Tower today posted a wider annual loss of $22.3m that included a $14.1m writedown of technology assets. The Auckland-based company also took $25.3m for provisions due to the Canterbury earthquakes. Its underlying net profit fell to $20.1m from $30.3m a year earlier.
Tower's shares fell 2.7 percent to 71.5 cents today and have slumped 62 percent this year, the worst performancer in the S&P/NZX 50 Index, in the face of ongoing quake provisioning and the dispute with the reinsurer.
Harding said the split into RunOff and 'New Tower' was designed to allow the value of Tower's underlying business as a "high-performing general insurer" to be recognised in its share price by investors while RunOff manages the legacy liabilities related to Canterbury.
"The whole point of the change is to enable New Tower to realise the huge potential in that business," he said.
The company is looking at how best to raise new capital, both for RunOff and potentially New Tower, a process that requires it to consult with the Reserve Bank over the amounts of capital needed after the restructuring. Options including tapping the capital markets and bringing in a strategic partner. Hardin said today that Tower was in commercial discussions with potential partners although it was "very early days".
Under its separation plan, the "new" Tower company would be listed on the NZX and include its current management and board structure, holding its underlying core business in New Zealand and the Pacific. The RunOff company would be a separate legal entity with its own board and management, holding all liabilities and receivables associated with Canterbury with the aim of managing those to maximise capital return to shareholders.
The Reserve Bank has consented to the creation of two separate licensed entities in initial talks and the process is ongoing to receive formal approval, Tower said.
It expects to put the proposal for separation to shareholders for approval at its annual meeting in March. Dividends are expected to resume after the separation is complete.