Catastrophe Claims Continue to Impact Tower's Fiscal 2017 Earnings

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Event-Driven

Via its wholly owned subsidiary Vero Insurance New Zealand, <a href="https://www.smartkarma.com/entities/4218" target="_blank" data-smartkarma-citation="entities:4218:1">Suncorp Group Ltd (SUN AU)</a> is appealing the New Zealand Commerce Commission’s decision to block its proposed acquisition of Tower. While this acquisition is a relatively small deal for Suncorp, it was very committed, having spent NZD 47 million in March 2017 to acquire a 19.99% stake in Tower at NZD 1.40 per share, so we are not completely surprised by the appeal. Tower also intends to file an appeal in the next few weeks. We maintain our NZD 0.85 per share fair value estimate, which is our assessment of the insurer's intrinsic value. It remains very difficult to speculate as to whether Tower will eventually be taken over, so we don’t include any takeover premium in our fair value estimate. The appeals process could be protracted, and to date, the underbidder for Tower, Canadian financial group <a href="https://www.smartkarma.com/entities/24007" target="_blank" data-smartkarma-citation="entities:24007:1">Fairfax Financial Holdings Ltd. (FFH CN)</a>, has not returned.Tower management continues to manage the business on a stand-alone basis, and there remains the previously flagged risk of a near-term capital raising to maintain prudent capitalisation and solvency levels. Management continues to progress the transformation program. For a smaller player operating in a highly competitive general insurance market selling commoditised products, gains from various business efficiency and customer retention initiatives are likely to be competed away over time via lower premiums. In addition, more than six years on, Canterbury earthquake claims remain a key financial problem, with no end in sight.Analysts: Ravi Reddy and David Ellis

Via its wholly owned subsidiary Vero Insurance New Zealand, Suncorp Group Ltd (SUN AU) is appealing the New Zealand Commerce Commission’s decision to block its proposed acquisition of Tower. While this acquisition is a relatively small deal for Suncorp, it was very committed, having spent NZD 47 million in March 2017 to acquire a 19.99% stake in Tower at NZD 1.40 per share, so we are not completely surprised by the appeal. Tower also intends to file an appeal in the next few weeks. We maintain our NZD 0.85 per share fair value estimate, which is our assessment of the insurer's intrinsic value. It remains very difficult to speculate as to whether Tower will eventually be taken over, so we don’t include any takeover premium in our fair value estimate. The appeals process could be protracted, and to date, the underbidder for Tower, Canadian financial group Fairfax Financial Holdings Ltd. (FFH CN), has not returned.Tower management continues to manage the business on a stand-alone basis, and there remains the previously flagged risk of a near-term capital raising to maintain prudent capitalisation and solvency levels. Management continues to progress the transformation program. For a smaller player operating in a highly competitive general insurance market selling commoditised products, gains from various business efficiency and customer retention initiatives are likely to be competed away over time via lower premiums. In addition, more than six years on, Canterbury earthquake claims remain a key financial problem, with no end in sight.Analysts: Ravi Reddy and David Ellis

Appeals of Competition Regulator's Decision Offer Some Hope for Tower Shareholders; FVE Unchanged

Tower Ltd

Appeals of Competition Regulator's Decision Offer Some Hope for Tower Shareholders; FVE Unchanged