance was New Zealand’s largest general insurer (20% market share), providing 70% personal and 30% commercial insurance, predominantly motor, fire, earthquake and marine insurance. NRMA expected to achieve significant cost savings, mainly from changes to the distribution and claims network, as well as improved underwriting returns from the application of NRMA’s rating processes.

NRMA Demutualisation and Listing

NRMA Insurance Limited was demutualised in July 2000 and was subsequently listed on the ASX on 8 August 2000 as NRMA. At the time of listing, NRMA was the largest general insurer in Australia (and was the largest provider of private motor vehicle, home and contents and CTP insurance), with gross written premiums of approximately $2.2 billion. NRMA predominantly provided personal insurance, but

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

also provided general insurance and life insurance, investment and savings products. Multiples are based on the closing price on the first day of trading and therefore do not include a premium for control. The high multiple of forecast earnings was a reflection of the low profit forecast for the year to 30 June 2000, which was expected to be impacted by a significant underwriting loss.

GIO (43%) / AMP

On 24 September 1999, AMP and GIO announced an agreement to acquire the remaining 43% of GIO it did not already own via a scheme of arrangement. GIO was a major Australian general insurance and financial services company, providing motor, home, CTP, workers compensation and commercial insurance, international reinsurance, retail funds management and lending. For each GIO share held, GIO shareholders were offered an AMP Income Security with a face value of $2.75 plus a reinsurance note, paying two future cash instalments subject to adjustment for the future results of GIO’s reinsurance business. The offer was below that originally offered by AMP in its partially successful 1998 takeover offer due to the subsequent announcement of large cyclone related reinsurance losses, which were the primary contributing factor to a net loss after tax of $743 million in the year ended 30 June 1999. Following a subsequent half-year reinsurance loss of $180 million, GIO was left with a large deficit in equity for regulatory purposes and needed an estimated $600-700 million to recapitalise. The low equity level resulted in a high implied price/NTA multiple of around 4.0 times. Adjustment to the calculation of this multiple for such a capital injection would provide a theoretical Price/NTA multiple of approximately 2.2 times.

MMI / Allianz

In October 1998, Manufacturers Mutual Insurance Limited ( MMI ), following shareholder approval, completed a selective capital reduction resulting in the cancellation of the 32% of issued shares not already owned by Alliance. At the time of the transaction, MMI was one of the largest workers compensation insurers in Australia and also provided general insurance, premium funding and financial services. Earnings multiples are not meaningful due to negative earnings at the time.

SGIO / NRMA

On 28 September 1998, NRMA announced its intention to make takeover offers for all of the shares in SGIO Insurance Limited ( SGIO ) for cash consideration of $1.80 per share, topping an existing offer by Wesfarmers at $1.60 per share. The offer was subsequently increased to $2.10 and preserved SGIO shareholders’ right to the previously declared dividend of 2.5 cents per share. The increased offer represented a 68% premium to SGIO’s share price prior to speculation of the offer and constituted a multiple of 1.3 times net earned premiums. SGIO was a predominantly private insurer with annual gross written premiums of $325 million from the provision of motor, health, home, property, liability and workers compensation insurance.

GIO (57%) / AMP

On 25 August 1998, AMP announced its intention to make takeover offers for all of the issued shares in GIO Australia Holdings Limited ( GIO ) for $4.75 cash per share or shares in AMP. On 9 December 1998, the offer was increased to $5.35 cash or an increased number of AMP shares. The directors of GIO recommended that shareholders reject the AMP offer and it closed in January 1999 with AMP holding 57% of GIO. The historical PE multiple is not meaningful due to a net loss after tax in the year to 30 June 1998, however the offer represented a multiple of 15.0 times net profit after tax for the prior year ended 30 June 1997. At the time of transaction, GIO forecast a net profit of $175 million for the year ending 1999 (implying for forecast PE multiple of the offer of 19.0 times). The eventual result for that year was a loss of $743 million as a result of large reinsurance losses.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Appendix B

Sharemarket Evidence - Insurance

Valuation Evidence from Sharemarket Prices

The valuation of the insurance business of Tower has been considered in the context of the sharemarket ratings of listed Australasian general insurance companies. While none of these companies is precisely comparable to the insurance operations of Tower, the sharemarket data provides some framework to assess the valuations.

The trading multiples presented below should be considered in the context of the general insurance activities of Tower.

Sharemarket Ratings of Selected Listed Companies –Insurance	Sharemarket Ratings of Selected Listed Companies –Insurance	Sharemarket Ratings of Selected Listed Companies –Insurance	Sharemarket Ratings of Selected Listed Companies –Insurance
Company Market Capital- isation (AUD millions)	Price Earnings Multiple (times)	Gross Written Premium Multiple (times)	Ungeared NTA Multiple (times)
	Historical Forecast Year 1 Forecast Year 2	Historical Forecast Year 1 Forecast Year 2	Historical
Suncorp 14,199 Insurance Aust. Group (IAG) 7,325 IAG based on QBE offer price 8,640 QBE Insurance 22,537	13.3 13.7 9.5 13.3 32.3 12.8 15.7 38.1 15.1 11.8 11.7 11.1	3.6 2.1 2.0 1.1 1.0 1.0 1.3 1.2 1.4 2.0 1.9 1.8	3.1 1.7 2.0 3.0
*Minimum* *Maximum* *Median* *Simple average*	*11.8* *11.7* *9.5* *15.7* *38.1* *15.1* *13.3* *23.0* *12.0* *13.1* *19.4* *11.6*	*1.1* *1.0* *1.0* *3.6* *2.1* *2.0* *1.7* *1.5* *1.5* *2.0* *1.6* *1.5*	*1.7* *3.1* *2.5* *2.4*

Source: Grant Samuel analysis

The multiples shown above are based on sharemarket prices as at 23 May 2008. The prices, and therefore multiples, do not reflect a premium for control.

Suncorp-Metway

Suncorp-Metway is Australia’s second largest insurance provider, 7[th] largest bank and 7[th] largest life insurer. It was formed in 1996 through the merger of two Queensland government owned businesses, Suncorp Insurance & Finance and QIDC, with ASX listed Metway Bank. It has a sizeable presence in New Zealand following its acquisition of Promina Group in 2006. It trades under multiple brands and has joint venture with several motoring clubs.

IAG

Insurance Australia Group Limited ( IAG ) is the largest general insurer in Australia and New Zealand, with most recent annual gross written premiums of over A$7.3 billion. It is engaged in the provision of private and commercial insurance through the principal brands of NRMA Insurance, SGIO, SGIC, CGU, Swann Insurance, State Insurance and NZI. The company also underwrites insurance provided by certain third party insurers. IAG is predominantly a retail insurer, with private insurance lines such as motor, home and CTP insurance representing approximately 70% of gross written premiums. In September 2006, IAG announced an agreement to acquire Hastings Insurance Services, a UK motor insurance broker, and Advantage Insurance Company, specialising in private motor insurance, for total consideration of approximately $350 million. In April 2008, IAG was the subject of a takeover offer from QBE Insurance. The offer (equating A$4.60 per IAG share) was rejected by the IAG Board and QBE formally withdrew its proposal on 21 May 2008.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

QBE Insurance

QBE Insurance Group Limited ( QBE ) is one of Australia’s largest general insurance providers and a significant provider of insurance and reinsurance internationally. In the year to 31 December 2007, QBE generated gross written premiums of approximately A$12.4 billion principally from the business segments of Australia (26%), European general insurance (27%), European reinsurance (24%), the Americas (16%) and Asia-Pacific and Central Europe (7%). General insurance underwriting activities represented 71% of group revenue, with reinsurance revenues comprising the balance. The company provides an extensive range of commercial and private insurance lines. In April 2008, QBE made a takeover offer for IAG . The offer (equating A$4.60 per IAG share) was rejected by the IAG Board and QBE formally withdrew its proposal on 21 May 2008.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Appendix C

Transaction Evidence – Financial Services

The prices paid in transactions involving financial services participants have varied significantly, depending (amongst other factors) upon the exposure of the relevant companies to the life risk sector versus the higher growth wealth management sector, or the parts of the wealth management value chain upon which the companies’ activities were focussed.

Valuation Evidence from Transactions

Set out below is a summary of transactions involving financial service businesses in Australia and New Zealand over the last 10 years for which there is sufficient information to calculate meaningful valuation parameters. The transactions provide some evidence of prices that acquirers have been willing to pay for financial service businesses in recent years:

Recent Transaction Evidence – Wealth Management	Recent Transaction Evidence – Wealth Management	Recent Transaction Evidence – Wealth Management
Date Target Acquirer Equity Consideratio~~n~~ (millions)	PE Multiple (times)	Ungeared NTA Multiple (times)
	Historical Forecast
Oct 06 Perennial Investment Partners IOOF 320.0 Jan 06 Select Managed Funds Australian Wealth Management 375.4 Mar 05 HSBC Asset Management Australia Challenger 21.9 Feb 05 Tower de-merger AWM 250.0 Apr 04 Associated Planners Group Limited Challenger 91.3 Jul 03 CPH Investments Challenger International 681.3 Feb 03 Tyndall Investments (Aust) Limited James Fielding Holdings 29.8 Oct 02 BT Financial Group Westpac Banking Corporation 900.0 *Minimum* *Maximum* *Median*	40.0 25.0	12.1
	26.8 16.8	9.0
	7.1 na	na
	16.3 15.1 nmc nmc 4.3 nmc 12.5 nmc 36.6 33.0	7.4 nmc nmc nmc 7.0
	*4.3* *15.1*	*7.0*
	*40.0* *33.0*	*12.1*
	*16.3* *20.9*	*8.2*

A summary of each transaction is set out below:

Perennial Investment Partners / IOOF

In October 2006, IOOF announced it had acquired the outstanding 21.85% of equity in asset management business Perennial Investment Partners Limited that it did not already own. Perennial Investment Partners is a holding company specialising in the provision of funds management services to wholesale clients. The acquisition was based on an up front payment of $67.9 million to minority shareholders, which valued 100% of Perennial Investment Partners at $320 million. Perennial Investment Partners manages approximately $19.4 billion external wholesale and retail funds (for IOOF) which it invests in fixed interest, Australian equities and international equities. The minority shareholding in Perennial Investment Partners was held by company executives.

Select Managed Funds / Australian Wealth Management

In January 2006, Select Managed Funds Limited ( Select ) and AWM announced a proposal to merge by way of a scheme of arrangement. At the time of announcement, the proposed merged entity was to have a market capitalisation in excess of $840 million, with funds under management, administration and advice in excess of $22 billion. Select shareholder received seven AWM shares for every two Select shares held. Figures shown above are based on the closing price of Select shares ($5.35) on the day

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

before the public announcement of the proposed merger on 19 January 2006. Notably, neither business has life risk operations.

HSBC Asset Management Australia / Challenger

In March 2005, HSBC agreed to sell its Australian asset management business, HSBC Asset Management (Australia) Limited to Challenger Financial Services Group Limited ( Challenger ), for a consideration of $21.9 million, representing an historical Price/Earnings multiple of approximately 7.1 times. At the time of acquisition HSBC Asset Management (Australia) Limited had funds under management of approximately $3.5 billion and provided a range of products and investment advice including unit trusts, wholesale funds, personal superannuation and allocated pensions.

Tower Demutualisation and Listing

In November 2004 Tower Limited ( Tower ) announced its intention to separate its Australian Wealth Management business from its New Zealand and Australian insurance business. Tower transferred its Australian Wealth Management businesses into a new company, AWM, for listing on the ASX, in exchange for approximately 120 million $1.00 shares and a cash payment of $130 million. AWM shares were transferred back to existing Tower shareholders. The demerger sought to create value by having each business focus on its expertise, namely, Tower on the insurance and investment businesses in New Zealand and Australia, and AWM on the Australian wealth management businesses.

Challenger / Associated Planners Group Limited

In April 2004, Challenger announced it had entered into a merger implementation agreement with Associated Planners Group Limited ( Associated Planners ). Associated Planners was a strong financial planning business with approximately 85 firms looking after more than 100,000 individual, business and corporate clients. Combined with Challenger’s other financial services business, Garisson, Associated Planners increased Challenger’s retail distribution network to approximately 450 planners with funds under advice exceeding $7.5 billion.

Challenger International Limited / Challenger

In April 2003, Challenger International Limited ( Challenger International ) announced it had entered into a merger implementation agreement with CPH Management Limited, the responsible entity of CPH Investment Corp ( CPH ), to form the significant financial services group, Challenger Financial Services Group. Under the merger, CPH acquired all of Challenger International’s shares at a ratio of 4.5 CPH units for each Challenger International share. Following the merger, Challenger operated three divisions: life, wholesale finance and wealth management.

Figures shown above are based on the closing price of Challenger International shares ($2.33) on the day before the public announcement of the proposed merger on 17 April 2003.

Tyndall / James Fielding Holdings

In February 2003, James Fielding Holdings announced its intention to acquire Tyndall Investment Management (Aust) Limited ( TIM ), the responsible entity for Tyndall Meridian Trust, for $29.8 million. TIM earned management, acquisition, development and project management fees from the assets held in Tyndall Meridian Trust. At the time of acquisition, TIM had $534 million in funds under management.

BT Financial Group / Westpac Banking Corporation

In August 2002, Westpac announced its intention to (partially) acquire BT Financial Group ( BT ) from Principal Financial Group for $900 million. In addition to BT’s significant Australian retail operations, the acquisition included BT’s New Zealand funds management operations and BT’s corporate superannuation business and platform. The acquisition made Westpac one of the country’s largest retail funds managers and gave it significant master trust and wrap platform capabilities. Following the acquisition, Westpac had more than $30 billion of retail funds under management, and $11 billion in

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

funds under administration. Westpac did not acquire BT’s property trusts or direct property management services.

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

Appendix D

Sharemarket Evidence – Financial Services

The valuations of Tower’s financial services businesses have been considered in the context of the sharemarket ratings of listed Australian financial service companies. While none of these companies is precisely comparable to the operations of Tower, the sharemarket data provides some framework to assess the valuation of business with operations in financial services.

Sharemarket Ratings of Selected Listed Companies – Wealth Management	Sharemarket Ratings of Selected Listed Companies – Wealth Management	Sharemarket Ratings of Selected Listed Companies – Wealth Management	Sharemarket Ratings of Selected Listed Companies – Wealth Management
Company Market Capitalisation (AUD millions)	Price Earnings Multiple (times)	Geared NTA Multiple (times)	Geared Net Asset Multiple (times)
	Historical Forecast Year 1 Forecast Year 2
AMP Limited 14,005 Australian Wealth Management Limited 1,091 AXA Asia Pacific Holdings 9,048 Challenger Financial Services Group Limited 1,225 Count Financial Limited 522 Hunter Hall International Limited 326 HFA Holdings Limited 579 IOOF Holdings Limited 374 Perpetual Limited 2,236 Treasury Group Limited 281 WHK 311	14.2 16.5 14.2 18.9 15.1 13.9 14.1 17.1 13.5 5.2 6.2 5.1 22.1 20.0 16.9 17.9 nc nc 28.4 18.4 8.1 15.2 14.3 15.0 15.3 14.9 14.9 15.6 13.3 13.3 10.5 9.5 8.4	15.2 9.3 5.6 n.a. 16.1 10.5 n.a. 15.8 8.5 7.0 7.8	7.0 1.3 2.4 0.8 15.9 6.8 2.1 1.7 6.5 6.0 1.2
*Minimum* *Maximum* *Median* *Simple average*	*5.2* *6.2* *5.1* *28.4* *20.0* *16.9* *15.3* *15.0* *13.7* *16.1* *14.5* *12.3*	*5.6* *16.1* *9.3* *10.6*	*0.8* *15.9* *2.4* *4.7*

Source: Grant Samuel analysis

The multiples shown above are based on sharemarket prices as at 23 May 2008 and do not reflect a premium for control.

A brief description of each company is set out below:

AMP

AMP Limited is a large financial services company operating throughout Australia and New Zealand. Through its subsidiaries, AMP operates Australia’s largest financial planning network, and has operations in both insurance and wealth management. AMP’s insurance business offers residential, general and corporate insurance and operates an international reinsurance business. AMP also offers financial planning, retirement savings and income, risk and general insurance and certain banking products to both individual and corporate clients. AMP’s wealth management operations have $84 billion in funds under management and offer equities, fixed income, property and private capital products and services.

Australian Wealth Management

Australian Wealth Management Limited ( AWM ) is a wealth management business spun-off from Tower Limited providing a range of products and services for members of credit union partners and other clients. AWM, through its subsidiaries, provides wealth management and financial advisory services. The company’s services include master trust and wrap platforms, financial planning and stockbroking

SECTION 1: Letter from Independent Directors | SECTION 2: Statutory Information | SECTION 3: TOWER Half Year Report 2008 | SECTION 4: Independent Adviser’s Report

businesses, brokerage and investment research and asset management. AWM also offers trustee services, superannuation and investment administration services.

AXA Asia Pacific Holdings

AXA Asia Pacific Holdings Limited ( AXA ) provides wealth management and life risk services to customers in Australia, New Zealand and Asia. AXA’s life business provides life insurance, health insurance and other insurance products, as well as superannuation, income protection and financial planning services. Its wealth management operations provide savings and funds management services as well as various investment products, master trusts, and other financial products and services.

Challenger Financial Services Group

Challenger Financial Services Group Limited ( Challenger ) was formed through the July 2003 merger of CPH Investment Corp and Challenger International and offers three core product groups: life, wholesale finance and wealth management. Challenger’s wholesale finance division offers financial assistance for residential and commercial property and acts as mortgage originator and loan manager. Challenger’s Life business focuses on retirement income products and funds management to provide lifetime annuities. Challenger’s wealth management division offers investment products for both institutional and retail clients covering asset management, funds management, funds administration and financial planning.

Count Financial Limited

Count Financial Limited ( COU ) offers tax, accounting and business, financial planning and advisory services as well as financial planning, personal insurance, superannuation and home and investment loans. COU also provides a range of administration systems including internet administration systems, website development and a virtual dealer network. Count consistently trades at a premium to its peer group, possibly reflecting its long history of 20-30% pa earnings growth.

Hunter Hall International Limited

Hunter Hall International Ltd ( HHL ) operates an investment management business which manages the Value Growth Trust, Australian Value Trust and the Global Ethical Trust. HHL has an ethical investment policy, which excludes investing in stocks harmful to people, animals or the environment.

HFA Holdings Limited

HFA Holdings ( HFA ) is a fund management business established in 1998. The business comprises four divisions comprising HFA Research and Investments, HFA Distribution, HFA Operations and HFA Special Project. HFA Products are listed on more than 25 master trusts and wrap accounts with over $85 billion in funds under administration. HFA offers services related to custody and administration, reporting, taxation, and compliance.

IOOF Holdings Limited

IOOF Holdings Limited ( IFL ) is a financial services company operating in Australia with three core businesses: funds management, corporate superannuation and asset management. IFL’s funds management division offers a range of pooled investment vehicles including wholesale and retail unit trusts, and portfolio administration services to individuals through financial advisers. IFL’s asset management division offers a multi investment manager structure for its funds. IFL wholly owns dealer group Winchcombe Carsen, which has over 100 financial advisers throughout Australia.

Perpetual Limited

Perpetual Limited ( Perpetual ) is a financial services company that has two primary activities, wealth management services and corporate trust services. Perpetual provides funds management, responsible entity services, trustee services executor services, financial planning, investment administration,

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superannuation, custody and registry services to individuals, families and institutional investors. The group also provides a range of corporate trust services to fund managers, superannuation trustees and capital market participants.

Treasury Group Limited

Treasury Group Limited ( TRG ) is an Australian investment and funds management company. TRG provides funds management services to institutions, retail and private clients. Through its subsidiaries TRG offers a range of wholesale funds, portfolio management services and investment products to both the wholesale and retail markets.

WHK

WHK Group Limited ( WHK ) operates a network of approximately 100 financial advisers and has a distribution network of accountancy firms. WHK’s financial service expertise includes wealth management, financial planning, superannuation advice and risk insurance, as well as finance broking advice and services. WHK’s accounting services division includes accounting, taxation and audit, as well as estate planning, corporate advisory and business advisory services. This division is the company's major revenue and profit contributor. Notably, WHK trades at a discount to its peers reflecting the fact that approx 70% of its earnings are derived from accounting services rather than financial services.

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Appendix E Appraisal Value

The generally accepted methodology for valuing life insurance companies is the Appraisal method. An appraisal valuation is essentially a hybrid of discounted cash flow and capitalisation of earnings analysis and comprises two parts:

embedded value; and
value of future business.

Embedded value of a life insurance company consists of:

Net Worth or Free Assets, which is the shareholders’ interests in net tangible assets in excess of solvency requirements; and
Value of Existing or Inforce Business, which is the present value of future distributable earnings from existing business or Inforce policies as they run through maturity, less the cost of maintaining solvency capital.

Calculating the embedded value of Inforce business requires the valuer to project forward future distributable cash flows and that involves detailed estimates of:

persistency – the volume of lapses and surrenders;
morbidity – the level of claims for events other than death;
mortality – the level of claims for death;
investment returns on funds invested; and
future expenses.

The value of future business is commonly estimated by applying a capitalisation multiple to the present value of distributable earnings from one year of new business or sales.

The appraisal values ascribed to Tower’s two life insurance companies by Tower’s Chief Actuary over the last five years are summarised below:

	Tower	– Historical Appraisal Values ($ million)	– Historical Appraisal Values ($ million)	– Historical Appraisal Values ($ million)
		30 September				31 March
As at	2003	2004	2005	2006	2007	2008
Embedded value
Tower Life New	51.2	54.1	59.1	64.2	66.4	59.5
Zealand Ltd
Tower Health & Life	86.7	92.2	95.2	92.9	105.8	108.8
Ltd
Appraisal value
Tower Life New	51.2	54.1	59.1	68.0	72.5	64.7
Zealand Ltd
Tower Health & Life	134.8	144.9	134.0	123.3	114.1	117.3
Ltd

Source: Investor Reports

Tower uses a risk discount rate of 11.5% and a multiple of 4 times the present value of distributable earnings from one year of new business sales. These inputs have been consistently applied ever since, with the only exception being the use of a risk discount rate of 11% in September 2006.

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The appraisal value for TLNZ has increased in recent years largely as a result of a significant increase in sales of group risk products. As a result of this increase in sales volume Tower began recognising value of future business for TLNZ in 2006.

Since 30 September 2007 TLNZ has paid a dividend to its immediate parent company of $10 million, which more than offset the profit for the last six months and largely explains the reduction in net worth or embedded value of the company at 31 March 2008.

The significant step up in the embedded value of Tower Health & Life Limited ( THL ) in 2007 was primarily due to the recapture of additional life business from other group companies as a result of the separation of Tower Australia, which indirectly lead to the unwinding of some inter-group reinsurance arrangements.

Tower’s assessment of the value on one year’s future business for THL has been declining since its peak of $13 million in 2004. At 30 September 2007 management’s estimate of one year’s new business was lowered from $7.6 million to $2.1 million resulting in a $22 million reduction in the Appraisal Value of THL. The assessment is based on budgeted new business sales and expenses. The current outlook for sales growth is lower than in previous years and very high commission rates and expenses overruns are adversely impacting on the level of distributable earnings from new business sales.

The appraisal value of THL excludes its investment in Tower Medical Insurance Limited.

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notes

TOWER director y

TOWER Limited ARBN 088 481 234 Incorporated in New Zealand

REGISTERED OFFICE

Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Facsimile: +64 9 369 2160 Website: www.towerlimited.com

DIRECTORS Tony Gibbs (Chairman) Bill Falconer Rob Flannagan (Managing Director) Michael Jefferies John Spencer Susie Staley Denis Wood

AUDITOR PricewaterhouseCoopers

BANKERS ANZ National Bank Limited

SOLICITORS DLA Phillips Fox

TOWER INSURANCE LIMITED

Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Freephone: 0800 808 808 Facsimile: +64 9 369 2129 Website: www.tower.co.nz

TOWER HEALTH & LIFE LIMITED Level 11 TOWER Centre 22 Fanshawe Street PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 Freephone: 0800 754 754 Facsimile: +64 9 369 2129 Website: www.tower.co.nz

TOWER MANAGED FUNDS LIMITED 50-64 Customhouse quay PO Box 590 Wellington New Zealand Telephone: +64 4 439 4300 Freephone: 0800 486 937 Facsimile: +64 4 473 2669 Website: www.tower.co.nz

SHAREHOLDER ENqUIRIES

Shareholders with enquires regarding share transactions and change of address should contact the TOWER Share registry:

COMPUTERSHARE INVESTOR SERVICES LIMITED

New Zealand

Telephone: +64 9 488 8777

Australia

Telephone: +61 3 9415 5000 Enquiries regarding TOWER’s operating and financial performance should be addressed to:

Investor Relations TOWER Limited PO Box 90347 Auckland New Zealand Telephone: +64 9 369 2000 or emailed to: [email protected]

TOWER ASSET MANAGEMENT LIMITED 50-64 Customhouse quay PO Box 590 Wellington New Zealand Telephone: +64 4 439 4300 Freephone: 0800 486 937 Facsimile: +64 4 473 2669 Website: www.tower.co.nz

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AI assistant

TOWER LIMITED — M&A Activity 2008

65971_rns_2008-06-02_22b7d8c3-30ee-4055-889a-50acf2856317.pdf

TARGET COMPANy STATEMENT

IMPORTANT INFORMATION FOR TOWER SHAREHOLDERS

This document was sent to you because you are a TOWER shareholder. you should read it carefully.

Contents

Dear Shareholders

William Falconer

Section 2: Statutor Information y

1 DATE

2 OFFER

3 TARGET COMPANY

4 DIRECTORS OF TOWER

6 TRADING IN TOWER EQUITY SECURITIES

ACCEPTANCE OF OFFER

7

5 OWNERSHIP OF EQUITY SECURITIES OF TOWER

8 OWNERSHIP OF EQUITY SECURITIES OF GPG 21

9 TRADING IN EQUITY SECURITIES OF GPG 21

14 ADDITIONAL INFORMATION

15 RECOMMENDATION

16 ACTIONS OF TOWER

17 EQUITY SECURITIES OF TOWER

18 FINANCIAL INFORMATION

20 ASSET VALUATION

21 PROSPECTIVE FINANCIAL INFORMATION

23 OTHER INFORMATION

24 APPROVAL OF TARGET COMPANY STATEMENT

25 CERTIFICATE

SIGNED BY:

SCHEDULE ONE

Ownership of equity securities in TOWER at 28 May 2008 (Paragraph 5.1)

SCHEDULE TWO

SCHEDULE THREE

SCHEDULE FOUR

Part A: Directors and Senior Officers or their Associates

Part b: Substantial Securityholders

tower HALF YeAr report

Contents

TOWER Group

Notes

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Entities reporting

Statutory base

basis of preparation

Changes in Accounting Policies

Deferred Tax on Policy liabilities

Principles of consolidation

Comparatives

notes to the financial Statements

7. CONTINGENT LIABILITIES

Taxation - over paid tax

Taxation - use of money interest

8. CURRENT TAXATION

Accountants’ Report

Directors’ responsibilities

Accountants’ responsibilities

Basis of opinion

Review opinion

Tower Limited Independent Adviser’s Report

Table of Contents

Glossary

1. The GPG Proposal 1.1 Overview of the GPG Offer

2. Scope of the Report

2.1 Purpose of the Report

2.2 Basis of Evaluation

3. Evaluation of the Merits of the GPG Offer

3.1 The Value of the GPG Offer

If the GPG Offer is successful GPG will have significant influence over Tower. Such a shareholding level may even enhance the takeover prospects for the company.

3.4 Other Merits of the GPG Offer

Opportunities

Risks

4. Profile of Tower

Overview

Financial Performance

Issues and Opportunities

4.3 Tower Health & Life

Overview

Health

TOWER LIMITED M&A Activity 2008