Business Description:
Tower Limited (TWR) provides a comprehensive range of risk insurance and wealth management products and services to customers throughout New Zealand and the Pacific Islands. Products and services include life and general insurance, superannuation, retail managed funds and master trusts.

Strategy Analysis:
Tower seeks to grow through acquisitions in the insurance and/or investment sectors, with a target to double the size of its business, translating to an acquisition in the region of NZ$200m. Fresh capital maybe needed to fund an acquisition of that magnitude. TWR announced an unsolicited takeover offer in early October for unlisted New Zealand life insurer Fidelity Life Assurance Company (Fidelity). The proposal was rejected, lapsed and subsequently dropped by TWR. The firm also plans to improve customer satisfaction levels and drive down costs. It has been successful at reducing cost over the last few years, which is reflected in improved margins across all its businesses. This is especially true with its investments business. The next big impact of cost reduction comes from IT system upgrades. Service levels in the general insurance business have improved markedly. Claims management has improved with the strategy of assessing claims in-house as opposed to outsourcing to third party providers. TWR´s position as a default provider of KiwiSaver enables it to offer workplace benefits which combine insurance and superannuation offerings to companies and their employees. TWR is eager to participate in consolidation and is undertaking a wide ranging strategic review. TWR reported a robust result for the half, with underlying NPAT up nearly 29% to NZ$27.7m. Reported NPAT increased 5.6% to $28.1M. Group earnings benefitted from strong performances from Life & Health (up 22.5%) and General Insurance (up 26.6%). The Investments business is a much smaller contributor to Group results and suffered from tough operating conditions over the half. Tight cost control remains a key focus of the group, with management and sales expenses decreasing 5.1% compared to 1H09. The expense to income ratio improved from 76.8% in 1H09 to 66.2% in 1H10. TWR declared an interim dividend of NZ4.0cps (fully imputed), the first interim dividend since July 2002. TWR has steadily improved key business metrics despite challenging economic conditions in New Zealand. The ‘back to basics’ strategy has reinforced TWRs strong market position in the key health, life and general insurance business segments.The appraisal value of TWR increased significantly from NZ$432m in 1H09 to NZ$580m in 1H10. This was driven by Health & Life and the General Insurance businesses as well as the NZ$85m reduction in external debt. The appraisal valuations are all comfortably in excess of the company’s carrying values. The appraisal value per share currently stands at NZ$2.24, which is higher than the net asset value of NZ$1.57 per share. TWR’s gross gearing ratio is low at 16% and interest cover stands at a sound 13.2 times at 31 March 2010..