Foundation Life wants to return half a billion dollars to policy holders. File photo. Photo: 123rf
- Foundation Life proposes wind up and $500m payout to policy holders
- Been closed to new business for years but returns being squeezed
- Offering customers cash up of policy or transfer to new provider, Chubb Life
- Directors, independent actuary back proposal
Life insurance company Foundation Life is proposing to wind up - and return about $500 million to policy holders.
After a long process, it has proposed to offer policy holders two options - cancelling their policies and being paid out, or taking a replacement policy with Chubb Life with the possibility of some cash as well.
Foundation is owned by Australian investors and was bought from Tower Insurance in 2014, but has been closed to new policies since 2000.
Chief executive Grant Piercy said the proposal was in response to policyholder demands, and would offer flexible options to suit individual policy holders.
"Most of our policies have been in existence for a long time and, following feedback, it was clear to us that many policyholders' needs for life insurance had changed along with their financial circumstances."
He said financial market circumstances and a shrinking customer base pointed to the need for change.
"There will be increasing diseconomies of scale over the next 70 or so years till the last payments are projected to be made, and without change, this combined with the low interest rate environment for investments will adversely bear on the level of returns we can provide to policyholders."
Options
Policyholders would be offered various options from cashing up their policy with a minimum 5 percent increase above the surrender value; taking a replacement policy with Chubb Life with a guaranteed life cover of at least 5 percent above the current death benefit, and no further premium payments; and a combination of a new policy and cash.
Piercy said the proposal offered policyholders more value and choice.
The Reserve Bank has approved the scheme and an independent actuary and the company's directors have recommended it to policy holders, who must approve by a majority at a special meeting on June 9.
A plan to wind up the business was mooted as far back as 2018, but the complexity of the proposal, Covid, and delays in getting clearances from Inland Revenue, and the RBNZ have pushed out the timetable.
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