Tower Limited FY 17 Results for Announcement to Market

14 November 2017

IMPROVEMENT IN FULL YEAR RESULT AND CAPITAL RAISE TO ACCELERATE TRANSFORMATION

Tower Limited (NZX/ASX:TWR) has today reported a full year loss of $8 million for the year ended
30 September 2017 (FY17), an improvement of $13.5 million on the prior year.

Despite an unprecedented number of large natural events, underlying profit after tax of $18 million
reflected the positive impact of transformation initiatives.

Features of FY17 results announcement:
• Reported full year loss after tax of $8 million impacted by Canterbury provisions, Kaikoura
earthquake and corporate transaction activity

• Business initiatives driving improvements in core metrics demonstrating transformation is
advancing well, providing confidence in strategy and future performance targets

• Further progress on Canterbury Earthquake claims with the number of open claims reducing
by 241, down from 564 to 323

• The Tower Board has determined that an additional $70.8 million capital is required to
enable investment in the business and manage inherent balance sheet risks

• Capital to be raised via pro-rata renounceable entitlement offer at a ratio of 1 New share for
every 1 Existing share held. Issue price of NZ$0.42 cents. Vero has provided a commitment
to participate in the Equity raise.

• Tower’s Board remains strongly committed to paying dividends and to the efficient
management of capital. It will review the dividend policy and look to recommence dividends
in FY18.

Overview
Tower’s full year result shows that its transformation into a leading digital challenger brand is well
underway and the green shoots seen 12 months ago are now delivering growth.
Strong results in the New Zealand and the Pacific businesses have been delivered thanks to the
continued drive to improve all aspects of the business and the customer experience:
• 12,441 policies were added to Tower’s core NZ book in FY17
• Core GWP grew 5.8%, delivering full year GWP of $312.4 million
• Digital sales grew to 30% of new business transactions, up from 9% in March 2016
• Business as usual claims costs successfully contained at $124.2 million
• Management expenses reduced $3.9 million on the prior year
These significant improvements and a steady underlying profit have been delivered in the face of
an unprecedented number of large natural events in 2017, industry wide claims inflation and an
increasingly competitive market.

With significant opportunity in the business, Tower is confident its challenger brand transformation
strategy will deliver long-term shareholder value.

Capital required to accelerate transformation
Over the past 12 months, the Tower Board has focused on creating a sustainable structure to
enable Tower to accelerate its transformation and confidently invest in its future, while also
mitigating the fundamental uncertainty relating to the legacy of the Canterbury earthquakes.
Board Chairman, Michael Stiassny said it was in the best interests of policy and shareholders to now
move to a durable capital structure that will support Tower’s transformation programme while also
managing inherent balance sheet risks.
“Following extensive, independent review of Tower’s solvency capital, the Board determined that
additional capital of $70 million is required to achieve those goals.
“That capital will provide Tower with a strong, durable base to appropriately manage risk and give
confidence that the legacy of Canterbury is adequately provided for. It will also enable the
acceleration of Tower’s transformation through investment in IT and digital.
“The Board believes that improvements already achieved in the business core metrics are an
indicator of the scale of opportunity within Tower. We are confident that investment will not only
unlock that potential, but also deliver a true step change in results and long-term value for
shareholders.
“Our commitment to paying dividends and efficient management of capital remains. The Board will
review the dividend policy and look to recommence dividends in full year 2018,” Mr Stiassny said.

Powerful platform for future growth
Tower CEO Richard Harding said that Tower’s full year result demonstrates that the transformation
of the business is well underway.
“As the third largest general insurer in New Zealand and one of the leading insurers in the Pacific,
we have a powerful platform for future growth. The results we are delivering in the business are
firm indicators that our strategy to transform Tower into a leading digital challenger brand is
working.

“In the last 12 months we have grown our business, reduced management expense and contained
claims costs, despite experiencing the highest number of natural event losses in over 25 years,
excluding the Canterbury quakes.

“Importantly our focus on customers and delivering what they want through our digital channels has
had a big impact, with 30% of sales now online, compared to 9%, eighteen months earlier.


ENDS


Richard Harding
Chief Executive Officer
Tower Limited
ARBN 088 481 234 Incorporated in New Zealand

For media queries, please contact:
Nicholas Meseldzija
Head of Corporate Communications
Mobile: +64 21 581 869
Email: Nicholas.meseldzija@tower.co.nz

 

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Tower Limited
Results for announcement to the market

Reporting Period 12 months to 30 September 2017
Previous Reporting
Period
12 months to 30 September 2016

Amount (000s) Percentage change
Revenue from ordinary
activities
$NZ317,443 0.7% increase
Profit (loss) from
ordinary activities after
tax attributable to
security holder
$NZ(8,000) 62.8% decrease
Net profit (loss)
attributable to security
holders
$NZ(8,000) 62.8% decrease

Interim/Final Dividend Amount per security Imputed amount per
security
$NZ nil. It is not
proposed to pay
dividends.
$NZ nil.

Record Date Not Applicable
Dividend Payment Date Not Applicable

Comments:
For the year-ended 30 September 2017, Tower Limited’s
reported loss from ordinary activities after tax was NZ$8.0
million due to increased outstanding claims provisions in
respect of Canterbury earthquakes (NZ$11.4 million after
tax); the inclusion of an additional risk margin of $7.2 million
after tax and claim provisions relating to the Kaikoura
earthquakes (NZ$4.1 million after tax).

The loss The loss of NZ$8.0 million, including minority interest profit of
NZ$ 0.5 million, is a decrease of 62% from the prior
comparable period (FY16: NZ$21.5m loss including minority
interest profit of NZ$ 0.8 million).


Refer to the attached 30 September 2017 audited Financial Statements for
Tower Limited and its subsidiaries and Investor Presentation for more detailed
analysis and explanation (including the Net Tangible Asset amount per
security for the current and previous reporting period).

TOWER LIMITED
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2017

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
TABLE OF CONTENTS
Consolidated Income Statement2
Consolidated Statement of Comprehensive Income3
Consolidated Balance Sheet4
Consolidated Statement of Changes in Equity5
Consolidated Statement of Cash Flows6
Notes to the Financial Statements7 - 55
Independent Auditors' Report56 - 61
1

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
CONSOLIDATED INCOME STATEMENT
$ thousands
For the year ended 30 SeptemberNote20172016
Revenue
Premium revenue
5
306,760 302,940
Less: Outwards reinsurance expense
(49,845)(49,106)
Net premium revenue
256,915 253,834
Investment revenue
6
7,643 8,998
Fee and other revenue
3,040 3,413
Net operating revenue
267,598 266,245
Expenses
Claims expense
217,547 240,138
Less: Reinsurance recoveries revenue
(29,996)(54,526)
Net claims expense
7
187,551 185,612
Management and sales expenses
9
81,744 87,410
Acquisition proposal expenses
4
3,467 -
Impairment expense
15
- 19,649
Financing expenses
835 -
Total expenses
273,597 292,671
Profit (Loss) attributed to shareholders before tax
(5,999)(26,426)
Tax (expense) benefit attributed to shareholders' profits
10A
(2,001)4,911
Profit (Loss) for the year(8,000)(21,515)
Profit (Loss) attributed to:
Shareholders(8,461)(22,328)
Non-controlling interest
461 813
(8,000)(21,515)
Basic and diluted profit (loss) per share (cents)
26
(5.02)(13.21)
The above statement should be read in conjunction with the accompanying notes.
2

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
$ thousands
For the year ended 30 SeptemberNote20172016
Profit (Loss) for the year
(8,000)(21,515)
Other comprehensive income (loss)
Currency translation differences
105 (5,910)
Gain on asset revaluation
17
247 181
Deferred income tax relating to asset revaluation
10D
(29)(23)
Other comprehensive income (loss) net of tax
323 (5,752)
Total comprehensive income (loss) for the year
(7,677)(27,267)
Total comprehensive income (loss) attributed to:
Shareholders
(8,143)(27,404)
Non-controlling interest
466 137
(7,677)(27,267)
The above statement should be read in conjunction with the accompanying notes.
3

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
$ thousandsNote
Contributed
equity
Accumulated
(losses) profitReservesTotalTotal Equity
Year Ended 30 September 2017
At the beginning of the year382,172 (42,822)(116,772)222,578 1,374 223,952
Comprehensive income (loss)
-(8,461)318(8,143)466(7,677)
Transactions with shareholders
Dividends paid21 - - - - (515)(515)
Other - (16) - (16) - (16)
Total transactions with shareholders - (16) - (16)(515)(531)
At the end of the year
382,172(51,299)(116,454)214,4191,325215,744
Year Ended 30 September 2016
At the beginning of the year384,585 6,376 (111,696)279,265 1,644 280,909
Comprehensive income (loss)
- (22,328)(5,076)(27,404)137 (27,267)
Transactions with shareholders
Capital repayment plan21, 23(2,413) - - (2,413) - (2,413)
Dividends paid21 - (27,024) - (27,024)(407)(27,431)
Other - 154 - 154 - 154
Total transactions with shareholders(2,413)(26,870) - (29,283)(407)(29,690)
At the end of the year
382,172(42,822)(116,772)222,5781,374223,952
The above statement should be read in conjunction with the accompanying notes.
Attributed to shareholders
Non-
controlling
interest
5

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
CONSOLIDATED STATEMENT OF CASH FLOWS
$ thousands
For the year ended 30 SeptemberNote20172016
Cash flows from operating activities
Premiums received 309,147 295,867
Interest received 7,734 10,088
Dividends received - 9
Net realised investment gain (loss)(1,928)3,251
Fee and other income received
3,040 3,413
Reinsurance received28,962 67,935
Reinsurance paid(50,228)(47,248)
Claims paid(248,183)(261,779)
Payments to suppliers and employees (76,408)(77,248)
Income tax paid(4,908)(4,598)
Net cash inflow (outflow) from operating activities
13(32,772)(10,310)
Cash flows from investing activities
Net proceeds from financial assets21,852 18,380
(6,883)(9,175)
136 70
Net cash inflow (outflow) from investing activities
15,105 9,275
Cash flows from financing activities
Capital repayment
- (2,413)
Dividends paid
- (27,024)
Facility fees and interest paid
(778) -
Proceeds of borrowings
30,000 -
Capital raise costs
- -
Payment of non-controlling interest dividends
(515)(407)
Net cash inflow (outflow) from financing activities
28,707 (29,844)
Net increase (decrease) in cash and cash equivalents11,040 (30,879)
Foreign exchange movement in cash(392)(2,006)
Cash and cash equivalents at the beginning of year 92,228 125,113
Cash and cash equivalents at the end of year
12 102,876 92,228
The above statement should be read in conjunction with the accompanying notes.
Disposal of property, plant and equipment and intangible assets
Purchase of property, plant and equipment and intangible assets
6

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
1SUMMARY OF GENERAL ACCOUNTING POLICIES
Entities reporting
Statutory base
Basis of preparation
Principles of consolidation
Foreign currency
(i)Functional and presentation currencies
ThefinancialstatementspresentedarethoseofTowerLimited(theCompany)anditssubsidiaries(theGroup).The
CompanyanditssubsidiariestogetherarereferredtointhisfinancialreportasTowerortheGrouportheconsolidated
entity. The address of the Company's registered office is 45 Queen Street, Auckland, New Zealand.
TowerLimitedisacompanyincorporatedinNewZealandundertheCompaniesAct1993andlistedontheNewZealand
andAustralianStockExchanges.TheCompanyisaFinancialMarketsConductAct2013reportingentityunderPart7of
the Financial Markets Conduct Act 2013.
ThefinancialstatementsoftheGrouphavebeenpreparedinaccordancewithNewZealandGenerallyAccepted
AccountingPractice(NZGAAP).TheycomplywithInternationalFinancialReportingStandards(IFRS)andalsoNew
ZealandEquivalentstoInternationalFinancialReportingStandards(NZIFRS)andotherapplicablefinancialreporting
standards, as appropriate for Tier 1 for-profit entities.
Duringtheperiodspresented,theprincipalactivityofTowerLimitedGroupwastheprovisionofgeneralinsurance.The
Group predominantly operates in New Zealand with some of its operations based in the Pacific Islands region.
ThefinancialstatementsofeachGroupentityarepresentedinthecurrencyoftheprimaryeconomicenvironmentin
whichtheentityoperates.TheconsolidatedGroupfinancialstatementsarepresentedinNewZealanddollarsand
rounded to the nearest thousand dollars unless stated otherwise.
TheGroupfinancialstatementsincorporatetheassetsandliabilitiesofallsubsidiariesoftheCompanyatbalancedate
and the results of all subsidiaries for the year.
ThefinancialstatementsoftheGrouphavebeenpreparedinaccordancewiththerequirementsofPart7oftheFinancial
Markets Conduct Act 2013 and the NZX Main Board Listing Rules.
TheGroupfinancialstatementsarepresentedinNewZealanddollarsandroundedtothenearestthousanddollars.They
havebeenpreparedonafairvaluemeasurementbasiswithanyexceptionsnotedintheaccountingpoliciesbelow,orin
the notes to the financial statements.
Intercompany transactions and balances between Group entities are eliminated on consolidation.
WhentheGroupceasestohavecontrol,anyretainedinterestintheentityisre-measuredtoitsfairvalueatthedatewhen
control is lost, with the change in carrying amount recognised in profit or loss.
Theacquisitionofcontrolledentitiesfromexternalpartiesisaccountedforusingtheacquisitionmethodofaccounting.
Theshareofnetassetsofcontrolledentitiesattributabletominorityinterestsisdisclosedseparatelyinthebalancesheet,
income statement and statement of comprehensive income. Acquisition related costs are expensed as incurred.
The results of any subsidiaries acquired during the year are consolidated from the date on which control was transferred to
theconsolidatedentityandtheresultsofanysubsidiariesdisposedofduringtheyearareconsolidateduptothedate
control ceased.
Subsidiariesarethoseentitiesoverwhichtheconsolidatedentityhascontrol,beingpowerovertheinvestee;exposure,or
rightstovariablereturnsfromitsinvolvementwiththeinvestee;andtheabilitytouseitspowerovertheinvesteetoaffect
the amount of the investor’s returns.
7

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
1SUMMARY OF GENERAL ACCOUNTING POLICIES (continued)
(ii)Transactions and balances
(iii)Consolidation
Cash flows
Ondisposalofaforeignentity,thedeferredcumulativeamountrecognisedinequityrelatingtothatparticularforeign
operation is recognised in the income statements.
Theconsolidatedstatementofcashflowspresentsthenetchangesincashflowforfinancialassets.Towerconsidersthat
knowledgeofgrossreceiptsandpaymentsisnotessentialtounderstandingcertainactivitiesofTowerbasedoneither:
theturnoveroftheseitemsisquick,theamountsarelarge,andthematuritiesareshortorthevalueofthesalesare
immaterial.
Exchangedifferencesarisingonthesettlementorretranslationofmonetaryitemsatyearendexchangeratesare
recognisedintheincomestatementsunlesstheitemsformpartofanetinvestmentinaforeignoperation.Inthis
case,exchangedifferencesaretakentotheForeignCurrencyTranslationReserveandrecognisedinthestatements
of comprehensive income and the statements of changes in equity.
Forthepurposeofpreparingconsolidatedfinancialstatementstheassetsandliabilitiesofsubsidiarieswitha
functionalcurrencydifferenttotheCompanyaretranslatedattheclosingrateatthebalancedate.Incomeand
expenseitemsforeachsubsidiaryaretranslatedataweightedaverageofexchangeratesovertheperiod,asa
surrogateforthespotratesattransactiondates.ForeigncurrencytranslationdifferencesaretakentotheForeign
CurrencyTranslationReserveandrecognisedinthestatementsofcomprehensiveincomeandthestatementsof
changes in equity.
Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignoperationaretreatedasassetsand
liabilitiesoftheforeignoperationandaretranslatedattheclosingratewithmovementsrecordedthroughtheForeign
Currency Translation Reserve in the statements of changes in equity.
Inpreparingthefinancialstatementsoftheindividualentities,transactionsdenominatedinforeigncurrenciesare
translatedintoNewZealanddollarsusingtheexchangeratesineffectatthetransactiondates.Monetaryitems
receivable or payable in a foreign currency are translated at reporting date at the closing exchange rate.
Translationdifferencesonnon-monetaryitemssuchasfinancialassetsheldatfairvaluethroughprofitorlossare
reported as part of their fair value gain or loss.
8

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
2IMPACT OF AMENDMENTS TO NZ IFRS
2A
-
-
-
-
-
2B
Standards,amendmentsandinterpretationstoexistingstandardsthatarenotyeteffectiveandhavenotbeen
early adopted by the Group
Theapplicationofneworamendedaccountingstandardsasof1October2016hasnothadamaterialimpactonthe
financial statements.
Thefollowingstandards,amendmentsandinterpretationstoexistingstandardshavebeenpublishedandaremandatory
fortheGroup’saccountingperiodsbeginningafter1October2017orlaterperiods,andtheGrouphasnotadoptedthem
early. The Group expects to adopt the following new standards on 1 October after the effective date.
Standards,amendmentsandinterpretationstoexistingstandardseffective30September2017orearly
adopted by the Group
NZ IFRS 9 Financial instruments is effective for periods beginning on or after 1 January 2018. The complete version
ofNZIFRS9wasissuedinSeptember2014.ItreplacestheguidanceinNZIAS39thatrelatestotheclassification
andmeasurementoffinancialinstruments.NZIFRS9retainsbutsimplifiesthemixedmeasurementmodeland
establishesthreeprimarymeasurementcategoriesforfinancialassets:amortisedcost,fairvaluethroughother
comprehensiveincomeandfairvaluethroughprofitorloss.Thebasisofclassificationdependsontheentity's
businessmodelandthecontractualcashflowcharacteristicsofthefinancialasset.Investmentsinequityinstruments
arerequiredtobemeasuredatfairvaluethroughprofitorlosswiththeirrevocableoptionatinceptiontopresent
changesinfairvalueinothercomprehensiveincomenotrecycling.Thereisnowanewexpectedcreditlossesmodel
thatreplacestheincurredlossimpairmentmodelusedinNZIAS39.Forfinancialliabilitiestherewerenochangesto
classificationandmeasurementexceptfortherecognitionofchangesinowncreditriskinothercomprehensive
income,forliabilitiesdesignatedatfairvaluethroughprofitorloss.NZIFRS9relaxestherequirementsforhedge
effectivenessbyreplacingthebrightlinehedgeeffectivenesstests.Itrequiresaneconomicrelationshipbetweenthe
hedgeditemandhedginginstrumentandforthe‘hedgedratio’tobethesameastheonemanagementactuallyuse
forriskmanagementpurposes.Contemporaneousdocumentationisstillrequiredbutisdifferenttothatcurrently
preparedunderNZIAS39.TheGroupintendstoadoptNZIFRS9onitseffectivedateandisassessingtheeffectof
adopting NZ IFRS 9 on its financial statements.
NZIFRS15RevenuefromContractswithCustomersiseffectiveforperiodsbeginningonorafter1January2018.
Thestandardwillprovideasinglesourceofrequirementsforaccountingforallcontractswithcustomers(exceptfor
somespecificexceptions,suchasleasecontracts,insurancecontractsandfinancialinstruments)andwillreplaceall
currentaccountingpronouncementsonrevenue.Newrevenuedisclosuresarealsointroduced.Towerisassessing
the effect of adopting NZ IFRS 15 on its financial statements.
NZIFRS16Leasesiseffectiveforperiodsbeginningonorafter1January2019.Thestandardreplacesthecurrent
guidanceinNZIAS17Leases.UnderNZIFRS16,acontractis,orcontains,aleaseifthecontractconveystheright
tocontroltheuseofanidentifiedassetforaperiodoftimeinexchangeforconsideration.UnderNZIAS17,alessee
wasrequiredtomakeadistinctionbetweenafinancelease(onbalancesheet)andanoperatinglease(offbalance
sheet).NZIFRS16nowrequiresalesseetorecognisealeaseliabilityreflectingfutureleasepaymentsanda‘right-of-
useasset’forvirtuallyallleasecontracts.WorkcontinuesonassessingtheimpactofadoptingIFRS16onTower's
financialstatements.Preliminaryassessmentsindicatethetreatmentofofficebuildings,motorvehicles,andother
equipmentleaseswillchange.Thepotentialfinancialimpactofchangeswillresultinthecreationofa'rightofuse
asset'ofapproximately$11million,withacorrespondingleaseliabilityamounttoberecognised,ineffectasagross
up to the balance sheet, of approximately $11 million to $12 million.
NZIFRS17InsuranceContractsiseffectiveforperiodsbeginningonorafter1January2021.Thestandard
replacesthecurrentguidanceinNZIFRS4,andestablishestheprinciplesforrecognition,measurement,
presentationanddisclosureofinsurancecontracts.TheimplementationdatefortheGroupwillbefortheyearending
30 September 2022. A detailed assessment of the effect of adopting NZ IFRS 17 will be commenced during 2018.
AmendmentstoNZIAS7StatementofCashFlowsiseffectiveforperiodsbeginningonorafter1October2017
unlessearlyadopted.Comparativesarenotrequiredonfirstapplication.Thestandardrequiresadditionaldisclosures
regardingbothcashandnon-cashchangesinliabilitiesarisingfromfinancingactivities.Thestandardisnotexpected
to have a material impact.
9

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
3CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
Claims estimation
EQC recoveries
Deferred taxation
Capitalised IT development costs
Reinsurance recovery receivables
Goodwill
Goodwillisanareaofsignificantjudgementandestimation.Areasofjudgementandsubjectivityexistintheassessment
ofcashgeneratingunitsandassumptionsunderlyinggoodwillimpairmenttesting.RefertoNote15andNote27forfurther
details of key assumptions used.
Recognitionofdeferredtaxassetsisanareaofsignificantjudgementandestimation.Deferredtaxassetsarerecognised
forallunusedtaxlossestotheextentitisprobablethatfuturetaxableprofitswillbeavailableagainstwhichthelossescan
beutilisedandthereiscontinuityofownership(ofgreaterthan49%).Significantmanagementjudgementandestimation
isrequiredtodeterminetheamountofdeferredtaxassetsrecognised,basedonthelikelytimingandquantumoffuture
taxableprofits.ThisassessmentiscompletedonthebasisoftheapprovedstrategicplansofTowerLimitedand
subsidiarieswithintheconsolidatedtaxgroup.Ifachangeinownership(ofgreaterthan49%)becomesprobable,
remainingdeferredtaxassetsfromlosscarryforwardswillbede-recognisedandremovedfromthebalancesheet.For
further detail refer to Note 10.
Valuationofnetoutstandingclaimsisanareaofsignificantjudgementandestimation.Keyelementsofjudgement
includedwithinclaimsestimationsare:therateofclaimsclosure;thequantumofclosedclaimsreopening;thelevelof
futureincreasesinbuildingandotherclaimscosts;futureclaimmanagementexpenses;assessmentsofriskmargin;
apportionmentofclaimscostsbetweenthefourmainearthquakeevents;andthequantumofnewclaimsbeingreceived
from EQC and the average cost of these claims.
ValuationofadditionalEQCrecoveriesinrespectofbuildingcostsandlanddamageisanareaofsignificantjudgement
andestimation.Areasofjudgementandsubjectivityexistinassessmentsof:claimfilereviewofearthquakeevent
allocation;thequalityofassessmentinformation;litigationriskfactors;andportfolioconservatism.Towerhasfileda
statement of claim against EQC in respect of land damage recoveries.
Keyelementsofjudgementincludedwithinrecoveriesestimationsare:thecollectabilityofreinsurancerecoveries
(includesconsiderationoffactorssuchascounterpartyandcreditrisk);recoveriesfromEQCinrespectoflanddamage
andbuildingcosts;andtheassessmentsofriskmargin.Thenatureofestimationuncertainties,includingfromthose
factors listed above, mean that actual claims experience may deviate from reported results.
Refer to Note 8 for further detail on the Canterbury Earthquakes.
TheGroupmakesestimatesandjudgementsinrespectofcertainkeyassetsandliabilities.Estimatesandjudgementsare
continuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthat
arebelievedtobereasonableunderthecircumstances.Keyareaswherecriticalaccountingestimatesandjudgements
have been applied are noted below.
Refer to Note 8 and Note 14 for further detail on EQC recoveries for Canterbury earthquakes.
CapitalisationofITdevelopmentcostsisanareaofsignificantjudgementandestimation.TheapplicationofNZIAS38
“IntangibleAssets”includesaccountingconsiderationsrequiredforcapitalisationofITprojects.WhenapplyingNZIAS
38,areasofjudgementincludeconsiderationofimpairmentindicators,assessmentsofeconomicusefullife,previous
Board impairment decisions and potential impacts from the active acquisition proposal. For further detail refer to Note 15.
Valuationofreinsurancerecoveryreceivablesisanareaofsignificantjudgementandestimation.Keyelementsof
judgementincludedwithinrecoveryestimationsare:counterpartyandcreditrisk;andrisksaroundthearbitrationprocess
forthereinsurancecontractindispute.Thenatureofestimationuncertainties,includingfromthosefactorslistedabove,
mean that actual reinsurance recoveries may differ from expected outcomes. Refer to Note 14 for further detail.
10

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
4ACQUISITION PROPOSALS
Suncorp Group Limited / Vero Insurance New Zealand Limited (Suncorp)
Fairfax Financial Holdings Limited (Fairfax)
Acquisition Proposal Expenses
Adviser fees
At30September2017,Towerhasprovidedforallcostsincurredtothatdateinrespectoftheacquisitionactivity.These
have been recorded in the Consolidated Income Statement as a separate line item (Acquisition proposal expenses).
TheCompanyhasworkedwithvariouslegal,financialandBoardadviserstoassistwiththeacquisitionproposals.Costs
forworkcompletedbytheseadvisersontheacquisitionproposalspriorto30September2017havebeenincludedinthe
IncomeStatement.Wherenoinvoicehasbeenreceived,anestimateoflikelycostsupto30September2017hasbeen
made on the basis of best information available at the time.
On9February2017,TowerLimitedannouncedithadenteredintoaSchemeImplementationArrangement(SIA)with
Fairfax.Underthisagreement,Fairfaxagreedtoacquire100%oftheCompany'ssharesat$1.17pershareforan
aggregate purchase price of $197 million (the Fairfax proposal).
TowerhasengagedGoldmanSachsNewZealandLimited(Goldman)toactasleadfinancialadviserinrelationtothe
acquisitionproposalsandpotentialcapitalraising.Goldmanadvisoryfeesarelinkedtotheoutcomeofanyacquisition
proposalandcapitalraising.Intheeventthatanacquisitionproposalorcapitalraisingiscompleted,advisoryfees
estimated up to $4.5 million before tax will become payable to Goldman.
On27June2017,TowerLimitedannouncedithadenteredintoaSchemeImplementationArrangement(SIA)with
Suncorp.Underthisagreement,Suncorpagreedtoacquire100%oftheCompany'ssharesat$1.40pershareforan
aggregatepurchasepriceof$236million.On26July2017,theNewZealandCommerceCommissionannouncedthatit
had declined Suncorp's application to purchase 100% of Tower shares.
At30September2017,noprovisionhasbeenmadeforGoldmanadvisoryfeesbecauseatthatdate,theobligationtopay
fees remained contingent upon the successful implementation of an acquisition proposal or completion of capital raising.
On23August2017,SuncorpadvisedthattheywouldbeappealingtheCommerceCommissiondecision.On5
September2017theTowerBoardlodgeditsowncrossappealagainsttheCommerceCommission'sdecisiontodecline
Suncorp's application to acquire 100% of Tower.
TheFairfaxSIAwasterminatedon29June2017followingTower'sannouncementon27June2017thatithadentered
intoaSIAwithSuncorp.Towerhasreimbursed$400,000ofFairfax'scostsundertheconditionsofitsdiscontinued
scheme.UndertheFairfaxmutualterminationagreement,abreakfeeofafurther$1.57millionispayabletoFairfaxif
another party completes an acquisition of Tower by 31 August 2018. Refer to Note 34 Contingent Liabilities.
On7November2017,ToweradvisedthattheSIAwithSuncorphadpasseditsenddateandhadbeenterminated.
Suncorpsubsequentlyannouncedthatasaresult,itwouldnolongerbeproceedingwithitsappealoftheCommerce
Commission’s decision to decline its application to acquire Tower.
The Tower Board has withdrawn its cross appeal against the Commerce Commission’s decision.
11

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
5PREMIUM REVENUE
$ thousandsNote20172016
Gross written premiums312,396 303,236
Less: Gross unearned premiums(5,636)(296)
Premium revenue306,760 302,940
6INVESTMENT REVENUE
$ thousandsNote20172016
Fixed interest securities
Interest income7,734 10,088
Net realised gain (loss)(631)441
Net unrealised gain (loss)913 (3,142)
Total fixed interest securities8,016 7,387
Equity securities
Dividend income - 9
Net unrealised gain (loss)(3)(163)
Total equity securities(3)(154)
Net realised gain (loss)(1,297)2,810
Net unrealised gain (loss)927 (1,045)
Total other(370)1,765
Total investment revenue7,734 10,097
Total net realised gain (loss)(1,928)3,251
Total net unrealised gain (loss)1,837 (4,350)
Total investment revenue7,643 8,998
(i)Interest income on fixed interest securities
(ii)Dividend income on equity securities
(iii)Fair value gains and losses
Fairvaluegainsandlossesoninvestmentsarerecognisedthroughtheincomestatementintheperiodinwhichthey
arise.Thegainsandlossesfromfixedinterest,equityandpropertysecuritieshavebeengeneratedbyfinancial
assetsdesignatedoninitialrecognitionatfairvaluethroughprofitorloss.Otherinvestmentgainsandlosseshave
beengeneratedbyderivativefinancialassetsandfinancialliabilitiesclassifiedasheldfortradingatfairvaluethrough
profit or loss.
Premiumscededtoreinsurersunderreinsurancecontractsarerecordedasoutwardsreinsuranceexpenseandare
recognisedovertheperiodofthereinsurancecontract.Accordingly,aportionofoutwardsreinsurancepremiumistreated
at balance date as a prepayment.
Premiumsonunclosedbusinessarebroughttoaccountusingestimatesbasedonthepreviousyear'sactualunclosed
business with due allowance made for any changes in the pattern of new business and renewals.
Premiumrevenueisrecognisedintheperiodinwhichthepremiumsareearnedduringthetermofthecontract.The
proportionofpremiumsnotearnedintheincomestatementatreportingdateisrecognisedinthebalancesheetas
unearned premiums.
Other
Investment revenue is recognised as follows:
Revenue is recognised on an accrual basis when the right to receive payment is established.
Interest income is recognised using the effective interest method.
12

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
7NET CLAIMS EXPENSE
$ thousandsNote20172016
Canterbury earthquake claims (4 key events)815,916 35,084
Additional risk margin810,000 -
Kaikoura earthquake claims5,739 -
Other claims155,896 150,528
Total net claims expense187,551 185,612
-
-
-the impact of large losses.
Acomponentoftheseestimationtechniquesisusuallytheestimationofthecostofnotifiedbutnotpaidclaims.In
estimatingthecostofthese,theGrouphasregardtotheclaimcircumstancesreported,anyinformationavailablefrom
loss adjusters and information on the cost of settling claims with similar characteristics in previous periods.
Provisionsarecalculatedgrossofanyreinsurancerecoveriesexceptriskmargin,whichisnetofreinsurancerecoveries.
Aseparateestimateismadeoftheamountsthatwillberecoverablefromreinsurersbasedonthegrossprovisions.
Details of specific assumptions used in deriving the outstanding claims liability at year end are detailed in Note 27.
Reinsurancerecoveriesarerecognisedasrevenue.Amountsrecoverableareassessedinaccordancewiththetermsof
thereinsurancecontractsinamannersimilartotheassessmentofoutstandingclaims.Recoveriesaremeasuredasthe
present value of expected future receipts.
Claimsexpenseisrecognisedwhenclaimsarenotified.Provisionismadeattheendoftheyearfortheestimatedcostof
claims incurred but not settled at balance date, including the cost of claims incurred but not yet reported to the Group.
Theestimatedcostofclaimsincludesdirectexpensesincurredinsettlingclaimsnetofanyexpectedsalvagevalueand
otherrecoveries.TheGrouptakesallreasonablestepstoensurethatithasappropriateinformationregardingitsclaims
exposures.However,giventheuncertaintyinestablishingclaimsprovisions,itislikelythatthefinaloutcomewillproveto
be different from the original liability established.
Theestimationofclaimsincurredbutnotreported(IBNR)isgenerallysubjecttoagreaterdegreeofuncertaintythanthe
estimationofthecostofsettlingclaimsalreadynotifiedtotheGroup,wheremoreinformationabouttheclaimeventis
generallyavailable.IBNRclaimsmayoftennotbeapparenttotheinsureduntilmanyyearsaftertheeventsgivingriseto
theclaimshavehappened.IncalculatingtheestimatedcostofunpaidclaimstheGroupusesavarietyofestimation
techniques,generallybasedonstatisticalanalysesofhistoricalexperience,whichassumesthatthedevelopmentpattern
ofcurrentclaimswillbeconsistentwithpastexperience.Allowanceismadeforchangesoruncertaintieswhichmaycreate
distortionsinunderlyingstatisticsorwhichmaycausethecostofunsettledclaimstoincreaseorreducewhencompared
with the cost of previously settled claims including:
changesinGroupprocesseswhichmightaccelerateorslowdownthedevelopmentand(or)recordingofpaidor
incurred claims, compared with statistics from previous periods;
the effects of inflation; and
13

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
8CANTERBURY EARTHQUAKES
Canterbury earthquake provisions
$ thousands20172016
Insurance liabilities
Gross outstanding claims(107,200)(149,100)
Additional risk margin(10,000) -
(117,200)(149,100)
Receivables
Reinsurance recovery receivables13,600 50,800
EQC related to open claims5,800 57,600
Less: EQC payable to reinsurers(1,700) -
17,700 108,400
Net outstanding claims(99,500)(40,700)
Change in presentation of comparative insurance liabilities and receivables
The2016comparativeinformationinthetableaboveincludesreceivablesfromPeakReandEQCasdeductionsfrom
grossoutstandingclaimsrelatingtobothopenandclosedclaims.Asthegrossoutstandingclaimsliabilitycontinuesto
reduce,onlyEQCrecoveriesforopenclaimshavebeendeductedfromgrossoutstandingclaimsliabilityforthe
September2010andFebruary2011events.Fortheotherearthquakes,EQCrecoveriesforopenclaimsandreinsurance
recoveriesarededucted.DuetothenatureofEQCrecoveries,thecategorisationbetweenopenclaimsandclosedclaims
isanapproximationthattakesintoaccountthesplitbetweenopenandclosedclaimsforEQCrecoveriesalreadyreceived
as well as EQC recoveries expected to be received.
Towerhasreceivedover16,106individualclaimsfromcustomersasaresultofearthquakesimpactingtheCanterbury
regionduring2010and2011(2016:15,990claims).Likeotherindustryparticipants,Towercontinuestoreceive'over-cap'
claimsfromtheEarthquakeCommission(EQC).ThegrowthinnewclaimsreceivedhasimpactedTower'ssettlement
ratesduringtheyear.Ofallclaimsreceived,Towerhassettledover15,783claimsat30September2017(2016:15,426
claims),representinga98%settlementratebynumberofclaimsand93%byvalue(2016:96%bynumberand89%by
value).Todate,Towerhaspaidoutmorethan$825milliontocustomers(2016:$749million)inrespectofthefourmain
earthquakes that occurred on 4 September 2010; 22 February 2011; 13 June 2011 and 23 December 2011.
Asat30September2017,Towerhasestimatedgrossultimateincurredclaimsof$897.4millioninrespectofthefourmain
Canterbury earthquake events (2016: $869.6 million).
Outstandingclaimscomprisescaseestimates,claimsincurredbutnotreported(IBNR)andriskmargins.Intheyear
ended30September2017,caseestimateshavereducedasclaimshavebeensettledandpaid.Thesedecreaseshave
beenoffsethowever,byincreasedcostsonremainingopenclaims;newover-capclaimsbeingreceivedfromEQC;and
theAppointedActuaryincreasingIBNRandriskmargins,particularlyinrespectoflitigatedclaimsandadditionalEQC
recoveries.
ThefinancialcosttoToweroftheCanterburyearthquakesisreducedthroughreinsuranceandisreflectedwithinnet
outstandingclaims.Towercontinuestoworkcloselywithitscatastrophereinsurancepartnersasitcompletesits
Canterburyclaimssettlementprogramme.Catastrophereinsurancepartnersarerequiredtohaveafinancialstrength
ratingofatleastA-issuedbyarecognisedinternationalratingagency.Towerhasacommercialdisputewiththeprovider
of its adverse development cover, Peak Reinsurance Company Limited (Peak Re), which is discussed further in Note 14.
ThetablebelowpresentsafinancialrepresentationofTower’snetoutstandingclaimsprovisionat30September2017in
relation to the four main earthquake events.
14

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
8CANTERBURY EARTHQUAKES (continued)
$ thousands20172016
Cumulative expenses associated with Canterbury earthquakes:
Earthquake claims estimate(897,440)(869,600)
Reinsurance recoveries746,623 734,699
Claim expense net of reinsurance recoveries(150,817)(134,901)
Reinsurance expense(25,045)(25,045)
Additional risk margin(10,000) -
Cumulative impact of Canterbury earthquakes before tax(185,862)(159,946)
Income tax52,710 45,454
Cumulative impact of Canterbury earthquakes after tax(133,152)(114,492)
Recognised in current period (net of tax)(18,660)(25,272)
TowerhastwosignificantreceivableamountsrelatedtoclosedCanterburyearthquakeclaims,being$43.75millionfrom
PeakReand$65.1millionfromEQC(2016:$57.6million).$17.7millionofthisEQCamountispayabletoreinsurers
whichhasbeenallowedfor(2016:$20.7million).Ariskmarginof$10.7millionhasbeenallowedforonthereceivable
from EQC (2016: $4.3 million).
TheBoardareactivelyengagedinmonitoringCanterburyearthquakedevelopments.Boardprocessreliesonthe
AppointedActuary'sdeterminationofearthquakeultimateincurredclaimsestimatesandthederivationofestimated
outcomes.Towerhas323openclaimsat30September2017(2016:564openclaims).Recognisingrelative
complexitieswhichexistwithinremainingopenclaims,theAppointedActuaryhasreviewedeachremainingpropertyfile
withTowerclaimsstaff.Thisindividualclaimmethodologyincludedreviewofthelatestspecialistassessmentreports
andscopeofworkstorepairorrebuildpropertiestodeterminethepropensityforfuturecoststovary.Inaddition,
furtherprovisionwasmadeforclaimsre-opening;claimsmovingovertheEQCcapof$100,000;claimsinlitigationand
other claim categories.
ThefollowingtablepresentsthecumulativeimpactofthefourmainCanterburyearthquakeeventsontheincome
statement.
RecognisingthechallenginghistoryofCanterburyearthquakeclaimsandthepotentialforongoingcomplexityin
finalisingremainingclaimsandpotentialnewover-capclaims,theBoardhaselectedtocreateanadditionalriskmargin
of$10.0millionoverandabovetheprovisionoftheAppointedActuary,whichissetatthe75thpercentileprobabilityof
sufficiency.
Thisadditionalriskmarginapproximatesthe80-85thpercentileprobabilityofsufficiencyoftheAppointedActuary’s
centralestimateasat30September2017.Thisprovisionwillremainat$10.0million,subjecttoreviewbytheBoard
each half year and will be released once Canterbury Outstanding Claims Liability has sufficiently run off.
15

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
8CANTERBURY EARTHQUAKES (continued)
Claims
• the level of future increases in building and other claims costs
• the number of new litigated claims received and the average cost of these claims
• the number of new claims expected from EQC and the average cost of these claims
• the rate of closed claims reopening
• risk margin
• future claim management expenses, and
Recoveries
• collectability of reinsurance recoveries
• recoveries from EQC (including litigation risks) in respect of land damage and building costs
• risk margin.
Date of event
$ thousands
20172016
September 2010
-
7,700
February 2011
- -
June 2011
254,200
256,500
December 2011
486,500
487,500
• Continued growth in the level of litigation claims received;
• Continued development of claim costs as they progress through the claims life cycle;
TowerhasexceededitscatastrophereinsuranceandadversedevelopmentcoverlimitsinrelationtotheFebruary2011
event.TheestimatedultimateincurredclaimscostoftheFebruary2011eventtotals$507.0millionincludingrisk
margin.Towerhasreinsurancefor$375.4milliononthiseventincludingcatastrophecover,proportionalreinsurance
andadversedevelopmentcover.Duringtheyearended30September2017,Towerexpensed$13.3millioninrelation
to the February 2011 event (2016: $35.1 million).
Theactuarialreviewsperformedduringtheyearended30September2017identifiedthefollowingaskeycontributors
to the increase in expected earthquake claims costs:
• Greater than anticipated new over-cap claims received from EQC;
• Refinement of actuarial assumptions, including the setting of risk margins.
Catastrophe reinsurance cover remaining
The key elements of judgement within the claims estimation are as follows:
Giventhenatureofestimationuncertainties(includingthoselistedabove)actualclaimsexperiencemaystilldeviate,
perhapssubstantially,fromthegrossoutstandingclaimsliabilitiesrecordedasat30September2017.Anyfurther
changes to estimates will be recorded in the accounting period when they become known.
The catastrophe reinsurance cover headroom remaining is included in the table below.
• Increase in the level of future claims handling expenses; and
TowerhasalsoexceededitscatastrophereinsurancecoverlimitinrelationtotheSeptember2010event.The
estimatedultimateincurredclaimscostoftheSeptember2010eventtotals$303.4millionincludingriskmargin.Tower
hasreinsurancefor$295.8milliononthiseventincludingcatastrophecoverandproportionalreinsurancecover.During
the year ended 30 September 2017, Tower expensed $2.6 million in relation to the September 2010 event (2016: nil).
16

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
8CANTERBURY EARTHQUAKES (continued)
Sensitivity analysis - impact of changes in key variables
$ millions
Sep 2010Feb 2011Jun 2011Dec 201130-Sep-17
30-Sep-16
Outstanding claims:
(i)+ 5%
(1.3)(3.0)--(4.3)
(4.1)
- 5%
1.33.0--4.3
4.1
(ii)+ 1%
4.9(9.0)--(4.1)
(9.0)
- 1%
(7.0)9.0--2.0
9.0
Receivables:
Reinsurance recovery receivables
(iii)- 50%
-(21.9)--(21.9)
(21.9)
- 100%
-(38.8)--(38.8)
(38.8)
(iv)+ 10%
0.10.7--0.8
0.7
- 10%
(0.1)(0.7)--(0.8)
(0.8)
(v)+ 10%
3.20.9--4.1
0.1
- 10%
(3.2)(0.9)--(4.1)
(0.1)
(i)
(ii)
(iii)
Calculatedas1%oftotalreportedcosts(netofEQCcontributions)plusIBNR/IBNERmovedto/fromFeb2011event
and the impact on Tower's profit quantified.
Calculated as the impact on net outstanding claims due to 50% or 100% lower recoveries being received.
Change to costs and quantity of
expected claim estimates
including building costs and
other impacts.
Change in apportionment of
claim costs to / from February
2011 event.
Adverse development
cover
Recoveries from EQC in respect
of land damage
Recoveries from EQC in respect
of building costs
Calculatedasthechangeincaseestimates(netofEQCcontributions)plusIBNR/IBNERandtheimpactonTower's
profit quantified. Changes in case estimates include over-cap claims, closed claims re-opening and risk margin.
Netoutstandingclaimsarecomprisedofseveralkeyelements,asdescribedearlierinthisnote.Sensitivityofnet
outstandingclaimsisthereforedrivenbychangestotheassumptionsunderpinningeachoftheseelements.Theimpact
ofchangesinsignificantassumptionsonthenetoutstandingclaimsliabilities,andhenceonTower'sprofit,areshownin
the table below. Each change in assumption has been calculated in isolation of any other changes in assumptions.
Theimpactofachangetoclaimscostsisoffsetbyreinsurancewherethereisreinsurancecapacityremaining.The
impactwillbenilwherethechangeinclaimscostsislessthantheremainingreinsurancecapacity.However,ifthe
changeinclaimscostsexceedsthereinsurancecapacitythenTower'sprofitwillbeimpactedbytheamountofclaims
costs in excess of the reinsurance capacity.
The changes in the table below reflect the impact on Tower's profits should that event occur.
Change
variable
Split between eventsFour main earthquakes
17

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
9MANAGEMENT AND SALES EXPENSES
Included in total management and sales expenses are the following requiring separate disclosures:
$ thousandsNote20172016
Amortisation of deferred acquisition costs19,973 20,277
Bad debts written off176 162
Change in provision for doubtful debts(945)(307)
Amortisation of software6,395 3,950
Depreciation2,032 2,438
Office equipment and furniture
928 840
Motor vehicles
93 170
Computer equipment
1,011 1,428
Directors' fees509 565
Employee benefits expense53,600 54,396
(Gain) on disposal of property, plant and equipment(42)(43)
Claims related management expenses reclassified to claims expense(25,998)(22,846)
Auditors remuneration
Fees paid to Group's auditors:
Audit of financial statements
(1)
495 364
Other assurance related services
(2)
30 30
Non-assurance advisory related services
(3)
6 149
Total fees paid to Group's auditors531 543
Fees paid to subsidiaries' auditors different to Group auditors:
Audit of financial statements
(4)
45 51
Total fees paid to auditors576 594
(1)
(2)
(3)
(4)
TowerInsuranceLimitedpaidallfeesforauditservicesprovidedtotheGroup,otherthantheauditfeesofNational
Pacific Insurance Limited and Tower Insurance (Vanuatu) Limited.
Non-assuranceadvisoryrelatedservicesrelatedtoAnnualShareholders'MeetingproceduresandITPlatformreview
(in 2016).
OtherassurancerelatedservicesincludesannualsolvencyreturnassuranceandPacificIslandregulatoryreturn
audits.
Auditoffinancialstatementsincludesfeesforboththeauditofannualfinancialstatementsandthereviewofinterim
financial statements.
18

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
10TAX
10ATAX EXPENSE
Analysis of tax expense
$ thousandsNote20172016
Current tax4,468 6,026
Deferred tax(3,064)(10,615)
Under (over) provided in prior years597 (322)
Total tax expense (benefit)2,001 (4,911)
The tax benefit can be reconciled to the accounting profit as follows:
Loss before tax from continuing operations(5,999)(26,426)
Income tax at the current rate of 28%(1,680)(7,399)
Tax effect of:
Prior period adjustments597 (322)
Non-deductible expenditure/non-assessable income967 216
Foreign tax credits written off1,874 2,226
Non-taxable dividend from subsidiaries - -
Other243 368
Total tax expense (benefit)2,001 (4,911)
(i)Current tax
(ii)Tax consolidation
(iii)Income tax expense
(iv)GST
TheGroupissubjecttoincometaxesinNewZealandandjurisdictionswhereithasforeignoperations.Significant
managementjudgementisrequiredindeterminingtheworldwideprovisionforincometaxes.Therearesometransactions
andcalculationsundertakenduringtheordinarycourseofbusinessforwhichtheultimatetaxdeterminationisuncertain.
TheGroupestimatesitstaxliabilitiesbasedonitsunderstandingoftaxlawineachrelevantjurisdiction.Wherethefinal
taxoutcomeofthesemattersisdifferentfromtheamountsthatwereinitiallyrecorded,suchdifferenceswillimpactthe
currentanddeferredincometaxassetsandliabilitiesintheperiodinwhichsuchdeterminationismade.Deferredtax
assetsarerecognisedforallunusedtaxlossestotheextentitisprobablethattaxableprofitswillbeavailableagainst
whichthelossescanbeutilised.Significantmanagementjudgementisrequiredtodeterminetheamountofdeferredtax
assets that can be recognised based on the likely timing and quantum of future taxable profits.
Allrevenues,expensesandcertainassetsarerecognisednetofgoodsandservicestaxes(GST)exceptwheretheGSTis
notrecoverable.InthesecircumstancestheGSTisincludedintherelatedassetorexpense.Receivablesandpayables
arereportedinclusiveofGST.ThenetGSTpayabletoorrecoverablefromthetaxauthoritiesasatbalancedateis
included as a receivable or payable in the balance sheet.
Currenttaxistheamountofincometaxespayableorrecoverableinrespectofthetaxableprofitorlossfortheperiod.Itis
calculatedusingtaxratesandlawsthathavebeenenactedorsubstantivelyenactedbythereportingdate.Currenttaxfor
current and prior periods is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).
TowerLimitedanditssubsidiariesarepartofasingleconsolidatedgroupfortaxpurposes,withtheexceptionofTower
Insurance Limited.
Theincometaxexpenseisthetaxpayableontaxableincomeforthecurrentperiod,basedontheincometaxratefor
eachjurisdictionandadjustedforchangesindeferredtaxassetsandliabilitiesattributabletotemporarydifferencesand
unused tax losses.
19

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
10 TAX (continued)
(v) Tax cash flows
10BCURRENT TAX ASSETS
Analysis of current tax assets
$ thousandsNote20172016
Current1,206 912
Non-current12,256 12,256
Total current tax assets13,46213,168
10CCURRENT TAX LIABILITIES
10DDEFERRED TAX ASSETS AND LIABILITIES
$ thousands
Opening
balance at 1
October
(Charged)
credited to
income
statement
(Charged)
credited to
comprehensive
income
Closing
balance at 30
September
For the Year Ended 30 September 2017
Movement in deferred tax assets
Provisions and accruals3,141 (876) - 2,265
Property, plant and equipment3,288 4,493 - 7,781
Tax losses29,086 (2,128) - 26,958
Other - 778 - 778
Total deferred tax assets35,515 2,267 - 37,782
(5,037)
Net deferred tax assets
32,745
Movement in deferred tax liabilities
Deferred acquisition costs(4,851)(227) - (5,078)
Other(1,294)1,024 (29)(299)
Total deferred tax liabilities(6,145)797 (29)(5,377)
5,037
Net deferred tax liabilities(340)
Set-off of deferred tax liabilities pursuant to NZ IAS 12
TaxcashflowsareincludedinthestatementsofcashflowsonanetbasisotherthantotheextentthattheGSTisnot
recoverable and has been included in the expense or asset.
The movement in deferred income tax assets and liabilities during the year is as follows:
Anon-currenttaxassetof$12,256,000isrecognisedinthefinancialstatementsoftheGroupasat30September2017in
relationtoexcesstaxpaymentsmadeinpreviousyears(2016:$12,256,000).Non-currenttaxassetsareexpectedtobe
recoveredfrom2021,asdeterminedbytheBoardapprovedoperationalplanforfinancialyears2018to2021.Acurrent
taxassetof$1,206,000isrecognisedinrelationtoexcesstaxpaymentsmadeinthePacificIslandsoverandabovethe
estimated tax liabilities for the year (2016: $595,000).
Currenttaxliabilitiesof$560,000relatetotaxespayabletooffshoretaxauthoritiesinthePacificIslands(2016:
$123,000).
Set-off of deferred tax liabilities pursuant to NZ IAS 12
20

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
10 TAX (continued)
$ thousands
Opening
balance at 1
October
(Charged)
credited to
income
statement
(Charged)
credited to
comprehensive
income
Closing
balance at 30
September
For the Year Ended 30 September 2016
Movement in deferred tax assets
Provisions and accruals2,321 820 - 3,141
Property, plant and equipment3,431 (120)(23)3,288
Tax losses19,034 10,052 - 29,086
Total deferred tax assets24,786 10,752 (23)35,515
(5,360)
Net deferred tax assets
30,155
Movement in deferred tax liabilities
Deferred acquisition costs(4,885)34 - (4,851)
Other(1,123)(171) - (1,294)
Total deferred tax liabilities(6,008)(137) - (6,145)
5,360
Net deferred tax liabilities(785)
Deferred tax
10EIMPUTATION CREDITS
$ thousands20172016
Imputation credits available for use in subsequent reporting periods489 489
Set-off of deferred tax liabilities pursuant to NZ IAS 12
Set-off of deferred tax liabilities pursuant to NZ IAS 12
Deferredtaxisaccountedforusingthecomprehensivebalancesheetliabilitymethodinrespectoftemporarydifferences
arisingfromdifferencesbetweenthecarryingamountofassetsandliabilitiesinthefinancialstatementsandthe
corresponding tax base of those items.
Deferredtaxassetsandliabilitiesarerecognisedfortemporarydifferencesatthetaxratesexpectedtoapplywhenthe
assetsarerecoveredorliabilitiessettled,basedonthetaxratesenactedorsubstantivelyenactedforeachjurisdiction.
Deferredtaxassetsarerecognisedtotheextentthatitisprobablethattaxableprofitswillbeavailableagainstwhich
deductibletemporarydifferencesorunusedtaxlossescanbeutilised.Suchassetsandliabilitiesarenotrecognisedifthe
temporarydifferencearisesfromgoodwillorfromtheinitialrecognition(otherthaninabusinesscombination)oftheother
assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Thebalanceoftheimputationaccountattheendoftheyearisdeterminedhavingadjustedforimputationcreditsthatwill
arisefromthepaymentofincometaxprovided;dividendsrecognisedasaliability;andthereceiptofdividendsrecognised
as receivables at the reporting date.
TheGroupimputationcreditaccountreflectstheimputationcreditsheldbytheCompanyastherepresentativememberof
the Group.
Currentanddeferredtaxbalancesattributabletoamountsrecogniseddirectlyinequityarealsorecogniseddirectlyin
equity.
Deferredtaxliabilitiesof$946,000havenotbeenrecognisedinrespectoftemporarydifferencesassociatedwith
investments in subsidiaries (2016: liabilities of $166,000).
Recognitionofdeferredtaxassetsisakeyareaofjudgement.Managementexpectstoutilisethetaxlossesagainst
future profits over the next 4 years.
21

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
11SEGMENTAL REPORTING
$ thousands
New ZealandPacific Islands
Other (Holding
companies &
eliminations)Total
Year Ended 30 September 2017
Revenue
Net operating revenue
222,117 44,816 665 267,598
Total revenue
222,117 44,816 665 267,598
Earnings before interest, tax,
depreciation and amortisation
(15,648)12,688 6,223 3,263
Interest expense
- - (835)(835)
Depreciation and amortisation
(1,529)(521)(6,377)(8,427)
Profit (Loss) before income tax
(17,177)12,167 (989)(5,999)
Income tax credit (expense)
2,470 (4,958)487 (2,001)
Profit (Loss) for the year
(14,707)7,209 (502)(8,000)
Total assets 30 September 2017481,532 82,664 75,270 639,466
Total liabilities 30 September 2017335,602 54,483 33,637 423,722
819 295 12,059 13,173
Year Ended 30 September 2016
Revenue
Net operating revenue
218,992 45,765 1,488 266,245
Total revenue
218,992 45,765 1,488 266,245
Earnings before interest, tax,
depreciation and amortisation
(12,577)9,617 (17,078)(20,038)
Depreciation and amortisation
(2,076)(379)(3,933)(6,388)
Profit (Loss) before income tax
(14,653)9,238 (21,011)(26,426)
Income tax credit (expense)
2,760 (3,729)5,880 4,911
Profit (Loss) for the year
(11,893)5,509 (15,131)(21,515)
Total assets 30 September 2016479,420 79,104 81,757 640,281
Total liabilities 30 September 2016360,613 51,981 3,735 416,329
481 1,523 7,553 9,557
Description of segments and other segment information
TheGroupdoesnotderiverevenuefromanyindividualorentitythatrepresents10%ormoreoftheGroup'stotal
revenue.
Acquisition of property plant and equipment and
intangibles
Acquisition of property plant and equipment and
intangibles
Anoperatingsegmentisagroupofassetsandoperationsengagedinprovidingproductsorservicesthataresubjectto
risks and returns that are different to those of other operating segments.
Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperating
decision-makerwhoreviewstheoperatingresultsonaregularbasisandmakesdecisionsonresourceallocationand
assessing performance. The chief operating decision-maker has been identified as the Company’s Board of Directors.
TheNewZealandsegmentcomprisedgeneralinsurancebusinesswritteninNewZealand.ThePacificIslandssegment
includesgeneralinsurancebusinesswithcustomersinthePacificIslandswrittenbyTowerInsuranceLimited
subsidiaries and branch operations. Other includes head office expenses, financing costs and eliminations.
Tower Group operates predominantly in two geographical segments, New Zealand and the Pacific region.
22

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
12
$ thousands20172016
Cash at bank and in hand21,981 25,792
Deposits at call76,689 60,932
Restricted cash4,206 5,504
102,876 92,228
13
$ thousands20172016
Loss for the year(8,000)(21,515)
Add (less) non-cash items
Depreciation of property, plant and equipment2,032 2,438
Amortisation of software6,395 3,950
Impairment of software - 19,649
Unrealised (gain) loss on financial assets(1,837)4,350
Movement on disposal of property, plant and equipment(42)(43)
Change in deferred tax(3,024)(10,560)
3,524 19,784
Change in receivables(7,653)1,984
Change in payables(21,537)(11,614)
Change in taxation116 1,051
(29,074)(8,579)
Add (less) other items classified as investing / financing activities
Financing costs778 -
778 -
(32,772)(10,310)
CASH AND CASH EQUIVALENTS
Add (less) movements in working capital (excluding the effects of
exchange differences on consolidation)
Net cash inflows (outflows) from operating activities
Total cash and cash equivalents
Cashandcashequivalentsincludescashonhandanddepositsheldatcallwithfinancialinstitutions,othershort-term,
highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashandwhicharesubjecttoaninsignificant
risk of changes in value, and bank overdrafts.
Theeffectiveinterestrateat30September2017fordepositsatcallis2.60%(2016:2.60%).Therewasnooffsetting
within cash and cash equivalents (2016: nil).
TowerisapartytotheCanterburyEarthquakeSharedPropertyProcess–InsurerContract(SPP)whichsetsout
obligationsforinsurersandappointsaleadinsurertoactonbehalfofotherinsurerswithrespecttotherepairandrebuild
ofsharedproperties(knownasmulti-units).AsleadinsureronCanterburymulti-unitrepairsorrebuilds,Towerreceives
cashfromotherinsurancecompaniesassettlementoftheirobligationsunderbuildingcontractscoveredwithintheSPP.
Tower separately holds this cash on behalf of other insurers in a segregated bank account.
At30September,Towerwasholding$4.2million(2016:$5.5million)cashinrespectofmulti-unitclaimsasleadinsurer
onCanterburyclaims.ThisisrecognisedwithinCashandcashequivalentsonthebalancesheet.Relatedtothisare
correspondingamountsbeing$1.6million(2016:$2.7million)recordedwithinInsuranceliabilitiesforTower’sportionof
multi-unitoutstandingclaims;and$2.6million(2016:$2.8million)recordedwithinPayablesasheldonbehalfofother
insurers in respect of SPP claims.
RECONCILIATION OF LOSS FOR THE PERIOD TO NET CASH FLOWS FROM OPERATING ACTIVITIES
23

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
14RECEIVABLES
$ thousands20172016
Reinsurance recovery receivables
63,947 68,406
Outstanding premiums and trade receivables
127,319 125,855
Other
70,109 60,424
Total receivables
261,375254,685
Analysed as
Current
192,466 173,613
Non current
68,909 81,072
Total receivables
261,375 254,685
Outstanding premiums and trade receivables128,124 127,605
Allowance for credit losses and impairment
(805)(1,750)
127,319 125,855
Opening balance(1,750)(2,057)
Provisions added during the year(41)(45)
Provisions released during the year978 224
Foreign exchange movements8 128
Closing balance(805)(1,750)
Assets arising from reinsurance contracts
Tradeandotherreceivables,includingEQCreinsurancerecoveries,areincludedincurrentassetsexceptforthosewith
maturities greater than 12 months after the reporting date, which are classified as non-current assets.
Assetsarisingfromreinsurancecontractsarealsodeterminedusingtheabovemethods.Inaddition,therecoverabilityof
theseassetsisassessedonaperiodicbasistoensurethatthebalanceisreflectiveoftheamountsthatwillultimatelybe
received,takingintoconsiderationfactorssuchascounterpartyandcreditrisk.Impairmentisrecognisedwherethereis
objective evidence that the Group may not receive amounts due to it and these amounts can be reliably measured.
Outstandingpremiumsandtradereceivablesarepresentednetofallowanceforcreditlossesandimpairment.Thetables
belowincludereconciliationsofoutstandingpremiumsandtradereceivables,togetherwiththeprovisionforcancellation
at the reporting date.
Tradeandotherreceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcost,less
provision for impairment.
Collectabilityoftradereceivablesisreviewedonanon-goingbasis.Theallowanceforcreditlossesandimpairmentin
relationtotradereceivablesisprovidedforbasedonestimatedrecoverableamountsdeterminedbyreferencetocurrent
customercircumstancesandpastdefaultexperience.IndeterminingtherecoverabilityofatradereceivabletheGroup
considersanychangeinthecreditqualityofthetradereceivablefromthedatethecreditwasinitiallygranteduptothe
reportingdate.TheGrouphasprovidedfullyforreceivablesover120dayspastdue.Tradereceivablesbetween60and
120 days past due are provided for based on estimated irrecoverable amounts.
24

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
14RECEIVABLES (continued)
Earthquake Commission Receivables
Kaikoura Region Earthquake
Canterbury Earthquakes
Reinsurance Contract in Dispute
TowerispartytoanarbitrationprocesswithPeakReregardinganAdverseDevelopmentCover(ADC)policyenteredinto
in2015withtherecoveryvaluedat$43.75million.CurrentlyToweranticipatesthearbitrationwilltakeplaceinMarch
2018withadecisionbymid-2018.Towerremainsconfidentthatitwillbesuccessfulbutboththeprocessandthehearing
holdriskandcollectionoftheowedamountisnotcertain.Anadverseoutcomecouldleadtoanilrecoveryduetothe
binary nature of the process.
TheADCprovidesforrecoveryofclaimscostontheFebruary2011earthquake.ThemaximumvalueoftheADC
recoveryis$43.75millionwhichhasbeenfullyrecognisedinthecalculationofTower'snetclaimsexpenseinrespectof
the Canterbury earthquakes (refer to Note 8).
Otherreceivablesincludeanamountof$65.1millionduefromEQCforlanddamageandbuildingcostsrelatingtothe
Canterbury earthquake provisions as disclosed in Note 8.
InDecember2016TowerInsuranceLimited,alongwithotherprivateinsurers,signedaMemorandumofUnderstanding
(MOU)withEQCwherebyprivateinsurersactasagentsfortheCrownagencyinrelationtotheKaikouraregion
earthquake.Undertheagreement,Towerdirectlylodges,assessesandsettleshomeandcontentsclaimsarisingfrom
the14November2016earthquakeintheKaikouraregion,includingclaimsunderEQC's$100,000capforhouseclaims
and$15,000capforcontentsclaims.ClaimsfromearlierearthquakesintheCanterburyregionwhicharestillopenor
unresolvedarenotpartofthisagreementwithEQC.TheagreementwithEQCprovidesforprivateinsurerstoget
reimbursedforclaimcosts,includingcostsofsettlementandhandling.At30September2017,theamountduefromEQC
for reimbursement of claims handling expenses and claims paid in relation to the Kaikoura event is $1.3 million (2016: nil).
ToweracknowledgesthattheEQCrecoveriesrelatingtoCanterburyearthquakesareanareaofsignificantaccounting
estimationandjudgement,includingearthquakeeventallocation,litigationriskfactorsandotheractuarialassumptions
discussed in Note 8.
TowerestimatesthegrossamountreceivableduefromEQCissignificantlyhigherthanthe$65.1million,buthasadopted
thisamount,whichistheactuarialvaluationoftheAppointedActuary.Themethodbywhichtheactuarialvaluationis
completedrecognisestheinherentriskanduncertaintywithrecoveryofthefullgrossamount.Anamountof$17.7million
(2016:$20.7million)willbepayabletoreinsurersonreceiptfromEQCofthesebalances.Theamountpayableto
reinsurers may vary depending on the balance collected from EQC.
25

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
15INTANGIBLE ASSETS
$ thousands
GoodwillAcquired
Internally
developed
Under
developmentTotal
Year Ended 30 September 2017
Cost:
Opening balance17,744 5,020 31,305 4,554 58,623
Additions - 82 5,740 6,237 12,059
Disposals - (6) - (17)(23)
Transfers - - - (5,822)(5,822)
Foreign exchange movements - 1 - - 1
- - - (468)(468)
Closing balance17,744 5,097 37,045 4,484 64,370
Accumulated amortisation:
Opening balance - (4,265)(22,376) - (26,641)
Amortisation charge - (235)(6,160) - (6,395)
Foreign exchange movements - (1)1 - -
Closing balance - (4,501)(28,535) - (33,036)
Net book value
At cost17,744 5,097 37,045 4,484 64,370
Accumulated amortisation - (4,501)(28,535) - (33,036)
Closing net book value17,744 596 8,510 4,484 31,334
Year Ended 30 September 2016
Cost:
Opening balance17,744 4,223 34,861 14,279 71,107
Additions - 846 339 7,070 8,255
Disposals - (39) - - (39)
Transfers - - - (339)(339)
- - - (702)(702)
Foreign exchange movements - (10) - - (10)
Impairment expense - - (3,895)(15,754)(19,649)
Closing balance17,744 5,020 31,305 4,554 58,623
Accumulated amortisation:
Opening balance - (4,047)(18,687) - (22,734)
Amortisation charge - (261)(3,689) - (3,950)
Amortisation on disposals - 40 - - 40
Foreign exchange movements - 3 - - 3
Closing balance - (4,265)(22,376) - (26,641)
Net book value
At cost17,744 5,020 31,305 4,554 58,623
Accumulated amortisation - (4,265)(22,376) - (26,641)
Closing net book value17,744 755 8,929 4,554 31,982
Transfers to Property, plant and
equipment
Software
Transfers to Property, plant and
equipment
26

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
15INTANGIBLE ASSETS (continued)
SOFTWARE
General use computer software
3-5 years
Core operating system software
3-10 years
IMPAIRMENT OF SOFTWARE
GOODWILL
IMPAIRMENT TESTING FOR GOODWILL
$ thousands20172016
Carrying amount of goodwill17,744 17,744
Goodwillissubjecttoimpairmenttestingatthecash-generatingunitleveleverysixmonths.Noimpairmentlosshas
been recognised in 2017 as a result of the impairment review (2016: Nil).
Goodwillacquiredinabusinesscombinationisinitiallymeasuredatcostbeingtheexcessofthecostofthe
businesscombinationovertheGroup'sinterestinthefairvalueoftheidentifiableassets,liabilitiesandcontingent
liabilitiesoftheentityacquired,atthedateofacquisition.Followinginitialrecognition,goodwillonacquisitionofa
businesscombinationisnotamortisedbutistestedforimpairmentbi-annuallyormorefrequentlyifeventsor
changes in circumstances indicate that the carrying value may be impaired.
Forthepurposeofimpairmenttesting,goodwillacquiredinabusinesscombinationis,fromtheacquisitiondate,
allocatedtoeachoftheGroup’scashgeneratingunits,orgroupsofcashgeneratingunits,thatareexpectedto
benefitfromthesynergiesofthecombination,irrespectiveofwhetherotherassetsorliabilitiesoftheacquireeare
assigned to those units or groups of units.
Any impairment is recognised immediately in the income statement.
Ondisposalofanentitythecarryingvalueofanyassociatedgoodwillisincludedinthecalculationofthegainor
loss on sale.
GoodwillisallocatedtotheNewZealandgeneralinsurancecashgeneratingunit.Thecarryingamountofgoodwill
allocated to the cash generating unit is shown below:
Impairment of goodwill is a key area of judgement.
Internallygeneratedintangibleassetsarerecordedatcostwhichincludesallthedirectlyattributablecosts
necessarytocreate,produceandpreparetheassetcapableofoperatinginthemannerintendedbymanagement.
Amortisationofinternallygeneratedintangibleassetsbeginswhentheassetisavailableforuseandisamortisedon
a straight line basis over the estimated useful life.
Applicationsoftwareisrecordedatcostlessaccumulatedamortisationandimpairment.Amortisationischargedon
a straight line basis over the estimated useful life of the software.
TheGrouphasreviewedthecarryingvalueofsoftwareintangibleassets(bothinternallydevelopedandunder
development)forindicatorsofimpairmentasat30September2017.Assessmentofimpairmentindicatorsincluded
reviewingthetechnicalfeasibilityofcompletingthesoftwaredevelopmentsoitwouldbeavailableforuse;the
intentiontocompletethesoftwaredevelopment;andwhetherthesoftwarewouldgenerateprobablefuture
economic benefits.
Thereviewwasundertakeninlightofexpectationsforfuturetechnologyplatformsrequiredtosupportgrowthinthe
NewZealandandPacificinsurancebusinesses.TheDirectorsconcludedthatnoimpairmentofsoftwareintangible
assets was required as at 30 September 2017.
Followingtheimpairmentreviewin2016,theGroupreducedtheestimatedusefuleconomiclifeandamortisation
periodofthecoreoperatingsystemsoftwareto3yearsfrom1April2016.Thisincreasedtheannualamortisation
by $844,000.
The determination of estimated useful economic life is a key area of judgement.
Animpairmentchargeof$19.65millionwasrecordedat31March2016,andwasrecognisedinthe30September
2016 financial statements relating to Internally developed software and Software under development categories.
27

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
15INTANGIBLE ASSETS (continued)
IMPAIRMENT REVIEW METHOD
SENSITIVITY TO CHANGES IN ASSUMPTIONS
16
DEFERRED ACQUISITION COSTS
$ thousandsNote20172016
Balance at the beginning of year19,973 20,277
Acquisition costs during the year20,961 19,973
Current period amortisation(19,973)(20,277)
Total deferred acquisition costs20,96119,973
Analysed as:
Current20,961 19,973
Non-current - -
Total deferred acquisition costs20,96119,973
Managementconsidersthattherecoverableamountfromthegeneralinsurancebusiness,asdeterminedbythe
appraisal value, will exceed the carrying value under a reasonable range of adverse scenarios.
Acquisitioncostsincurredinobtaininggeneralinsurancecontractsaredeferredandrecognisedasassetswhere
theycanbereliablymeasuredandwhereitisprobablethattheywillgiverisetopremiumrevenuethatwillbe
recognised in subsequent reporting periods.
Deferredacquisitioncostsareamortisedsystematicallyinaccordancewiththeexpectedpatternoftheincidenceof
riskunderthegeneralinsurancecontractstowhichtheyrelate.Thispatternofamortisationcorrespondstothe
earning pattern of the corresponding premium revenue.
Therecoverableamountofthegeneralinsurancebusinesshasbeenassessedwithreferencetoitsappraisalvalue
todetermineitsvalueinuse.Abasediscountrateof14%wasusedinthecalculation(2016:14%).Other
assumptionsusedareconsistentwiththeactuarialassumptionsinNote27inrespectofTowerInsurance.The
cashflowswereprojectedovertheexpectedlifeofthepolicies.Theprojectedcashflowsaredeterminedbasedon
pastperformanceandmanagement'sexpectationsformarketdevelopmentswithaterminalgrowthrateof2%
(2016: 2%).
28

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
17
PROPERTY, PLANT AND EQUIPMENT
$ thousands
Land and
buildings
Office
equipment and
furnitureMotor vehicles
Computer
equipment
Total
For the Year Ended 30 September 2017
Cost
Opening balance
2,710 7,481 1,277 14,038 25,506
Additions
- 291 69 754 1,114
Revaluations
247 - - - 247
Disposals
(27)(74)(231)(19)(351)
Foreign exchange movements
29 17 7 (9)44
Closing balance
2,9597,715 1,122 14,76426,560
Accumulated depreciation
Opening balance
- (2,004)(930)(13,061)(15,995)
Depreciation
- (928)(93)(1,011)(2,032)
Disposals
- 57 188 16 261
Foreign exchange movements
- (5)(2)(7)(14)
Closing balance
-(2,880)(837)(14,063)(17,780)
Closing balance
Cost / revaluation
2,959 7,715 1,122 14,764 26,560
Accumulated depreciation
- (2,880)(837)(14,063)(17,780)
Net book value
2,959 4,835 285 701 8,780
For the Year Ended 30 September 2016
Cost
Opening balance
2,754 6,749 1,396 13,597 24,496
Additions
- 1,182 203 619 2,004
Revaluations
181 - - - 181
Disposals
- (85)(122)(33)(240)
Foreign exchange movements
(225)(365)(200)(145)(935)
Closing balance
2,7107,481 1,277 14,03825,506
Accumulated depreciation
Opening balance
- (1,513)(1,022)(11,740)(14,275)
Depreciation
- (840)(170)(1,428)(2,438)
Disposals
- 82 124 7 213
Foreign exchange movements
- 267 138 100 505
Closing balance
-(2,004)(930)(13,061)(15,995)
Closing balance
Cost / revaluation
2,710 7,481 1,277 14,038 25,506
Accumulated depreciation
- (2,004)(930)(13,061)(15,995)
Net book value
2,710 5,477 347 977 9,511
29

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
17PROPERTY, PLANT AND EQUIPMENT (continued)
Property, plant and equipment
Land and buildings
Depreciation
Computer equipment3-5 years
Furniture & fittings5-9 years
Motor Vehicles5 years
Buildings50-100 years
Leasehold property improvements3-12 years
Property,plantandequipmentisinitiallyrecordedatcostincludingtransactioncostsandsubsequentlymeasuredatcost
less any accumulated depreciation and impairment losses.
Landandbuildingsareshownatfairvalue,basedonperiodicvaluationsbyexternalindependentappraisersless
subsequentdepreciationforbuildings.Anyaccumulateddepreciationatthedateofrevaluationiseliminatedagainstthe
gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.
Depreciationiscalculatedusingthestraightlinemethodtoallocatetheassets'costorrevaluedamounts,netofany
residualamounts,overtheirusefullives.Theassets'usefullivesarereviewedandadjustedifappropriateateachbalance
date.Anasset'scarryingamountiswrittendownimmediatelytoitsrecoverableamountifitisconsideredthatthe
carrying amount is greater than its recoverable amount.
LandandbuildingsarelocatedinFijiandarestatedatfairvalue.Fairvalueisdeterminedusinganincomeapproach
wherebyfuturerentalstreamsarecapitalisedatarateappropriateforthetypeofpropertyandleasearrangement.This
valueisthenadjustedtotakeintoaccountrecentmarketactivity.Valuationwasperformedasat30August2017byRolle
Associates,registeredvaluersinFiji.Therehasbeennomaterialmovementinthevaluationbetween30August2017
and30September2017.InputstothevaluationoftheFijipropertyareconsideredtobebasedonnon-observablemarket
data,thusclassifiedaslevel3inthefairvaluehierarchy.Inputsincludegrossrentalspersquaremeterofsimilarproperty
in the Suva area, recent comparable sales of commercial property in Suva and a capitalisation rate of 7.0% (2016: 7.0%).
Hadlandandbuildingsbeenrecognisedunderthecostmodelthecarryingamountwouldhavebeen$1,145,000(2016:
$1,145,000).Therevaluationsurplusfortheperiodisrecordedinothercomprehensiveincomeandhasnorestrictionson
the distribution of the balance to shareholders.
30

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
18PAYABLES
$ thousandsNote20172016
Trade payables
16,479 16,125
Reinsurance payables
4,063 4,445
Payable to other insurers
2,590 2,798
Other payables
27,992 26,132
Total payables
51,12449,500
Analysed as:
Current
51,124 49,500
Non current
- -
Total payables
51,124 49,500
19PROVISIONS
$ thousandsNote20172016
Employee benefits
5,773 4,177
Total provisions
5,7734,177
Analysed as:
Current
5,592 4,037
Non current
181 140
Total provisions
5,773 4,177
Provisionismadeforemployeeentitlementsforservicesrendereduptothebalancedate.Thisincludessalaries,wages,
bonuses,annualleaveandlongserviceleave.Liabilitiesarisinginrespectofemployeeentitlementsexpectedtobe
settledwithin12monthsofthereportingdatearemeasuredattheirnominalamounts.Allotheremployeeentitlements
aremeasuredatthepresentvalueoftheestimatedfuturecashoutflowstobemadeinrespectofservicesprovidedupto
thebalancedate.Indeterminingthepresentvalueoffuturecashoutflows,discountratesusedarebasedontheinterest
rates attaching to government securities which have terms to maturity approximating the terms of the related liability.
TheseamountsrepresentliabilitiesforgoodsandservicesprovidedtotheGrouppriortotheendofthefinancialyear
whichareunsettled.Payablesarerecognisedinitiallyatfairvaluelesstransactioncostsandsubsequentlymeasuredat
amortised cost using the effective interest method.
TowerInsuranceisapartytotheSharedPropertyProcess–InsurerContract(SPP)whichsetsoutobligationsfor
insurersandappointsaleadinsurertoactonbehalfofotherinsurerswithrespecttotherepairandrebuildofshared
properties(knownasmulti-units).Asleadinsureronmulti-unitrepairsorrebuilds,TowerInsurancereceivescashfrom
otherinsurancecompaniesassettlementoftheirobligationsunderbuildingcontractscoveredwithintheSPP.Tower
InsurancehasrecordedamountsreceivedfromotherinsurersasaPayable,recognisingthesefundsarerestrictedinuse.
FundscanonlybeappliedtotherebuildorrepairofpropertieswithintheSPPthatTowerInsuranceisleadinsurerfor.
Tower Insurance holds this cash on behalf of other insurers in a segregated bank account.
At30September2017therewas$2.6million(2016:$2.8million)recordedwithinPayablesasfundsheldonbehalfof
otherinsurersinrespectofSPPclaims.ReferalsotoNote12forfurtherdetailsoncashheldinrespectofmulti-unit
claims as lead insurer.
ProvisionsareonlyrecognisedwhentheGrouphasapresentlegalorconstructiveobligationasaresultofapastevent
ordecision,anditismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation.Provisions
are recognised as the best estimate of future cash flows discounted to present value where the effect is material.
31

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
20INSURANCE LIABILITIES
$ thousandsNote20172016
Unearned premiums
154,848 150,807
Outstanding claims
171,156 210,202
Additional risk margin
10,000 -
Total insurance liabilities
336,004 361,009
Analysed as
Current
297,190 291,845
Non current
38,814 69,164
Total insurance liabilities
336,004 361,009
Opening balance150,807 155,677
Premiums written
296,855 288,537
Premiums earned
(292,153)(293,911)
Foreign exchange movements
(661)504
Closing balance
154,848 150,807
21DISTRIBUTIONS TO SHAREHOLDERS
DIVIDEND PAYMENTS
RETURN OF CAPITAL
The table below includes the reconciliation of the unearned premiums as at the reporting date:
Outstandingclaimsaremeasuredatthecentralestimateofthepresentvalueofexpectedfuturepaymentsafterallowing
forinflationanddiscountedattheriskfreerate.Inadditionariskmarginisaddedtotheclaimsprovisiontorecognisethe
inherent uncertainty of the central estimate and to ensure provision is at least at 75% probability of sufficiency.
There were no Tower Limited dividend payments during the year ended 30 September 2017.
In 2015 the Company commenced on market share buyback of up to $34 million. Capital of $2.4 million was bought back
in the half year to 31 March 2016.
Theexpectedfuturepaymentsincludethoseinrelationtoclaimsreportedbutnotyetpaid,claimsincurredbutnotyet
reported(IBNR),claimsincurredbutnotenoughreported(IBNER)andanticipatedclaimshandlingcosts.Claimshandling
costsincludecoststhatcanbeassociateddirectlywithindividualclaims,suchaslegalandotherprofessionalfees,and
costs that can only be indirectly associated with individual claims, such as claims administration costs.
Provision has been made for the estimate of claim recoveries from third parties.
Liabilityadequacytestingisperformedinordertorecogniseanydeficienciesintheincomestatementarisingfromthe
carryingamountoftheunearnedpremiumliabilitylessanyrelateddeferredacquisitioncostsandintangibleassetsnot
meetingtheestimatedfutureclaimsundercurrentinsuranceconditions.Liabilityadequacytestingisperformedata
portfolio level of contracts that are subject to broadly similar risks and are managed together as a single portfolio.
Thefinaldividendforthe2015financialyearof7.5centspersharewaspaidon3February2016.Thetotalamountpaid
was$12,687,553.TherewerenoimputationcreditsattachedtothedividendandtheDividendReinvestmentPlanwasnot
offered.
On24May2016theDirectorsannouncedthevoluntaryon-marketsharebuybackwouldstopwithimmediateeffect.
Consequently there was no on-market share buyback during the year ended 30 September 2017.
Theinterimdividendforthe2016financialyearof8.5centspersharewaspaidon30June2016.Thetotalamountpaid
was$14,336,340.TherewerenoimputationcreditsattachedtothedividendandtheDividendReinvestmentPlanwasnot
offered.
There was no return of capital during the year ended 30 September 2017.
Refer to Note 8 for further details on the additional risk margin.
32

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
22BORROWINGS
$ thousands
Currency
Interest
Rate
Rollover Date
(drawn) /
Maturity Date
(undrawn)Face Value
Unamortised
CostsCarrying ValueFair Value
As at 30 September 2017
Bank facilities (drawn)NZD4.505%13-Nov-17
30,000 (79)29,921 29,921
Bank facilities (undrawn)NZDVariable9-Sep-19
20,000 - - -
Total borrowings
(79)29,921 29,921
As at 30 September 2016
Bank facilities (undrawn)NZDVariable9-Sep-19
50,000 - - -
Total borrowings
- - -
$ thousandsNote20172016
Analysed as
Current
29,921 -
Non current
- -
Total borrowings
29,921 -
STANDBY CREDIT FACILITY
COVENANTS
Feespaidontheestablishmentofloanfacilitiesarerecognisedastransactioncostsoftheloantotheextentthatitis
probablethatsomeorallofthefacilitywillbedrawndown.Thefeeiscapitalisedasapre-paymentforliquidity
services and amortised over the period of the facility to which it relates.
TheCompanyenteredintoacashadvancefacilitywithBankofNewZealandon7September2016.Thefacility
providesforanamountofupto$50.0millionthatcanbedrawnforgeneralcorporatepurposesoverathreeyearterm
and is subject to normal terms and conditions for a facility of this nature, including financial covenants.
InMay2017,theCompanyutilisedthecashadvancefacilityagreement.Anamountof$30.0millionwasdrawn(from
the available $50.0 million). Funds were used for new share capital within Tower Insurance Limited.
Allborrowingsareunsecuredandaresubjecttovariousfinancialcovenants.TheCompanyhasfullycompliedwithall
covenants during the year ended 30 September 2017.
Borrowingsarerecognisedinitiallyatfairvalue,netoftransactioncostsincurred.Subsequenttoinitialrecognition,
borrowingsaremeasuredatamortisedcostwithanydifferencebetweentheinitialrecognisedamountandthe
redemptionvaluebeingrecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffective
interest method.
33

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
23CONTRIBUTED EQUITY
$ thousands20172016
Ordinary share capital (fully paid)382,172 382,172
Total contributed equity382,172 382,172
Represented by:
Number of shares20172016
Ordinary shares (issued and fully paid)168,662,150 168,662,150
Movement in ordinary shares:
Opening balance168,662,150 169,983,470
Buyback of share capital
- (1,321,320)
Closing balance
168,662,150 168,662,150
24RESERVES
$ thousandsNote20172016
Foreign currency translation reserve (FCTR)
Opening balance(4,443)791
Currency translation differences arising during the year100 (5,234)
Closing balance(4,343)(4,443)
Separation Reserve
Opening balance(113,000)(113,000)
Closing balance(113,000)(113,000)
Asset revaluation reserve
Opening balance671 513
Gain on revaluation, net of deferred tax218 158
Closing balance889 671
Total reserves(116,454)(116,772)
OrdinarysharesissuedbytheGroupareclassifiedasequityandarerecognisedatfairvaluelessdirectissuecosts.All
shares rank equally with one vote attached to each share. There is no par value for each share.
Exchangedifferencesarisingontranslationofforeigncontrolledentitiesandnetinvestmentofaforeignentityaretakento
theforeigncurrencytranslationreserveasdescribedinNote1.Thereserveisrecognisedinprofitandlosswhenthenet
investment is disposed.
The asset revaluation reserve is used to recognise unrealised gains on the value of land and buildings above initial cost.
Theseparationreservewascreatedin2007atthetimeofthedemergeroftheNewZealandandAustralianbusinessesin
accordancewitharulingprovidedbytheAustralianTaxOffice(ATO).Itwillbecarriedforwardindefinitelyasanon-equity
reserve to meet the requirements of the ATO.
34

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
25NET ASSETS PER SHARE
$ dollars20172016
Net assets per share1.28 1.33
Net tangible assets per share0.90 0.96
$ thousands20172016
Net assets215,744 223,952
Less: deferred tax(32,405)(29,370)
Less: intangible assets(31,334)(31,982)
Net tangible assets152,005 162,600
26EARNINGS PER SHARE
There was no dilutive impact on basic earnings per share for 2017 (2016: nil).
$ thousands20172016
Loss attributable to shareholders(8,461)(22,328)
Number of shares20172016
168,662,150 169,069,382
Cents20172016
Basic and diluted (loss) earnings per share(5.02)(13.21)
Net assets per share represent the value of the Group’s total net assets divided by the number of ordinary shares on issue
attheperiodend.Nettangibleassetspersharerepresentthenetassetspershareadjustedfortheeffectofintangible
assets and deferred tax balances.
Weightedaveragenumberofordinarysharesforbasicanddilutedearningsper
share
Reconciliation to net tangible assets is provided below:
BasicearningspershareiscalculatedbydividingthenetprofitattributedtoshareholdersoftheCompany,excludingany
costsofservicingequityotherthanordinaryshares,bytheweightedaveragenumberofordinarysharesoutstanding
during the year.
DilutedearningspershareiscalculatedbydividingthenetprofitattributedtoshareholdersoftheCompanybythe
weightedaveragenumberofordinarysharesonissueduringtheyearadjustedfortheweightedaveragenumberof
ordinary shares that would be issued on the conversion of all the dilutive potential ordinary shares into ordinary shares.
35

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE
27ANET CLAIMS EXPENSE
$ thousands
Risks borne in
current year
Risks borne in
prior yearsTotal
Risks borne in
current year
Risks borne in
prior yearsTotal
Gross claims expense
Direct claims - undiscounted171,160 46,316 217,476 148,710 91,358 240,068
Movement in discount43 28 71 53 17 70
Total gross claims expense171,203 46,344 217,547 148,763 91,375 240,138
Reinsurance and other recoveries
(16,640)(13,354)(29,994)(12,094)(42,428)(54,522)
Movement in discount(1)(1)(2)(3)(1)(4)
Total reinsurance recoveries(16,641)(13,355)(29,996)(12,097)(42,429)(54,526)
Net claims expense154,562 32,989 187,551 136,666 48,946 185,612
27BOUTSTANDING CLAIMS
(a)Assumptions adopted in calculation of insurance liabilities
Rick Shaw, B.Sc. (Hons), FIAA, Appointed Actuary; and
Peter Davies, B.Bus.Sc, FIA, FNZSA.
Inflation rates varied from
Inflation rates for succeeding year
Inflation rates for following years
Discount rates varied from
Discount rates for succeeding year
Discount rates for following years
Claims handling expense ratio
Risk margin
2016
4.9% - 23.1%6.3% - 21.8%
Inadditiontotheriskmarginrangeshownabove,thetotalriskmarginalsoincludes$23,900,000,grossofreinsurance
(2016: $17,700,000) associated with the Canterbury earthquakes.
0.0% - 6.3%0.0% - 6.3%
0.0% - 6.3%0.0% - 6.3%
0.0% - 6.3%0.0% - 6.3%
20172016
Reinsurance and other recoveries -
undiscounted
Currentyearamountsrelatetorisksborneinthecurrentfinancialyear.Priorperiodamountsrelatetoareassessmentof
therisksborneinallpreviousfinancialyearsincludingthosearisingduetotheCanterburyearthquakes.RefertoNotes7
and 8.
3.1% - 39.1%0.0% - 56.4%
0.0% - 3.8%0.0% - 3.8%
0.0% - 3.8%0.0% - 3.8%
0.0% - 3.8%0.0% - 3.8%
The estimation of outstanding claims as at 30 September 2017 has been carried out by the following Actuaries:
TheNewZealandactuarialassessmentsareundertakeninaccordancewiththestandardsoftheNewZealandSocietyof
Actuaries,inparticularProfessionalStandardNo.30"ValuationsofGeneralInsuranceClaims".TheActuarieswere
satisfiedastothenature,sufficiencyandaccuracyofthedatausedtodeterminetheoutstandingclaimsliability.The
outstandingclaimsliabilityissetbytheActuariesatalevelthatisappropriateandsustainabletocovertheGroup'sclaims
obligations after having regard to the prevailing market environment and prudent industry practice.
The following assumptions have been made in determining net outstanding claims liabilities:
2017
36

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE (continued)
Short tail claims within 1 year
Long tail claims in the Pacific Islands
Inwards reinsurance
Inflation rate
Discount rate
EQC recoveries
Apportionment
Claims handling expense
Risk margin
0.9 to 1.8 years
Theweightedaverageexpectedtermtosettlementofoutstandingclaims(exceptforCanterburyearthquakeclaims)based
on historical trends is:
Insurancecostsaresubjecttoinflationarypressures.Inflationassumptionsforallclassesofbusinessarebasedoncurrent
economic indicators for the relevant country.
Formotorandpropertyclasses,forexample,claimcostsarerelatedtotheinflationarypressuresofthematerialsand
goodsinsuredaswellaslabourcoststoeffectrepairs.Thesecostsareexpectedtoincreaseatalevelbetween
appropriate Consumer Price Index (CPI) indices and wage inflation.
Outstandingclaimliabilitiesarediscountedtopresentvalueusingariskfreeraterelevanttothetermoftheliabilityandthe
jurisdiction.
greater than 10 yearsgreater than 10 years
20172016
within 1 yearwithin 1 year
1.0 to 1.8 years
Riskmarginsarecalculatedbyjurisdiction.Theriskmarginforallclasseswhenaggregatedislessthanthesumofthe
individualriskmargins.Thisreflectsthebenefitofdiversification.Themeasureoftheparameterusedtoderivethe
diversificationbenefitisreferredtoascorrelation,whichisadoptedwithregardtoindustryanalysis,historicalexperience
and actuarial judgement.
Theriskmarginsappliedtofutureclaimspaymentsaredeterminedwiththeobjectiveofachieving75%probabilityof
sufficiency for both the outstanding claims liability and the unexpired risk liability.
For each claim to which additional EQC recoveries relate, Tower has allocated recoverable amounts according to the
quality of information and evidence available. Claims with primary evidence (e.g. independent expert documentation) have
been assessed as having a strong position for recovery. Claims with non-primary evidence (e.g. general documentation
like post code analysis or adjacent locations) will have a lower likelihood of recovery.
TowerassessesclaimsandapportionsdamagebetweenCanterburyearthquakeeventsonanindividualpropertybasis.
Theallocationprocessusesahierarchicalapproachbasedontherelativequalityandnumberofclaimassessments
completedaftereachofthefourmainearthquakes.Resultsfromthehierarchicalapproachareusedasaninputtothe
actuarial valuations which estimate the ultimate claims costs.
Theestimateofoutstandingclaimliabilitiesincorporatesanallowanceforthefuturecostofadministeringtheclaims.This
allowance is determined after analysing historical claim related expenses incurred by the classes of business.
Theoutstandingclaimliabilitiesalsoincludeariskmarginthatrelatestotheinherentuncertaintyinthecentralestimateof
the future payments.
Riskmarginsaredeterminedonabasisthatreflectsthebusiness.Regardisgiventotherobustnessofthevaluation
models,thereliabilityandvolumeofavailabledata,pastexperienceoftheinsurerandtheindustry,andthecharacteristics
of the classes of business written.
Uncertaintyinclaimsisrepresentedasavolatilitymeasureinrelationtothecentralestimate.Thevolatilitymeasureis
derivedafterconsiderationofstatisticalmodellingandbenchmarkingtoindustryanalysis.Themeasureofthevolatilityis
referredtoasthecoefficientofvariation(CoV),definedasthestandarddeviationofthedistributionoffuturecashflows
divided by the mean.
37

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE (continued)
The following analysis is in respect of the insurance liabilities:
$ thousandsNote20172016
133,898 129,058
Risk margin27,885 14,663
Claims handling costs3,914 4,177
165,697 147,898
Discount(270)(201)
Net outstanding claims165,427 147,697
Reconciliation of movements in discounted outstanding claim liabilities
$ thousands
GrossReinsuranceNet
GrossReinsuranceNet
Balance brought forward210,202 (62,505)147,697 220,200 (65,914)154,286
(553)98 (455)699 3 702
217,547 (29,996)187,551 240,138 (54,526)185,612
(246,040)76,674 (169,366)(250,835)57,932 (192,903)
Total outstanding claims181,156 (15,729)165,427 210,202 (62,505)147,697
Reconciliation of movements in undiscounted claims to outstanding claim liabilities
$ thousands
GrossReinsuranceNet
GrossReinsuranceNet
1,968 (367)1,601 1,731 (90)1,641
Discount60 - 60 (13)2 (11)
Outstanding claims2,028 (367)1,661 1,718 (88)1,630
Short tail outstanding claims163,766 146,067
Total outstanding claims165,427 147,697
(b)Sensitivity analysis
Centralestimateofexpectedpresentvalueoffuturepayments
for claims incurred
TheGroup'sinsurancebusinessisgenerallyshorttailinnature.Keysensitivitiesrelatetothevolumeofclaims,inparticular
for significant events such as earthquakes or extreme weather.
TheGrouphasexposuretohistoricalinwardsreinsurancebusinesswhichisinrunoff.Whilethisbusinessisnotmaterial,it
issensitivetoclaimsexperience,timingofclaimsandchangesinassumptions.Movementinthesevariablesdoesnot
have a material impact on the performance and equity of the Group.
20172016
Effect of change in foreign
exchange rates
Incurred claims recognised in the
income statement
Claim (payment) recoveries during
the year
Outstanding claims undiscounted
20172016
38

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE (continued)
(c)Future net cash out flows
$ thousandsNote20172016
Expected claim payments
50,622 39,580
3 to 6 months32,137 22,255
6 to 12 months43,064 19,234
After 12 months39,604 66,628
Total outstanding claim liabilities165,427 147,697
27CRISK MANAGEMENT POLICIES AND PROCEDURES
(a)Objectives in managing risks arising from insurance contracts and policies for mitigating those risks
-
-
-
(b)Concentration of insurance risk
RiskSource of concentrationRisk management measures
the use of reinsurance to limit the Group's exposure to individual catastrophic risks.
The following table shows the expected run-off pattern of net outstanding claims:
Within 3 months
An accumulation of risks arising from
a natural peril
Insured property concentrations Accumulation risk modelling, reinsurance
protection
A large property lossFire or collapse affecting one building
or a group of adjacent buildings
Maximum acceptance limits, property risk
grading, reinsurance protection
Thefinancialconditionandoperationsoftheinsurancebusinessareaffectedbyanumberofkeyrisksincludinginsurance
risk,interestraterisk,currencyrisk,marketrisk,financialrisk,compliancerisk,fiscalriskandoperationalrisk,(refertoNote
29). Notes on the policies and procedures employed in managing these risks in the insurance business are set out below.
Theriskmanagementactivitiesincludeprudentunderwriting,pricing,andmanagementofrisk,togetherwithclaims
management,reservingandinvestmentmanagement.Theobjectiveofthesedisciplinesistoenhancethefinancial
performanceoftheinsuranceoperationsandtoensuresoundbusinesspracticesareinplaceforunderwritingrisksand
claims management.
The key policies in place to mitigate risks arising from writing insurance contracts include:
comprehensivemanagementinformationsystemsandactuarialmodelsusinghistoricalinformationtocalculate
premiums and monitor claims;
monitoring natural disasters such as earthquakes, floods, storms and other catastrophes using models; and
39

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE (continued)
(c)Development of claims
Ultimate claims cost estimatePrior2013
2014201520162017
Total
At end of incident year113,839 123,816 138,878 137,220 154,562
One year later117,277 124,667 138,720 145,970
Two years later116,819 125,502 138,851
Three years later117,862 125,408
Four years later142,015
142,015 125,408 138,851 145,970 154,562
Cumulative payments
(141,740)(125,125)(138,094)(139,064)(119,644)
90,759 275 283 757 6,906 34,918 133,898
Discount to present value(3)(3)(11)(8)(19)(226)(270)
Discounted central estimate90,756 272 272 749 6,887 34,692 133,628
Claims handling expense3,914
Risk margin27,885
Net outstanding claim liabilities165,427
15,729
Gross outstanding claim liabilities181,156
27DLIABILITY ADEQUACY TEST
%
Central estimate claim % of premium
Risk margin
Liabilityadequacytestsareperformedtodeterminewhethertheunearnedpremiumliabilityissufficienttocoverthe
presentvalueoftheexpectedcashflowsarisingfromrightsandobligationsundercurrentinsurancecontracts,plus
anadditionalriskmargintoreflecttheinherentuncertaintyinthecentralestimate.Thefuturecashflowsarefuture
claims, associated claims handling costs and other administration costs relating to the business.
Iftheunearnedpremiumliabilitylessrelateddeferredacquisitioncostsexceedsthepresentvalueofexpected
futurecashflowsplusadditionalriskmarginthentheunearnedpremiumliabilityisdeemedtobeadequate.The
riskmarginsappliedtofutureclaimsweredeterminedwiththeobjectiveofachievingatleast75%probabilityof
sufficiencyoftheunexpiredriskliabilityusingthemethodologydescribedabove.Theunearnedpremiumliabilities
as at 30 September 2017 were sufficient (2016: sufficient).
Thefollowingtableshowsthedevelopmentofnetoutstandingclaimsrelativetothecurrentestimateofultimate
claims costs for the five most recent years:
$ thousands
Current estimate of ultimate
claims cost
Undiscounted central estimate
Reinsurance recoveries on
outstanding claim liabilities and
other recoveries
20172016
41.2%45.3%
12.0%9.3%
40

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
27INSURANCE BUSINESS DISCLOSURE (continued)
27EINSURER FINANCIAL STRENGTH RATING
27FREINSURANCE PROGRAMME
27GSOLVENCY REQUIREMENTS
UnauditedUnauditedAuditedAudited
$ thousands2017201620172016
Actual solvency capital149,317 120,684 166,823 140,827
Minimum solvency capital61,387 56,350 70,545 67,047
Solvency margin87,930 64,334 96,278 73,780
Solvency ratio243%214%236%210%
27H
ThemethodologyandbasesfordeterminingthesolvencymarginareinaccordancewiththerequirementsoftheSolvency
Standard for Non-life Insurance Business published by the Reserve Bank of New Zealand.
ASSETS BACKING INSURANCE BUSINESS
TheGrouphasdeterminedthatallassetswithinitsinsurancecompaniesareheldtobackinsuranceliabilities,withthe
exception of property, plant and equipment and investments in operating subsidiaries.
Assetsbackinginsuranceliabilitiesaremanagedinaccordancewithapprovedinvestmentmandateagreementsonafair
value basis and are reported to the Board on this basis.
TowerInsuranceLimitedhasaninsurerfinancialstrengthratingof‘A-’(Excellent)issuedbyinternationalratingagency
AM Best Company Inc. with an effective date of 16 August 2017.
Reinsuranceprogrammesarestructuredtoadequatelyprotectthesolvencyandcapitalpositionsoftheinsurance
business.TheadequacyofreinsurancecoverismodelledbyassessingTower'sexposureunderarangeofscenarios.
TheplausiblescenariothathasthemostfinancialsignificanceforTowerisamajorWellingtonearthquake.Eachyear,as
partofsettingthecomingyear'sreinsurancecover,comprehensivemodellingoftheeventprobabilityandamountofthe
Group's exposure is undertaken.
TheminimumsolvencycapitalrequiredtomeetsolvencyrequirementsundertheInsurance(PrudentialSupervision)Act
2010isshownbelow.ActualsolvencycapitalexceedstheminimumsolvencycapitalrequirementforTowerInsurance
Group by $96.3 million (2016: $73.8 million) and Tower Insurance parent by $87.9 million (2016: $64.3 million).
TheReserveBankofNewZealandimposedaconditionoflicenserequirementforTowerInsuranceLimitedtomaintaina
minimumsolvencymarginof$50.0million.ThisminimumsolvencyrequirementcontinuestobearequirementforTower
Insurance Limited.
Tower Insurance LimitedTower Insurance Limited Group
41

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
28FINANCIAL INSTRUMENTS
28AFINANCIAL INSTRUMENT CATEGORIES
(iii) Financial assets and liabilities at fair value through profit or loss
Financialassetsarederecognisedwhentherightstoreceivecashflowsfromtheinvestmentshaveexpiredorhavebeen
transferred and the Group has transferred substantially all risks and rewards of ownership.
(i) Loans and receivables
(ii) Financial liabilities at amortised cost
(iv) Fair value
(v) Offsetting financial instruments
TheGroupclassifiesitsfinancialassetsandliabilitiesinthefollowingcategories:atfairvaluethroughprofitorloss;loans
andreceivables;andliabilitiesatamortisedcost.Theclassificationdependsonthepurposeforwhichthefinancial
assetsandliabilitieswereacquired.Managementdeterminestheclassificationofitsfinancialassetsandliabilitiesat
initial recognition.
Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedonan
activemarket.TheGroup'sloansandreceivablescomprisetradeandotherreceivablesandcashandcashequivalents
inthebalancesheet.Loansandreceivablesaremeasuredinitiallyatfairvalueplustransactioncostsandsubsequently
at amortised cost using the effective interest method less any impairment.
(vi) Derecognition
Financialliabilitiesatamortisedcostarenon-derivativefinancialliabilitieswithfixedordeterminablepaymentsthatare
notquotedonanactivemarket.TheGroup'sfinancialliabilitiescomprisetrade,reinsuranceandotherpayablesinthe
balancesheet.Financialliabilitiesaremeasuredinitiallyatfairvalueplustransactioncostsandsubsequentlyat
amortised cost less any impairment.
Financialassetsandliabilitiesatfairvaluethroughprofitorlosscompriseoffinancialassetsthatareeitherheldfor
tradingordesignatedoninitialrecognitionatfairvaluethroughprofitorloss.Afinancialassetisclassifiedinthis
categoryifacquiredprincipallyforthepurposeofsellingintheshort-termorifsodesignatedbymanagement.
Designationbymanagementtakesplacewhenitisnecessarytoeliminateorsignificantlyreducemeasurementor
recognition inconsistencies or if related financial assets or liabilities are managed and evaluated on a fair value basis.
Financialassetsatfairvaluethroughprofitorlossarestatedatfairvalue,withanyresultantgainorlossrecognisedin
theincomestatements.Thenetgainorlossrecognisedintheincomestatementsincludesanydividendorinterest
earned on the financial assets.
Derivativesarecategorisedasheldfortradingunlesstheyaredesignatedashedges.Allderivativesenteredintobythe
Group are classified as held for trading.
Financialassetsandliabilitiesaremeasuredinthebalancesheetatfairvaluewiththeexceptionofshorttermamounts
which are held at a reasonable approximation of fair value.
Financialassetsandliabilitiesareoffsetandthenetamountreportedinthebalancesheetwhenthereisalegally
enforceablerighttooffsettherecognisedamountsandthereisanintentiontosettleonanetbasisorrealisetheasset
and settle the liability simultaneously.
TheGroupdoesnotholdfinancialassetsandfinancialliabilitiessubjecttooffsettingarrangementsotherthancashand
cash equivalents. Refer to Note 12.
42

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
28FINANCIAL INSTRUMENTS (continued)
$ thousandsNoteTotal
Loans and
receivables
Financial
liabilities
Designated
Held for trading
As at 30 September 2017
Assets
Cash and cash equivalents102,876 102,876 - - -
Trade and other receivables257,964 257,964 - - -
Investments167,702 - - 167,702 -
Derivative assets231 - - 231 -
Total financial assets
528,773 360,840 - 167,933 -
Liabilities
Trade and other payables25,814 - 25,814 - -
Borrowings29,921 - 29,921 - -
Total financial liabilities
55,735 - 55,735 - -
$ thousandsNoteTotal
Loans and
receivables
Financial
liabilities
DesignatedHeld for trading
As at 30 September 2016
Assets
Cash and cash equivalents92,228 92,228 - - -
Trade and other receivables253,115 253,115 - - -
Investments
188,522 - - 188,522 -
Derivative assets
57 - - 57 -
Total financial assets
533,922 345,343 - 188,579 -
Liabilities
Trade and other payables26,532 - 26,532 - -
Derivative financial liabilities735 - - 735 -
Total financial liabilities
27,267 - 26,532 735 -
The analysis of financial assets and liabilities into their categories and classes is set out in the following tables:
At amortised costAt fair value through profit or loss
At amortised costAt fair value through profit or loss
43

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
28FINANCIAL INSTRUMENTS (continued)
28BFAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
(iv) Derivative financial liabilities and assets
Thefairvalueofderivativefinancialliabilitiesandassetsisdeterminedbyreferencetomarketacceptedvaluation
techniquesusingobservablemarketinputs.Therehavebeennotransfersbetweenlevelsofthefairvaluehierarchy
during the current financial period (30 September 2016: nil).
- The fair value of fixed interest securities is based on the maturity profile and price/yield.
-Thefairvalueofforwardforeignexchangecontractsisdeterminedusingforwardexchangeratesatthebalancesheet
date, with the resulting value discounted back to present value.
-Othertechniques,suchasdiscountedcashflowanalysis,areusedtodeterminefairvaluefortheremainingfinancial
instruments.
Ifoneormoreofthesignificantinputsisnotbasedonobservablemarketdata,theinstrumentisincludedinLevel3.At
30September2017,theLevel3categoryincludedaninvestmentinequitysecuritiesof$1,412,000(2016:$1,406,000).
TheseinvestmentsareinunlistedsharesofacompanywhichprovidesreinsurancetoTowerandacompanywhichowns
abuildingusedbyTower.Thefairvalueiscalculatedbasedonthenetassetsofthecompanyfromthemostrecently
availablefinancialinformation.Inthecaseofthepropertyowningcompany,thepropertyisperiodicallyvaluedbyathird
partyindependentvaluer.ThevaluationhasbeencalculatedusingtheIncomeCapitalisationApproachandasensitivity
analysis has been performed later in this note.
(iii) Loans and receivables and other financial liabilities held at amortised cost
Carryingvaluesofloansandreceivables,adjustedforimpairmentvalues,andcarryingvaluesofotherfinancialliabilities
held at amortised cost reasonably approximate their fair values.
Thefairvalueoffinancialinstrumentsthatarenottradedinanactivemarket(forexample,over-the-counterderivatives)
isdeterminedbyusingvaluationtechniques.Thesevaluationtechniquesmaximisetheuseofobservablemarketdata
whereitisavailableandrelyaslittleaspossibleonentityspecificestimates.Ifallsignificantinputsrequiredtofairvalue
an instrument are observable, the instrument is included in Level 2. The following fair value measurements are used:
Fairvalueisthepricethatwouldbereceivedtosellanasset,orpaidtotransferaliability,inanorderlytransaction
betweenmarketparticipantsatthemeasurementdate.Referbelowfordetailsofvaluationmethodsandassumptions
used by Tower for each category of financial assets and liabilities.
(i) Cash and cash equivalents
The carrying amount of cash and cash equivalents reasonably approximates its fair value.
(ii) Financial assets at fair value through profit or loss and held for trading
Thefairvalueoffinancialinstrumentstradedinactivemarketsisbasedonquotedmarketpricesatthebalancesheet
date.Amarketisregardedasactiveifquotedpricesarereadilyandregularlyavailablefromanexchange,dealer,
broker,industrygroup,pricingservice,orregulatoryagency,andthosepricesrepresentactualandregularlyoccurring
markettransactionsonanarm’slengthbasis.ThequotedmarketpriceusedforfinancialassetsheldbytheGroupisthe
current bid price. These instruments are included in Level 1.
44

TOWER LIMITED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2017
NOTES TO THE FINANCIAL STATEMENTS
28FINANCIAL INSTRUMENTS (continued)
$ thousandsNoteTotalLevel 1Level 2Level 3
As at 30 September 2017
Assets
Investment in equity securities1,412 - - 1,412
Investments in fixed interest securities166,256 - 166,256 -
Investments in property securities34 - 34 -
Investments167,702 - 166,290 1,412
Derivative financial assets231 - 231 -
Total financial assets
167,933 - 166,521 1,412
Liabilities
Borrowings29,921 - 29,921 -
Total financial liabilities
29,921 - 29,921 -
As at 30 September 2016
Assets
Investment in equity securities1,406 - - 1,406
Investments in fixed interest securities187,082 - 187,082 -
Investments in property securities34 - 34 -
Investments188,522 - 187,116 1,406
Derivative financial assets
57 - 57 -
Total financial assets
188,579 - 187,173 1,406
Liabilities
Derivative financial liabilities735 - 735 -
Total financial liabilities
735 - 735 -
$ thousands20172016
Opening balance1,406 1,972
Total gains and losses recognised in profit or loss(3)(163)
Foreign currency movement9 (403)
Closing balance1,412 1,406
$ thousands
Carrying
Amount
Favourable
changes of 10%
Unfavourable
changes of 10%
As at 30 September 2017
Investment in equity securities1,412 141 (141)
As at 30 September 2016
Investment in equity securities1,406 141 (141)
Thefollowingtableshowstheimpactofincreasingordecreasingthecombinedinputsusedtodeterminethefairvalueof
the investment by 10%:
The following tables present the Group's assets and liabilities categorised by fair value measurement hierarchy levels.
Investment in equity securities
The following table represents the changes in Level 3 instruments:
45