Tower weighs up options amid bids
Firm has two offers on table
Tower is performing in line with expectations in the first few months of the 2017 financial year, as it considers three options for its future with costs from the Canterbury earthquakes escalating.
At the general insurer’s annual meeting in Auckland yesterday, chief executive Richard Harding said the company had a “full-on 12 months” with new initiatives in 2016, and still has “a lot to do to refocus Tower on its core”, according to speech notes posted to the NZX.
Two external offers have been made for Tower shares.
The first is from Canada’s Fairfax Financial Holdings, which entered into a binding agreement to pay $1.17 a share in February, while ASX-listed insurer Suncorp Group put forward an indicative offer of $1.30 per share later that month.
The company’s shares closed down 4c yesterday at $1.26.
The board has not yet made a recommendation to shareholders, though it had unanimously approved the Fairfax proposal before the Suncorp offer came along.
Chairman Michael Stiassny said the board was considering both options along with the structural separation it flagged to the market before the bids were made, and it was working through the Suncorp offer to understand the conditionality.
“Given the likelihood of a protracted process, the board may look to raise capital to ensure a prudent level of capitalisation and solvency to protect the ongoing business from contingencies during this period,” Stiassny said.
“We will continue to update you on developments as they occur . . .”
Separating Tower into two entities — ‘ New Tower’ and ‘ RunOff Co’, which would deal with leftover claims from the Canterbury earthquakes — is the default option if the Suncorp or Fairfax offers don’t complete, and will require up to $ 100 million of incremental capital.
Tower reported an annual loss of $22.3m in 2016, widening from a $7m loss a year earlier, as lingering claims from the Canterbury quakes took longer and were more expensive to settle.
Continued uncertainty meant the costs of the earthquakes had continued to escalate, Harding said.
“Six years on, insurers still do not have clarity on the number and value of claims that remain,” Harding said.
Gross claims costs rose by $78m to $870m over 2016, Harding said, primarily driven by EQC and litigation claims with Tower receiving 297 new claims in the year.
The chief executive said the business was continuing to perform in l i ne with expectations as it approaches the halfway point of the 2017 financial year, and he was “pleased that the momentum we started to build in 2016 has continued into the new financial year”.
The Kaikoura earthquakes in November 2016 have not had a similar impact on the business, and Harding said he was confident that the maximum claims cost would be $7.2m after tax.
Tower expects the Port Hills fires to cost between $1.2m and $2m, and recent storms in Auckland to cost between $3.5m and $4.5m, which combined mean it will fill its aggregate reinsurance excesses, resulting in a pre-tax impact of $5m for the year.
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