Tower financially secure: statement

Tower Ltd made a powerful statement yesterday that it was financially secure and was still interested in expanding, Craigs Investment Partners broker Peter McIntyre said.

Tower, the insurer whose cornerstone shareholder Guinness Peat Group is looking to sell its stake, has increased its premiums after facing an extra $1.7 million bill to secure reinsurance for the 2012 financial year.

The Auckland-based company would pay $6.7 million for its reinsurance programme for two catastrophe events, compared with $5 million a year earlier, it said in a statement.

The higher costs were being passed on to Tower's customers through higher premiums for its house, contents and motor policies.

Tower's forecast earnings range of between $22 million and $28 million remained unchanged, and it said it met solvency requirements under the Reserve Bank's new prudential supervision regime.

Mr McIntyre said some insurance companies had been struggling to secure reinsurance and other insurers had left New Zealand, which was a concern.

"Tower has been intent on getting the good news out there and I think it is a sign it is saying it is still interested in parts of AMI."

The insurer previously said it was looking for growth opportunities, and had shown interest in buying rival AMI after the Christchurch-based insurer was forced to ask the Government for a bail-out after the February earthquake, he said.

The Government had underwritten AMI by $500 million but would not want to keep the underwriting in place forever.

AMI had not called on the Government's financial support and Treasury had been working with the AMI board on securing new private capital for the company.

There would be good synergy between parts of AMI's business and Tower, Mr McIntyre said.

However, the cost of insurance was already soaring for customers as their policies came up for review. Some insurers were becoming selective and refusing to insure some people.

There were some historic buildings that could not get insurance, leaving banks in a difficult position with mortgages over those uninsured buildings.

The insurance industry was probably in for some restructuring soon, Mr McIntyre said.

Business Desk reported that last year Tower made noises about a potential hostile takeover of Fidelity Life Assurance Ltd.

In August, Tower's chairman, Tony Gibbs, resigned from the board, ending his five-year tenure that began when the Australasian businesses were separated.

He had acted as GPG's representative until last year, when he fell out with the investment company's board over its plan to carve itself up along regional lines.

GPG has since installed former Westpac Institutional Bank chief Mike Allen to the Tower board, as it looks for ways to exit its holdings.

Because GPG owns more than 20% of Tower, any sale would demand either a full takeover offer or an exemption from the Takeovers Panel.

Tower shares closed unchanged at $1.39 and have shed a third of their value this year.

 

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