Tower shares in trading halt ahead of 'announcement'; Reports the insurer has received a take-private proposal from Fairfax Financial Holdings

A trading halt has been placed on Tower's shares, with the insurance company set to make an announcement to the New Zealand stock exchange.

The Australian Financial Review reports it understands Tower has received a "take-private proposal" from a Toronto-based insurance company, Fairfax Financial Holdings.

Tower, at the end of last year, announced plans to ring-fence its troubled Canterbury-quake related business by splitting into two companies - 'RunOff Co' and 'New Tower'. It is awaiting Reserve Bank and shareholder approval to proceed with this.

Tower chairman Michael Stiassny, on the release of the company’s financial results in November, said Tower was “evaluating a number of potential sources of capital - including strategic sources” for the split.

“In our view, the industry model is broken with claims inflation continuing unabated, construction far slower than anticipated and little effective co-ordination between the EQC and insurers,” he said.

“These are all symptoms of a system that can no longer do right by the people, communities or insurers it is supposed to serve.”

As at September 30 2016, Tower still had 564 outstanding 2010/11 quake claims, with legal battles connected to 100 of these.

It had used up $735 million of reinsurance for the events, so has dug into its own pockets to pay for another $135 million of claims.

It is also undergoing disputes with the Earthquake Commission and one of its reinsurers, Peak Re, to secure $101 million of quake recoveries.

Bill English, in his capacity as Finance Minister, in December told interest.co.nz: “Tower has not sought any assistance from the Government and it has not asked the Government to buy the run off company it is proposing to establish.”

The Government bailed out AMI in 2011. Its non-quake-related business was sold to IAG, while the Crown-owned company, Southern Response, was formed to mop up the mess from the quakes.

In 2012, Treasury's "best estimate of the likely cost of the AMI support package over its life" was only $98 million. Southern Response’s bill to taxpayers now heads towards $1.25 billion, as another $250 million was set aside for it last year.

Forsyth Barr analyst, James Bascand, in December told interest.co.nz he believed Tower would sell RunOff Co. He couldn’t say who would buy it, but had his bets on a large reinsurer.

Tower's share price is at 79 cents - 52% lower than it was a year ago. It has slumped as low as 78.5 cents over the past few days. The share price hit a record low of 69.5 cents in November.

Interest.co.nz has been following Tower closely. See this link for previous stories. 

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8 Comments

I wonder just how much rot there is.

The Canadians must have been able to see the Lighthouse beam from Toronto and came running.

So if they go under will I have to get a new policy from another insurer?

Canadian with Indian undertones one would think given the major identity at Fairfax. Whatever it is, it is a healthy sign for all Tower policy holders, staff, shareholders and the NZ govt. Hopefully the influx of new capital can see all the EQ claim mess that Tower have created, finally being cleaned up in quick and good order.

With such an appalling reputation of treating its policy holders claims like Stalin, the Canadians have an uphill battle to restore confidence in the Brand. A good start would be the removal of all Directors and senior staff who have implemented or been involved in the quake settlement issues, another would be never to use the odious firms of Lawyers who so brutally waged legal war in the courts against legitimate claims. and no I was not and will never be a Tower customer.

It would be I believe a good suggestion, that each, and there are hundreds on hundreds of them, disaffected EQ claimants should write to the CEO & Chairman, Mr Prema Watsa, and detail their experience of what sort of animal his company is purchasing, for instance, the caliber and culture of the staff, and oh yes as well, the front that their legal representatives employ.

While all this sounds positive, the report is about an ASX announcement that is solely for shareholders. The key piece missing is what the takeover means for policyholders.

Fairfax will pay $197m to buy out existing shareholders. It is not new capital. What we now need to know, and quickly, is how deeply they will reach into their pockets to boost Tower Insurance's solvency margin and so ensure it can and will pay the remaining earthquake claims.

I'm sure these calculations have been done. Fairfax must have factored it into their acquisition considerations, and the Reserve Bank will be privy to them. We should also be informed about the due diligence requirements and any other conditions that have to be met for the transaction to complete. I am disappointed the Tower Board did not issue parallel news releases. They and the CEO should know and appreciate the span of their fiduciary responsibilities doesn't just stop with the shareholders.

So, Mr Stiassny, let's get it all out. Whether we are joint shareholder/policyholder or just a policyholder, this information is vital to full and proper disclosure.

Dear Mr U. FIdel. That is excellent comment & a whole lot more sobering than the vague & brassy trumpeting so far from the powers that be at Tower. So why exactly would you buy a very small isolated company in a very small and isolated part of the world at a grossly inflated price in comparison to that of their listed share value. And also when the reinsurance from Peak Re and the recovery from EQC are still not much more than pie in the sky. The only way that can make sense is that the outstanding EQ claims , ie those destined for Run Off Ltd, are going to be seperated and held under a guarantee that will protect the new owners. And who exactly would provide such a guarantee? Is that, not a rhetorical question for the ages?! For heavens sake Tower have about 500 EQ claims outstanding and 100 of those under litigation. There is the potential there, that out of that, claims could add up to more than what Fairfax are going to pay for the whole damn caboodle.