Nrma Buys Hih's Workers Comp Lines

Sydney Morning Herald

Thursday March 15, 2001

Anthony Hughes

Troubled insurer HIH has given itself extra breathing space after realising up to $130 million by selling its workers compensation businesses around Australia to rival NRMA Insurance.

The workers compensation businesses were meant to form part of a corporate insurance joint venture struck between HIH and QBE Insurance last week but QBE, already heavily exposed to this market, agreed to allow HIH to sell the workers compensation portion of its contribution to the joint venture.

NRMA has paid seven times earnings but expects to spend another $7.5 million integrating the business to give it a strong position in Australian workers compensation market, position itself for the potential privatisation of schemes in NSW and Victoria, as well as add to its existing operations in WA through SGIO.

Like last month's acquisition of State Insurance in NZ, NRMA does not expect the acquisition to be earnings per share positive for another 18 months.

NRMA will pay $100 million upfront and another $30 million depending on earn-out and warranty clauses, but a large part of the business includes ``non-risk" operations, where NRMA will manage parts of the government-run schemes in NSW and Victoria.

Chief executive Mr Eric Dodd said the price was well within NRMA's valuation range for the business. NRMA's shares dipped 5c to $2.85.

HIH was the second largest player in the market with 15 per cent of the NSW market and 24 per cent in Victoria.

HIH spokesman Mr John Clarke said the interest of a third insurer in HIH's Australian operations HIH has already struck deals with Allianz and QBE affirmed they were desirable businesses, despite HIH's other problems.

``The unfortunate thing about HIH's position is the excellent Australian operations have suffered the consequences of problems within HIH's international business," Mr Clarke said.

HIH shares remain suspended while it and numerous regulators attempt to clarify its financial position, although it has now raised more than $500 million in asset sales to offset a speculated loss of similar proportions.

HIH is also said to be selling some properties. HIH is scheduled to release its financial results tomorrow, a timetable Mr Clarke said would be met. NRMA revealed yesterday the terms of its $400 million, 10 per cent off-market buyback, under which the capital component of the price has been set at $1.78, the same as the cost base for NRMA shares distributed in last year's demutualisation and float.

The final buyback price will be $2.72, adjusted up or down for movements in the price until after the close of the offer on May 16.

This means that shareholders will not realise a taxable capital gain from selling into the buyback, which is targeted at reducing the number of small shareholders.

But they will benefit from receiving a fully franked dividend for the difference between the capital component and the final price. The eligibility date for participation is March 28.

FACT FILE

Sept 13, '00: sells half of personal lines business to Allianz for $200m.

March 6, '01: QBE buys 60pc of corporate insurance operations.

March 9, '01: sells balance of personal lines to Allianz for $125m.

March 13, '01: sells workers comp to NRMA for up to $130m.

© 2001 Sydney Morning Herald

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