Potential payday for purchasers of Tower book

Foundation Life is beginning the process of winding up its operations in New Zealand, which could hand its shareholders a windfall.

Monday, July 9th 2018, 2:34PM

Foundation bought Tower Life's remaining life business for $36 million in 2014.

There are 41,000 policyholders, who have been contacted about the plan and its effect on their whole-of-life policies. Some were sold in the 1970s and 1980s.

Foundation Life has built up substantial assets from policyholders' premiums. If the plan goes ahead, its seven shareholders could reportedly receive a payout of up to 20% of the fund, worth $800 million.

The polices are no longer being sold.

A scheme of arrangement will have to be approved by the High Court and then voted on by policyholders. They would be offered the option of cashing out their policies, keeping their cover and paying no more premiums, or having a lower level of cover and a payout. The cover would transfer to a new insurer.

It is believed while newer policies contained provision for winding up the scheme, older versions did not.

Foundation Life last year transferred $35m of annuities business to Lifetime.

When the Tower deal was done, Foundation Life was described as a private company that was focused on the acquisition and long-term prudential management of life insurance portfolios which were no longer being actively marketed.

Former head of the Tower Advisors' Association David Samuel said the option of keeping the cover and paying no more premiums would be appealing - but it was not clear how reversionary bonuses would be included in that calculation. "There might be $20,000 in insurance or $25,000 bonuses as well. That has to be clarified."

He said it was worth asking why the business had appealed to its Australian shareholders, including Mercantile Investment Company, Ariadne Australia, CVC, and Keybridge Capital, four years ago.

Former Tower Investments chief executive Sam Stubbs said history shows cashing up whole-of-life insurance policies gave cash to members but was often of more benefit to the insurance company.

"I would ask the question ‘why is the company suggesting it?’ and unless the answer was convincing, be very wary of change."

Left untouched, the book of business would eventually run out but it would take many decades.

Tags: Tower Life