Suncorp says proposed takeover of Tower won't change NZ competitive dynamic

ASX-listed insurer Suncorp Group said its proposed takeover of NZX-listed general insurer Tower would be "unlikely to materially change the competitive dynamic" in New Zealand.

Last month Suncorp, whose New Zealand brands include Vero Insurance and Asteron Life, bought 18.8 million Tower shares at $1.30 apiece and has made a "non-binding indicative proposal" to Tower's board to buy the insurer at the same price, it said. The offer, worth a total $219.3 million, trumps a $197 million deal already on the table and backed by Tower's board and major shareholders Salt Funds Management and Accident Compensation Corp to sell to Canada's Fairfax Financial Holdings at $1.17 apiece.

In its notice seeking clearance for the deal, Suncorp said the two are complementary businesses but not each others' closest competitors. Given that Tower has approximately a 5 percent share of the general insurance market in New Zealand the "degree of market share aggregation that would arise from the transaction is low," it said. According to the notice, Suncorp's New Zealand brands have a 25 percent share. The market is dominated by IAG, which holds 45 percent and will remain the largest insurer by a "substantial margin," it said.

The New Zealand insurance market is characterised by a "proliferation of strong competitors," with at least a dozen strong players, according to Suncorp. It also said there is a high likelihood of entry and expansion in both the commercial and personal insurance markets.

It argued that "added efficiencies" stemming from the deal will allow the merged entity to "continue to deliver competitive products and services into market."

When Suncorp made the offer Tower chairman Michael Stiassny told shareholders to carefully assess the offers in front of them and to seek their own professional advice before making any decisions and reiterated that all policies were unaffected.

Tower posted a loss of $22.3 million in the September 2016 year as lingering claims from the Canterbury quakes were taking longer and were more expensive to settle. Last year it said it would corral those claims into a separate entity called RunOff, and suspended its annual dividend to preserve capital for the new company. It was also weighing up funding options or finding partners to help with the split.

Tower shares last traded at $1.32 and have lost 12.5 percent over the past year.

(BusinessDesk)