Tower sells life insurance business to Fidelity

Last updated 10:37 10/05/2013

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Tower has sold most of its life insurance business to Fidelity Life Assurance for $189 million - a combination of cash and capital release.

Fidelity is a New Zealand-owned company specialising in life insurance, personal protection, business insurance, savings, investment and KiwiSaver.

Under the agreement Tower will sell most of its non-participating life insurance policies and keep the capital presently held against those policies, releasing an aggregate amount of capital of $189m.

It will also keep its participating book and other run-off life insurance assets which have an embedded value of $23m.

The sale implies a total value of $212m for Tower's life insurance business.

Fidelity Life chairman Ian Braddock said the deal was significant for the company, taking it from fifth place to third in market share.

"Fidelity Life has always been interested in acquisition opportunities, following our previous purchases of the Lumley Life and Farmers Mutual Life businesses, and we feel the Tower Life business will be an excellent fit with our own," he said.

The deal needs regulatory approval but Braddock expected it to be finalised in the next couple of months.

Tower group managing director Rob Flannagan said the transaction marked the final move in the company's strategic review, in which its health insurance and asset management units had also been sold.

"We determined that now was a good time to maximise value to Tower shareholders by selling this part of the life business," he said.

"Going forward, we will be concentrating on growing shareholder value by developing and growing our specialist general insurance business."

Fund manager Matt Goodson of BT Funds said the deal made sense.

"It looks like a solid price," he said.

"Life's a difficult business in New Zealand because the profit pool tends to go to life insurance agents who get a commission of 230 per cent of [the] year-one premium and then tend to churn their clients every four or five years, so the underwriter doesn't make much money.

"It's a business where others who don't have that structure, such as the banks, have been taking a lot of share, so to get embedded value for something which, best case, had no growth, is a good outcome in my view."

Goodson said he expected Tower to return capital to shareholders as a result of the sale.

Flannagan said the half-year results presentation on May 28 would include details of what Tower would do with the money, including the amount of capital to be returned to shareholders.

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