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Partners Life raises more capital

Fears that the Reserve Bank’s moves to examine reinsurance arrangements might have interfered with Partners Life’s latest round of capital raising were unfounded.

Wednesday, July 10th 2013, 12:00PM 3 Comments

by Susan Edmunds

It has been using annual rounds of capital raising to provide working capital and to ensure the ratio for reinsurance stayed within the Reserve Bank’s requirements, and within a level that the reinsurer was comfortable with.

The latest round raised $11.9 million, above a target of $10 million. That amount is believed to represent more than a 20% increase in capital for the firm.

Naomi Ballantyne said Partners had aimed for a ratio of one-to-three, so every $3 provided by reinsurance was matched by $1 of equity from Partners. She said the latest round of capital raising had moved the ratio above that.

The Reserve Bank is due for another round of consultation on reinsurance next month and Ballantyne said there had been concerns about how that would affect the latest capital raising.  “But it was nothing to worry about.”

But sources said how useful that capital raising would be would depend on how much the reinsurer, SCOR, was scaling back its assistance with paying upfront commissions. If Partners were to pay most of its upfront commissions, $11 million would not last long, a source said.

Ballantyne said it was not a simple question to answer.

But she said Partners had a programme in place since the beginning, under which the amount of support it received from SCOR reduced every year.  “So over time as our in-force book of premiums grows we reduce financing to the point where we don’t need it any more. We are on track with this programme.”

Partners said it received strong support from existing institutional shareholders and a new international professional investor. “It is a testament to the quality of our business that both existing and new professional investors want to participate in the ongoing success of the Partners Group.”

Ballantyne said the plan was to raise capital annually until 2015 or 2016, when the firm hopes to list.

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Comments from our readers

On 12 July 2013 at 11:36 am Majella said:
...what? No comments?
On 12 July 2013 at 1:10 pm Dirty Harry said:
Majella: Considering all Naomi has done in this story is describe the very funding arrangements the RBNZ is reviewing, why bother commenting further? The ball in is the RB's court right now.
On 15 July 2013 at 3:11 pm Dr Mike Naylor said:
My congratulations to Naomi and her team for doing so well, again. Over the decades they have certainly revitalised the insurance market.

A major disadvantage of the new RBNZ capital regulations is that it makes it harder to start a new company, so may inhibit competition. A major part of is that in order to gain market Partners has been paying out high upfront commissions - over 200%. The impact on cash-flow has been major - since most policies are new, every sale drains cash.

Partners has dealt with this is via an innovative deal with the re-insurer, rather than raising shareholder cash.

Given that the RBNZ regards this deal as dubious in terms of financial stability, it raises three questions:

(i) can Partners continue its breakneck growth rate? (ii) what kind of financial arrangements will required to start any future new companies? (unless upfront commissions drop)(iii) will the future quid-pro-quo to SCOR hinder Partners?

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