Tower Australia Eyes AIA Insurance

By | April 8, 2010

Tower Australia Ltd will be interested in buying the “well-run” Australian business of AIA if it comes up for sale, as it moves into the fast-growing group insurance sector, Tower’s chief executive said on Thursday.

“It is something we will look very, very closely at. It is a good quality company,” Jim Minto, Managing Director of Tower, the fourth-largest insurer by premium in Australia, told Reuters in reference to the AIA Australia business.

“We don’t think the business will be up for sale immediately though.”

Britain’s Prudential Plc is expected to quit some countries in Asia in which it has small market share, including Australia and New Zealand, if it seals a $35.5 billion deal to buy American International Group’s AIA, sources have said..

Tower shares fell 1.9 percent at the start of trade, trailing the benchmark’s 0.5 percent fall.

Analysts say AIA Australia is a strategic fit for Tower, which is 28-percent owned by Japan’s Dai-ichi Life Insurance Co., as it is expanding into the group life insurance market.

AIA, which makes close to $400 million in annual premiums, is largely focused on the group insurance sector, which is growing by 12 percent to 15 percent annually in Australia. Analysts say AIA is likely to fetch $300 million.

Minto declined to declined to put value to AIA’s business. A Tower purchase of AIA Australia, could potentially push the former’s ranking to No.2 in Australia life insurance behind Commonwealth Bank of Australia’s life unit.

Investment bankers and analysts say other likely bidders for the unit could be AMP the No.2 wealth manager, and third-largest bank Westpac Banking Corp., which is a large client of AIA.

Minto, who has been with Tower since 1988 and was named managing director in 2006, is steering the company’s cost cuts, simplification of products, margin growth and push into group insurance.

Tower Australia formerly operated with New Zealand insurer and funds management company Tower Ltd as one company which split into separate listed companies in 2006, as the two companies followed different business strategies.

Tower Australia has been expanding from retail to group insurance, which covers groups of people such as members of societies, employees of a common employer, or professionals in a common group, with an eye on the sector’s double-digit annual growth.

Group insurance insurance premiums are expected to reach A$400 million in the year to September 2010 and current performance indicates total premiums could top A$1 billion ($926.8 million) compared to in-force premium of A$785 million a year-ago.

In late 2009, Australian Super, a large superannuation fund, appointed Tower as its life insurance provider. The mandate is expected to rise to A$200 million in annual premiums in three years and Minto said more such mandates were coming up for tender.

Minto has also worked towards cutting costs by simplifying products and retaining higher mortality risk to lift margins that lag rivals.

Tower’s net profit margin stands at about 7 percent compared to 11 percent average for peers, according to StarMine, a Thomson Reuters company. Minto said margins would continue to inch up as efforts pay off.

“We have come from just a few percent. Clearly we want to see some material improvements. They are continuing to project upwards,” said Minto, who owns just around 24,000 shares or 0.01 percent of the firm according to Thomson Reuters I/B/E/S.

(Editing by Valerie Lee)

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