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Tower eyes AMI

Friday 8th April 2011 7 Comments

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New Zealand insurance company Tower is sticking its hand up to buy AMI Insurance, which came under the protection of the Government today, even though AMI has a bigger fire and general insurance business and Tower's own major shareholder Guinness Peat Group wants out.

Tower's managing director Rob Flannagan has in mind a transformational transaction for both companies to create a New Zealand-owned insurance company listed on the NZX.

He is seeking to have talks with AMI after earlier contacting the troubled company to offer assistance.

The Government today unveiled a "back up financial support package" for AMI Insurance which commits an initial $500 million of funds to the company to meet any shortfall.

The package in which the Government could become the effective owner of New Zealand's second largest general insurer would only be called on as a last resort.

AMI is a mutual, which means it is owned by its policyholders, while Tower is owned by shareholders and is listed on the NZX.

Tower earlier demutualised in a process which turned policy holders into shareholders. Tower has in mind a demutualisation of AMI to facilitate a transaction.

"Demutualisation is not difficult to do if everyone is willing to do it. In our history we were a mutual," Flannagan told NZPA.

He said Tower had raised $80 million in a capital raising last year for the purpose of acquisitions.

"We sort of have an amount of money," he said.

He said AMI appeared to need capital. It had used up profits and reserves.

"You would argue there is not much left in terms of value," he said.

Tower could bring the appropriate amount of capital to recapitalise the business.

"By bringing the two businesses together as a listed public company in both Australia and New Zealand we can then go to the market and raise capital," he said.

AMI is about twice Tower's size in the nationwide fire and general insurance market, and has a big presence in earthquake-hit Christchurch.

Flannagan said the two companies sold similar products and did not insure many commercial buildings. Tower had just upgraded its computer system and it could be scaled up to encompass AMI.

"We distribute direct mainly. They do the same but they have a lot of branches," he said.

The two businesses were a good fit and could be made into a "very relevant New Zealand company".

Sir Ron Brierley's Guinness Peat Group (GPG) owns 35% of Tower and GPG is being broken up after coming under pressure from shareholders.

Flannagan said it was possible that GPG's exit from AMI could be "all washed up in the same thing" if a transaction could be worked out with AMI.

 

NZPA



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Comments from our readers

On 8 April 2011 at 9:40 am Willem said:
As an AMI Customer I will cancel all dealings with AMI if Tower takes over. They do not give the customer service I am a custom to. And why should they sell they have the govt backing them
On 8 April 2011 at 11:39 am sonal said:
It smells like exactly like USA's Mr Bush spent OUR money on them. Will AMI regard us who pay them TWICE- by premium and by this way? Should stop business if can not do. This is the RULE for all SMALL GUYS.
On 8 April 2011 at 6:02 pm arty said:
Ever tried to do business with Tower? The only way to speak to a person is when you want a quote, from then on talking to a person is impossible. Tower "undercuts" price, that was the attraction for me, a lower premium, but in the end the policy excluded things others included and I got scared when I could not talk to anyone about the policy queries. Why would one bother? The market has not changed, insurance is about cover for unknown future events, Some NZ insurance organisations including EQC simply have not made enough provision for unkown events. The weak should fall - be held to account, a bail out by Government should mean ownership by Government to protect taxpayer investment. Does this also mean the uninsured have an entitlement to taxpayer funds, as AMI customers are technically uninsured due to AMI being insolvent.
On 8 April 2011 at 10:01 pm Christopher said:
Ho..Tower is being villified (maybe justifiably so from a service perspective) but they aren't asking the govt for assistance. Existing AMI customers can expect very big changes anyway including premiums that reflect the risk so the more of them that move to another insurer ASAP the lower the governments involvement.
On 9 April 2011 at 11:48 am howie said:
Go uninsured you take the risk. Insure with the a bum company that goes bust that is the tax payers problem. Not fair, you made your bed -now sleep in it. Help those in misfortune certainly; that the socalisit safety net model we support but don't distroy the free market which brings huge long term rewards. The deligent and innovative prosper, the lazy and stupid fail. Tinker with the system and you end up with an all mighty bugger up. Guarantee this guarantee that and you go around putting out little fires every where. People are too messimistic then too optimistist ; that is our nature. The market will sort out the booms and depressions; just have a safety net. Howie.
On 12 April 2011 at 12:36 pm Keith Wallace said:
Sounds like Allied Farmers and Hanover Finance? Why throw good money after bad? Tower Shareholders need to be very careful in which direction they are being led.
On 18 April 2011 at 5:47 pm Brendan Swift said:
I honestly can't see the problem if Tower is willing to pony up with the cash. Remember it wasn't that long ago when Tower was looking down the barrel of a gun. But in no small part to do with GPG, Tower went on the up and upper, and anyone with any sense who purchased shares around 2003 and held will wilfully attest. So if the Government steps in, so what? There are times when overall financial stability of the country is at stake, and that means having to prop up some institutions (as the have had to in the states with the "toxic" debt saga), so be it. The likelihood though of Tower buying in is quite high, and if I was an AMI customer (which I am about to be in a week, I intend putting my money where my mouth is), I would feel pretty secure in a Government guarantee, and a likely buyout from a very well run company.
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