Policyholders uneasy at insurance shutdown

Overseas investors are eyeing a ninefigure payday as they plan to wind up a giant New Zealand insurance fund.

The seven shareholders of Foundation Life could be paid as much as 20 per cent of the money in the fund, which stood at just under $800 million at the end of September.

The plan is causing unease among some of the 41,000 policyholders with Foundation Life, who bought their whole-of-life insurance policies from Tower Life.

Foundation bought Tower Life in

2014 for $36m, but now plans to shut it down.

The policyholders, most in their 60s,

70s and 80s, have received letters from Foundation Life outlining the plan but lacking in detail.

Their whole-of-life policies are an old-fashioned mix of life insurance and investment designed to pay out when policyholders reach the age of 95, die, or decide to cash them up.

The massive pool of assets was built up from policyholders’ premiums, and ensures Foundation Life can pay out policyholders as they die, or surrender their policies for cash payments.

Whole-of-life policies are no longer sold, and Foundation Life is what is known as a ‘‘closed book’’, which will wind down over the next few decades, unless policyholders agree to let Foundation Life shut down.

Grant Piercy, chief executive of Foundation Life, said a ‘‘scheme of arrangement’’ was being prepared, which would have to be approved by the High Court, and then in a vote by policyholders.

If the scheme was accepted, policyholders would choose from one of three options: To cash out their policy, to keep their level of life cover and pay no further premiums, or to have a lower level of cover and take a partial cash payout. The insurance would be with a different insurer as Foundation Life would close.

‘‘It would carry on for another 70-odd years, if we did nothing,’’ Piercy said.

‘‘This is not about closing down Foundation Life, as such. It’s driven by what policyholders have been saying, and knowing we have a closed book which is reducing every year. We are looking at what’s in the best interests of policyholders.’’

Former head of the Tower Advisors’ Association David Samuel said: ‘‘If the interests of policyholders were paramount, they would be doing nothing at all.’’

Policyholder Dennis Gibbs questioned why Foundation Life did not offer a continuation of the ‘‘status quo’’, which is what he would favour.

The Foundation Life move could start a domino effect with other books of whole-of-life business at AMP and Sovereign following suit, he said. ‘‘There’s quite a few of these in New Zealand.’’