Hih Dismisses Calls For Capital Injection

Sydney Morning Herald

Friday June 16, 2000

By ANTHONY HUGHES

"HIH Insurance yesterday moved to stem the tide of ill will towards the company by denying it needed to raise fresh capital, but the jury remains out as to whether the company's share price can recover so soon after its recent dismal performance.

The general insurer's managing director, Mr Ray Williams, also hit out at suggestions he would not consider friendly takeover bids for the company, requiring him to allow potential bidders to conduct due diligence.

``The inference that I would not do that, which is in the interests of shareholders, is totally wrong," Mr Williams said.

``The only reluctance to open up the books is a meaningful bid."

While he believed the general insurance market would continue to consolidate, suggestions that HIH had received offers from companies such as QBE Insurance were wrong.

HIH shares yesterday rose 7c to $1.02 after the company tried to soothe fears about its solvency by saying it did not need to raise new capital. Some analyst reports have suggested the company would need to raise more than $250 million to satisfy new requirements set by the industry regulator, the Australian Prudential and Regulatory Authority.

HIH has consistently argued that its insurance exposures were covered by reinsurance protection and were meeting standards imposed by APRA.

But some analysts lowered their valuations yesterday and were scathing about the statement released to the market by the company, saying HIH's balance sheet was weak, cash flow was negative and the company was heavily geared.

However, one holder, Investors Mutual's Mr Anton Tagliaferro, said it was hard to understand why a company with only slightly lower premium revenues than NRMA was valued at one-eighth. HIH is Australia's second largest general insurer behind NRMA.

``As long as investment earnings on shareholders' funds more than offset underwriting losses and interest payments, you are fine," Mr Tagliaferro said. ``If nothing else, the NRMA float highlights the disparity in the valuation."

HIH said its investment performance was in line with the market, though an unrealised loss would be booked on the company's 25 million shares in phone company One.Tel. The investment was non-core but was not for sale at present, Mr Williams said.

Mr Williams also defended the company's operational performance, saying Australia constituted 67 per cent of its portfolio and premiums were improving, with 63 per cent of the local business in motor, home and compulsory third-party insurance. He said HIH had initiated a global review that would focus on improving distribution channels and margins.

Williams defends

*No capital raising ``is required, imminent or planned"

*Will book unrealised loss on One.Tel shares but otherwise investment performance in line with market

*Australian operations are seeing improved premium rate environment though international operations will ``impede a full earnings recovery

© 2000 Sydney Morning Herald

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