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TOWER life business sold

TOWER has announced this morning that it has sold its life insurance business.

Friday, May 10th 2013, 9:16AM 13 Comments

Fidelity Life has purchased most of TOWER’s life insurance business.

The announcement this morning confirms a rumour that has been circulating in the market for months.

Fidelity Life will assume management of Tower Health and Life’s in-force business and the group risk business of Tower Life New Zealand.

The aggregate value of the transaction for TOWER, including cash consideration and release of capital, is $189 million.

TOWER will sell most of its non-participating life insurance policies and retain the capital currently held against those policies. TOWER will also retain its participating book and other run-off life insurance assets which have an embedded value of $23 million. The sale implies a total value of $212 million for TOWER’s life insurance business.

Fidelity Life Chairman Ian Braddock said the deal was significant for the company, taking it from fifth place in terms of market share to third.

“Fidelity Life has always been interested in acquisition opportunities, following our previous purchases of the Lumley Life and Farmers Mutual Life businesses, and we feel the Tower Life business will be an excellent fit with our own.”

He said there were a number of conditions to the deal including regulatory approvals.

TOWER’s departing group managing director Rob Flannagan said the company would now focus on delivering high quality general insurance products and services to customers in New Zealand and the Pacific Islands.

"We determined that now was a good time to maximise value to TOWER shareholders by selling this part of the life business. This concludes our strategic review. Going forward, we will be concentrating on growing shareholder value by developing and growing our specialist general insurance business," he said.

TOWER’s half-year results presentation later this month will include details of how TOWER will apply the proceeds, including  the amount of capital to be returned to shareholders.

The deal is expected to settle in July.

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Comments from our readers

On 10 May 2013 at 10:35 am Graeme said:
As an adviser I note an ever dwindling number of providers which must have an impact on competition. You only need to look at how few providers there are in the Fire and General area and the impact this now has on availability and competition.

As a Tower Shareholder I see my share value now likely to plummet. What is left? A Fire and General company with minimal return and WOL and Endowment with little, or no, growth potential.

The reality is that Tower has been gutted and anything of value sold off. I really see this as the end.
On 10 May 2013 at 11:47 am Alison Renfrew said:
Do you remember when Tower ran those advertisements on the radio "why pay an adviser brokerage when you can come to us directly and save a lot of money" - not exactly those words but that was the message. That did a lot to encourage advisers to recommend Tower (Not!)Did you have staff like mine who would beg: "please don't make me call Tower"? The automatic phone system was so frustrating. It didn't encourage unbiased advisers to recommend Tower and I think that had an impact on business written. Advisers want to recommend excellent products provided by excellent insurance companies that deliver excellent service. I've nearly always been satisfied with the service offered by Fidelity Life.
On 10 May 2013 at 12:11 pm CJG said:
Well, you know the old addage when dealing with Tower...

"If you have a spare hour, ring Tower"

maybe they'll answer their phone quicker now.
On 10 May 2013 at 1:01 pm Mac said:
The following comments in the NBR today attributed to BT Fund Manager Matt Goodson regarding the Tower sale: "Life's a difficult business in New Zealand because the profit pool tends to go to life insurance agents who get a commission of 230 per cent of [the] year-one premium and then tend to churn their clients every four or five years, so the underwriter doesn't make much money".
Apart from the above slandering of "life insurance agents", I assume Goodson is not a business analyst as he obviously does not understand how life companies generate profits.
On 10 May 2013 at 4:23 pm Andrew said:
Obviously Matt Goodson doesn't realise the claw back period is only two years. Why would you wait four years to churn when you can make twice as much?
On 10 May 2013 at 5:47 pm Lindsay said:
Sad day really to see Government Life (no 3 life office) vanish. The fire and general to which they refer is the old National insurance. Pathetic really. Not sure what it says about privatisation let alone the shareholder influence.
On 10 May 2013 at 6:17 pm John Milner said:
Yes I hear the service at the Fidelity offshore junkets are second to none.
On 12 May 2013 at 12:48 pm Leonard Longstride said:
I just hope Fidelity can manage the integration of the businesses well. While I am thrilled for Fidelity I am somewhat nervous that this may be just too much for them to handle. I suspect like many other Fidelity advisers we will have to wait and see. Keen to hear from anyone (at Fidelity) how this impacts their credit rating. Might be time to line up another insurer.
On 12 May 2013 at 7:16 pm Slightly confused said:
Hi Alison,
I thought the whole idea of being an Adviser was to offer independent advice? If in the case that a Tower product was the best for your customer, and priced accordingly, are you saying you still wouldn't recommend it? That is highly independent (not). Also I am unaware of any insurance supplier in the market who has not had service issues at one time or another. Hopefully your customers are receiving the unbiased independent advice which they deserve?
On 13 May 2013 at 9:25 pm Vincent de Jong said:
Leonard, interesting comments on where Fidelity got funding - Radio NZ had an interview with the Fidelity Chairperson today, where he refused to elaborate how funding was come by. My take is reinsurance funded, and with the RBNZ ruling out soon this may strain Fidelity's rating. Will be interesting to see what happens.
On 14 May 2013 at 10:09 am Archy Spencer said:
Leonard and Vincent - interesting comments. I guess it will be a case of wait and see what happens with the RBNZ making noises about funding for insurers (particularly after the recent comments about Partners Life and how the forthcoming RBNZ changes may impact them).

Always unfortunate to hear that nearly 40 people will probably be out of a job.

As a someone who has used Fidelity from time to time it is probably a good idea to review my business and look at the likes of Sovereign and perhaps even One Path who just seem to continue to keep on keeping on without controversy and certainly seem to have the financial grunt - which to me is very important.
On 14 May 2013 at 1:04 pm Janie said:
Reply to Archy Spencer

Onepath and Sov are owned by Australian banks - tons (millions of dollars) of resource there....
On 16 May 2013 at 10:27 am Al said:
Reply to Archy Spencer

Also Archy both Sovereign and One Path have, in the last couple of years, both had to restructure various departments in the last couple of years (in particular the underwriting departments). Why has there been no controversy? I don't know. Not a big deal? Or deliberately hidden? Either way - sometimes it is just sensible business practice, and very unfortunate.

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