Embattled Hih Explores The Possibility Of A Trade Sale

Sydney Morning Herald

Tuesday August 22, 2000

Anthony Hughes

Beleaguered insurer HIH has moved to lift its stagnating share price and is talking to several rivals about a joint venture or sale of its Australian operations dealing with personal lines of insurance, including compulsory third party insurance.

The prospect of a sale throws up a potential opportunity for the newly listed NRMA, which is cashed up with an estimated $600 million plus in surplus capital. It declined to comment on its interest.

HIH, Australia's second largest provider of personal lines of insurance, behind NRMA, said it was ``pursuing a range of proposals" and was ``involved in formal negotiations with respect to its Australian personal lines operations".

A joint venture would have the dual benefit of providing a market valuation to HIH's businesses, given HIH has unsuccessfully argued the market has failed to recognise the value of its operations. But the disclosure failed to inspire the market and shares in HIH fell 2c to $1.13 yesterday.

Australian general insurance has been the best of HIH's operations in recent years, while markets such as Britain and the US have been unkind.

The discount the market has applied to HIH's operations has been put into stark relief with the NRMA listing. While not strictly comparable because of different capital structures, NRMA has a market value at $4.45 billion, compared with HIH's capitalisation of just $533 million.

In the past two years (during which time HIH took over FAI Insurances), HIH's share price has slumped from more than $3 to as low as 95c in June and several brokers still have ``sell" recommendations on the company.

The affected operations include the FAI and CIC brands selling insurance for cars, home and contents, compulsory third party (the largest contributor of premium income) and travel.

The operations constitute about 60 per cent of the company's Australian operations, which in turn represent close to 70 per cent of total net premium income of close to $1 billion.

Responding to concern about its solvency and profitability, HIH said in June that general insurance was about scale and efficiency and, as a result, it had initiated a global business review to improve distribution and margins.

Soon afterwards, non-executive director and former FAI Insurances managing director Mr Rodney Adler began buying shares in HIH at depressed prices.

He now accounts for about 5 per cent of the company and has been mentioned as a possible agent of change within the company.

HIH also said at the time that it did not need to raise additional capital, despite new guidelines outlined by the Australian Prudential Regulation Authority that could insist on more stringent capital adequacy.

HIH said then it would consider pruning or exiting marginal businesses in order to remain within APRA standards.

FACT FILE

Says involved in formal negotiations with several parties for joint venture/trade sale of Australian personal lines businesses.

NRMA listing underlines value of HIH's Australian market franchise.

Personal lines, primarily CTP, constitute 60pc of Australian premium income.

© 2000 Sydney Morning Herald

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