Significant achievements over the year included a 10% increase in underlying profit to $74.5 million (2008: $68.7 million), steady growth in inforce premiums and record sales growth in individual life insurance. The successful merger with InsuranceLine, the launch of Accelerated Protection and the winning of a number of Group Life insurance mandates, including the appointment as the life insurance provider at AustralianSuper, were the key business highlights during 2009. These successes reinforce TOWER Australia's goal of ongoing leadership in our core market segments with excellence delivered by strong people capability.

The Australian life insurance market has grown strongly over the past ten years and this growth is expected to continue with inforce premium predicted to be in excess of $20 billion by 2020 ($8 billion at present). With this growth comes increasing competition. TOWER Australia is the fourth largest life insurance company in Australia. As a non-bank, independent, multi channel life insurance specialist providing life solutions both through business partners and direct to customers, we are well placed to participate in the growth and the opportunities that are arising within this sector.

TOWER Australia wants to lead the industry in educating consumers on the importance of life insurance and in developing products that are relevant to their needs and can be accessed in a way which best suits them. Our strategy is one of leadership. We aim to be a preferred business partner, recognised as innovative, responsive and informative and to be the first life insurance company in Australia to create solutions that are truly people focused.

Providing a service that benefits the wider community

TOWER Australia is passionate about what life insurance can do for people. Our aim is to make life solutions well-understood and valued and to communicate the positive role that life insurance can play in helping people embrace life's challenges. The life insurance market delivers tremendous value to Australians. Life and 'living' insurance gives people choice and dignity in times of illness and bereavement. It also performs a valuable service (and benefit) within the Australian financial services industry.

Market dynamics and regulatory impacts

Consumer trends are driving growth in the life insurance market. Growing awareness of insurance needs has seen people seeking more life insurance cover particularly 'living benefits' such as income protection and total and permanent disability cover. With this has come a demand for immediate fulfilment, easily understood products and simple underwriting. Increasingly, new channels direct to the customer are also emerging particularly through alliance partners and the internet.

The vast majority of Australians are provided life insurance cover through their superannuation funds. The Federal Government has recently legislated to allow superannuation trustees to provide intra-fund advice to their members. This is expected to assist trustees in providing members with greater access to higher levels of cover and this is welcomed by TOWER Australia.

TOWER Australia believes that financial services regulations need to be modified further to improve access to advice for people. Only 20% of Australian's have access to advice. We believe the regulation of advice is too restrictive and will continue to support a more open market as this gives customers more choice of product and stimulates competition in the life insurance market.

Financial performance and strength

TOWER Australia has delivered consistent improvements in its business operating margins in recent years and this continued in 2009 with a 28% uplift in life insurance margins. This is a very pleasing outcome in a year where investment losses arising from the global financial crisis affected returns.

A key highlight of 2009 financial results was the 30% increase in the embedded value of the business to $1.17 billion. The continued focus of the business on simplification has seen productivity benefits flow into product margins and these together with increased business volumes have been the primary contributors to the very strong embedded value growth.

Individual life insurance sales achieved record levels over the year and trends in the key business drivers of lapses, claims and expenses were generally positive and in line with our expectations. Momentum is strong across the business but management recognises the need to remain vigilant and to ensure the Company remains flexible to changing market and regulatory environment. We have a very strong risk management culture and we try and monitor and manage risks very closely.

TOWER Australia's capital position is conservative and well in excess of regulatory requirements. We have a relatively low level of debt, a gearing ratio of 23% and interest cover of 11.8 times earnings.

TOWER Australia's insurer financial strength rating from Standard and Poor's (S&P) has recently been upgraded to A, stable outlook. This ratings upgrade recognises the continued strengthening of TOWER Australia's business and competitive position, strong capital position and sustainable and more favourable earnings profile.

2009 business highlights

InsuranceLine merger

The acquisition of InsuranceLine in November 2008 and successful merger of the business with TOWER Australia has cemented our position of strength in the direct to consumer channel. It has also enabled us to begin to leverage InsuranceLine's customer management and call centre capability into our Alliances business. TOWER Australia is seeking to expand its distribution through Alliance partnerships as this is a key part of our overall strategy of making life insurance more readily available to all Australians.

Launch of Accelerated Protection

We are constantly looking at ways to simplify our complex world for advisers and customers. We have spent the last year building the next generation of life insurance product and automated processing technology which will be the single platform for our Advice channel in future. Accelerated Protection has been designed as a product and service platform that leverages the best elements of TOWER Australia's three existing product ranges with a leading edge service proposition. This was the largest single project undertaken over the year and involved many people across the business in searching for global best practice and developing and testing the proposition. Accelerated Protection was launched in November 2009 and over the next six months it will become the core life insurance offer through advisers and planners.

New group life insurance partnerships

TOWER Australia was successful in winning a number of new group life insurance mandates in 2009. This, along with strong growth in existing business, reflected our very competitive offering and leading underwriting and claims management platforms in the group life insurance market. Our appointment as the life insurance provider to AustralianSuper and its 1.4 million members effective from 1 November 2009 was a significant achievement for the business and the strategic benefits arising from this relationship will create long term value for TOWER Australia.

Continuing growth

TOWER Australia's life insurance business has consciously been structured around the changing distribution patterns in the market and how and where consumers acquire their life insurance cover. We have a diversified distribution strategy that works very well for us and have achieved a strong (top one or two) growth position in each of our three core channels to market

• Advice channel - life insurance advice and cover accessed through Independent Financial Advisers;
• Group and Workplace channel - life insurance cover accessed through group and workplace schemes; and
• Direct - life insurance sold direct to customers.

Our continuing growth and ongoing evolution is underpinned by a large commitment to innovative technology investment. TOWER Australia is changing the competitive landscape of the life insurance market and this is driving our success as we make gaining access to life insurance protection by customers and advisers that much easier.

Corporate Social Responsibility

TOWER Australia's place in the community starts with the very powerful core social purpose that life insurance delivers to Australians. Life insurance provides people with dignity and choice in times of illness and bereavement. As a company, TOWER Australia tries to be absolutely fair and customer focused in delivering benefits under the policies customers hold.

TOWER Australia sees the sustainability of its business as critical to the longer term benefit of all its stakeholders and will continue to work with this objective in mind. A programme is in place with Board and management ongoing overview to see further development in 2010 of socially responsible initiatives. This will help underpin TOWER Australia as a good corporate citizen.

People

Our people make the difference at TOWER Australia. We are a strong values-based organisation with a culture oriented around partnership, teamwork and the end customer. Our team is hugely talented and TOWER Australia's success and recognition as an industry leader helps us attract and retain the best people. The company also values and is actively encouraging diversity in its workforce.

Outlook

The priorities for TOWER Australia in 2010 are to continue to strengthen our competitive position as the leading non-bank life insurer by delivering valued products and outstanding service to our business partners and customers. We will look to grow our business in a sustainable way and by doing this successfully we will also deliver value to shareholders.

My thanks

This is the third year of business since TOWER Australia listed on the ASX. Thank you to our shareholders for your continued support. Thanks also to all our customers, business partners and advisers. We value our relationships with you all.

Jim Minto
Managing Director