Foundation Life windup plan finally ready for a vote after 7 years

Foundation Life’s shareholders say they “share our policyholders’ frustration” at the time it has taken to finalise a plan to wind up the near $500 million business while giving policyholders choices about whether to take cash, swap for new policies with greater benefits or a combination.

Wednesday, May 7th 2025, 8:50AM

by Jenny Ruth

Foundation Life’s shareholders say they “share our policyholders’ frustration” at the time it has taken to finalise a plan to wind up the near $500 million business while giving policyholders choices about whether to take cash, swap for new policies with greater benefits or a combination.

Policyholders resident in New Zealand can chose to swap their policy to Chubb Life with no further premiums required and that will provide 105% of their current policy’s death cover or they can take cash worth 105% or more of their existing policy’s surrender value or a combination of the two options.

Policyholders resident offshore, about 7% of total policyholders, can only opt for cash.

Foundation Life, formerly Tower Life, bought the legacy Tower life business in 2014 for $36 million.

Under the windup proposal, first proposed in 2018, the shareholders will receive “no more than” $16.05 million from the PAR Fund, their accumulated retained earnings of $26 million at Sept 30 last year and their share capital of $10 million, as well as any further profits earned up until the business closes, forecast to be Sept 1 this year.

Chief executive Grant Piercy says that the proposal delivers policyholders more value and choice, “which they have told us they want.”

Many of the existing policies have been in force for a long time and the needs and financial circumstances of the policyholders have changed.

If the existing business, a closed fund, were to continue, then there will be increasing “diseconomies of scale of the next 70 or so years till the last payments are projected to be made,” Piercy says.

That and the current low interest rate environment would adversely affect the level of returns that could be provided to policyholders.

Policyholder numbers fell 6.6% to 26,455 at Sept 30, 2024 from a year earlier after a 4.7% reduction from 2022.

There are better options available now for those who wish to continue their policies, he says.

Chubb was chosen to provide the replacement policies after a contested process and it has an A (excellent) financial strength rating from AM Best.

The scheme has been reviewed by the Reserve Bank through a 13-month process and an independent actuary appointed to look after policyholders’ interests has recommended policyholders vote in favour of it – their vote in one of the necessary hurdles in a process that is being supervised by the High Court, whose approval is also required.

The company said one reason it has taken so long to develop the proposed scheme is the impact of covid and an unexpected tax issue that took the Inland Revenue Department nearly two years to provide a binding ruling.

The company has spent $14.4 million on developing the scheme as at Sept 30 last year and will cost a further $3.4 million if approved with the costs being met by the PAR Fund.

“These costs are much higher than initially expected because of delays that were out of Foundation Life’s control.”

Tags: Foundation Life insurance Insurance Advisers Life insurance