APRA's new zeal hits Tower for $30m

The Australian Prudential Regulation Authority, already under pressure to make amends for its allegedly inadequate oversight role before the collapse of HIH Insurance in 2001, said it had been monitoring the situation at Tower since November.

The regulator said it would continue to watch Tower's reserving levels and would carry out ``detailed investigations into the company's business".

Tower played down the significance of the $30 million top-up to its ``excess assets above solvency requirements", saying the commitment would not affect profit projections.

Tower expects to return to profit this year, having suffered a $NZ74.9 million loss last year from several one-off items, including write-downs of capitalised expenditure, restructuring costs, corporate bond exposures and a reduction in the carrying value of Australian financial planning arm Bridges.

However, it may not get a dividend from its Australian operations, which represent the bulk of its assets and potential earnings.

The top-up, funded internally rather than by an equity raising, comes despite management's assertion last month that capital adequacy was ``sound".

Analysts had then noted Tower's surplus assets had deteriorated sharply across the group from $NZ177 million in 2001 to $NZ66 million in 2002.

Chief financial officer William Giesbers said the increase in the Australian arm's surplus assets would take Tower's reserving level to its targeted 1.2 times the required level, up from 1.1 times.

Mr Giesbers said the increased buffer took account of uncertain and volatile markets.

While APRA had required the top-up after discussions with the company, ``it's kind of like being asked to do something we wanted to do anyway", he said.

``I guess [APRA] want to be seen to be involved and knowledgeable and improving the risk position of various businesses."

According to Tower, the increase was also ``a prudent step to take in rebuilding confidence in its Australian business".

Tower's explanation did not seem to irritate the already frayed nerves of its investors, with its shares closing steady yesterday at $2.01. But one analyst said: ``Whenever you have solvency issues, it's not a good sign."

Tower's shares have halved in recent months, propped up only recently by a sharemarket raid for less than 5 per cent of Tower's shares. The buyer's identity has not been disclosed, though it is most likely to be Sir Ron Brierley's Guinness Peat Group. No takeover bid has been forthcoming.

Tower also held talks with the Australian Securities and Investments Commission about disclosing the top-up to the market, and as a result of these has done so.

It is also yet to find a permanent replacement for its chief executive, despite expectations an appointment would do made by Christmas.

In Australia, Tower sells life risk and superannuation products, owns financial planning and administration businesses and has a financial services alliance with credit unions.