In December 2023, the insurer initiated a strategic review aimed at exploring ways to enhance shareholder value and optimise its capital structure.
Working with Goldman Sachs, the company engaged in discussions on potential partnerships, risk transfer options, and alternative ownership structures.
However, none of these discussions progressed to formal proposals, prompting Tower to conclude the review.
Despite this, the process identified several potential growth initiatives, including the use of quota share arrangements, which the company may explore if needed in the future.
Tower chair Michael Stiassny explained that the purpose of the review was to ensure that the company’s ownership and capital structures are set up to deliver long-term value to its shareholders.
After considering all options, the board has decided that continuing with the current strategy under the existing ownership structure is the best course of action.
“Although the strategic review has been concluded, the board remains open to considering any future proposals or opportunities that align with the best interest of all Tower shareholders,” Stiassny said.
As of Aug. 16, the RBNZ has removed the additional solvency margin requirement that had been imposed on Tower, reducing the company’s minimum solvency margin from $15 million to $0.
This adjustment comes as a result of Tower’s strengthened solvency position, improved risk management, and the declining significance of claims related to the Canterbury earthquakes.
Tower reported an unaudited adjusted solvency margin of$147.2 million as of June 30. The company’s internal capital management processes aim to maintain a solvency margin higher than the RBNZ’s minimum requirement, meaning the removal of the additional margin will not directly impact dividend decisions or other capital management activities.
Tower reaffirmed its financial outlook for FY24, projecting underlying net profit after tax (NPAT) to exceed$45 million for the fiscal year ending Sep. 30, 2024.
In the event that no major catastrophic events occur, the insurer anticipates an additional $32 million in NPAT, potentially bringing the total to $77 million.
In line with its dividend policy, Tower’s board plans to declare a final dividend of 5 cents per share, bringing the full-year dividend to 8 cents per share, subject to financial prudence.
“The board is mindful that the company continues to remain focused on delivering sustainable growth, satisfactory and proportionate profits, and consistent dividends in the future,” Stiassny said.
As part of its broader review of capital management, Tower announced plans to return $45 million in excess capital to shareholders via a mandatory share buyback. This capital return will be conducted through a scheme of arrangement, requiring approval from the High Court, shareholders, and the Inland Revenue Department (IRD).
The company must also maintain compliance with solvency and prudential capital requirements through the implementation period.
The capital return is anticipated to take place in March 2025, provided that all necessary approvals are obtained.
Further details will be shared when Tower – which reported strong financial results in the first half of FY24 – releases its FY24 full-year results in November 2024.
