Tower Insurance has announced plans to buy Youi Insurance New Zealand for $13 million to boost its growth.
Tower Insurance. Photo: Google Maps
Under the proposed deal, Youi's 34,000 policyholders would remain covered by their existing insurance policies until they have expired, and would then be offered Tower policies, which were priced based on risk.
"The purchase of Youi's portfolio will assist us to accelerate our growth and we are now firmly positioned as a challenger brand focused on delivering good customer outcomes and value for our shareholders," chief executive Richard Harding said.
The acquisition is subject to regulatory approvals, which will include the Reserve Bank and most likely the Commerce Commission, however, approval is expected by the end of this year.
Youi New Zealand is owned by the South African company Rand Merchant Investment and sells mostly car insurance, as well as house and contents insurance.
It would raise $47.2m through an issue of new shares to current investors, on the basis of one new share for every four currently owned at 56 New Zealand cents each, a 27 percent discount to Tower's last trade price.
In a trading update, Tower said it expected to make a full year net profit of $28m, compared with last year's loss of $6.7m.
Photo: Youi
Meanwhile, the Reserve Bank has told Tower it must increase the amount of capital to cover claims from 31 October, as the company waits to settle a major claim against the Earthquake Commission (EQC).
Tower has claimed $53.1m and is going through dispute resolution to recover, but Mr Harding said it would probably end up in court.
"Given the increased likelihood of litigation and associated delay in receiving funds, it is appropriate to exclude the EQC receivable from Tower Insurance's solvency calculations," he said.
"We continue to be confident in the recovery of the receivable and while we have entered into an alternative dispute resolution process, we are firmly committed to collection of the EQC receivable to the maximum extent possible."
Tower had received another 45 claims over $100,000 from the EQC, relating to poor repairs following the Canterbury earthquakes.
Tower was pushing back on those claims, calling them 'unacceptable'.