Tower looking to enhance strength through acquisition

Friday 27th May 2011

Listed insurer and fund manager Tower says it is looking to enhance its strength through acquisition and continues to work on a possible purchase of troubled AMI Insurance.

Last month, the Government announced a "backstop" for AMI, which has been hit by a substantial payout burden resulting from the Christchurch earthquakes.

Under the deal, if AMI's resources run out the Government will make $500 million available for recapitalisation in return for taking ownership of the business.

At a briefing on Tower's half year results today, Tower group managing director Rob Flannagan said the big issue with AMI was obtaining information, which he expected would take a while, with AMI not having called on government back up yet.

"They can probably see it coming but it actually hasn't happened," Flannagan said.

If it did happen it would trigger other events, as the Government gained more control.

The outcome would depend on what the Government, which in effect was acting as a reinsurer, wanted to do. Tower would like the Government to continue being the reinsurer.

The process was "just running a course and we're trying to get ourselves entwined into it", Flannagan said.

Tower would like to know the extent of AMI's exposure, and had done quite a bit of modelling.

Tower reported net profit for the six months to March 31 down 54% from a year earlier to $13 million.

Excluding earthquake costs and discount rate movement, the after tax profit was $26.2 million, compared to $27.7 million a year earlier.

That was a result of the company's changing business model and was not unexpected, Flannagan said.

A loss of $7.5 million was attributed to the earthquakes, while a loss of $5.7 million was a result of changes in the global investment market which in turn affected the discount rate applied under accounting standards in valuing individual life risk policy liabilities.

Half year revenue fell 10.2% from a year earlier to $259.4 million.

Group managing director Rob Flannagan said Tower had provided for more than $350 million in claims for the two major Christchurch earthquakes.

An unchanged interim dividend of 4c per share is to be paid.

Tower chairman Tony Gibbs said the impact of the earthquakes aside, the company performed well across its three businesses, while changing its business model to focus on improving and strengthening its customer service.

NZPA

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