New Zealand's third largest general insurer Tower is seeking to raise NZ$70.8 million (US$48.5 million) as additional capital, following an extensive, independent review of the company's solvency position.
The additional capital is required to address the inherent uncertainty faced by the business, repay a NZ$30-million Bank of New Zealand facility, and permit the signalled and ongoing reinvestment in Tower’s NZ business, said the insurer in a statement.
If applied to Tower’s solvency position at 30 September 2017, this would have resulted in Tower holding NZ$123.4 million above minimum solvency capital (MSC) requirements, or approximately 300% MSC.
"Tower recognises the need for capital in the medium term, however, remains strongly committed to paying dividends and the efficient management of capital," the insurer said.
The company will make a “pro-rata renounceable entitlement offer at a ratio of 1 new share for every 1 existing share held” at 42 NZ cents per share. The issue price gives investors a 45% discount on the 76 NZ cents Tower shares were trading at before a trading halt was enforced on Monday afternoon, pending the announcement of its capital raise.
Tower reported a loss after tax of NZ$8 million for the 12 months ended 30 September, down from a loss of NZ$21.5 million the previous financial year when it took an impairment charge of NZ$19.6 million after writing down the value of software.
The bottom line was also hit by a NZ$1.6 million increase in outstanding claims from the Canterbury quakes, taking the annual expense to NZ$11.4 million, and an additional NZ$7.2 million risk margin allocated for Canterbury claims, Kaikoura earthquake and a number of other large loss events. At 30 September, Tower had gross outstanding Canterbury claims of NZ$117.2 million on 323 open claims.
The insurer's net premium revenue increased by 1.2% to NZ$256.9 million, while net claims costs increased 1.1% to NZ$187.6 million, due largely to a reduction in reinsurance recoveries. Underwriting profit increased by 15.6% to NZ$22.9 million for the year ended September 2017. Underlying profit after tax fell 10% to NZ$18 million.