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Tower shares fall to 2-month low as licensing requirements may weigh on capital returns

Wednesday 7th August 2013

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Shares in Tower fell to a two-month low after the insurer gave more guidance on its licensing requirements, raising concerns it may have to hold more cash on its balance sheet.

The stock fell 3.2 percent to $1.79 after the Auckland-based company yesterday said it needs a minimum solvency margin of $80 million above minimum solvency capital from Aug. 16 to meet the terms of its insurance licence under new prudential supervision laws.

Chief executive David Hancock said the insurer has the funds available to meet the minimum margin due to the sale of most of its life insurance to Fidelity Life Assurance, and is now reassessing its capital management plan.

"The feedback is that they have to hold more capital on the balance sheet," said Rickey Ward, head of equities at Tyndall Asset Management. "They've sold a number of assets and most investors expected the proceeds to come back to shareholders, so it's created another level of uncertainty."

Tower made the statement after the close of trading yesterday after concluding discussions with the Reserve Bank over its licensing conditions.

In its first-half report, Tower said it will have more than $127 million in capital above minimum solvency requirements after repaying its bonds and making a capital return. As at Sept. 30 last year, Tower Insurance had a solvency margin of $39 million, according the company's annual report.

Guinness Peat Group is looking to sell its third-stake in the insurer as the investment firm liquidates its portfolio, and rebrands as UK threadmaker Coats, its biggest asset. GPG shares rose 0.9 percent to 56.5 cents.

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