Nrma V Nrma: Branch Dispute In Court

Sydney Morning Herald

Friday June 8, 2001

Anne Lampe, and Anthony Hughes

The internal bickering at NRMA has reignited in a legal dispute between the road services association and the listed general insurance arm over plans to close almost one third of their jointly run branches.

In what appears to be the first public clash of interests between the mutual NRMA Ltd and the demutualised NRMA Insurance Group Ltd (NIGL), the road services arm today will head to court to stop or delay a plan to close 21 of the city and suburban branches that service both policyholders and motorist members.

NIGL's interim chief executive, Mr Ian Brown, also revealed last night that NIGL would sell its building society, which primarily provides credit cards and home loans.

It follows a wholesale review of NIGL's financial services strategy over recent months and NIGL will focus its operations on general insurance and retirement services.

Last night's announcement came as NIGL's shares rocketed to new highs, rising as high as $3.23 before closing at $3.21.

The road services arm, presided over by recently departed NIGL chairman Mr Nicholas Whitlam, has sought an injunction in the NSW Supreme Court to halt NIGL's plans so that the branch closure proposal can be discussed.

Under NRMA's restructure last year, NIGL controls such decisions through an outsourcing agreement with the association but there is a dispute resolution process.

A spokeswoman for the road services arm said that it was told about the branch closure decision four days ago and had unsuccessfully sought details.

``Since then we have sought further and more detailed information of the proposed changes as to what the measures mean for our members and at this stage that is just not forthcoming," she said.

``We have asked for discussions to take place so that we can understand the proposal ... this action is to discuss it ... to achieve a more workable solution."

The decision to injuct NIGL had been made by management, led by Mr Rob Carter, and not by the board.

The spokeswoman said the court challenge had ``absolutely nothing" to do with a half board election commencing next month at which members will be asked to elect seven board members.

``We're there to ensure that the members' interests are protected. Whether or not it is a classic clash between a mutual and a listed company ... I don't know."

Mr Brown was confident of convincing the association that members would not be worse off. ``There's a mediation process we will go down," he said. ``I think commonsense will prevail.

``The branches that we are actually replacing are still within 5 kilometres of each other and there's no big issue of how people will be affected.

``It's different from what the banks have been heavily criticised for. It is really a consolidation of branches." Mr Brown said most staff would be redeployed to remaining branches to bolster frontline staff. He would not disclose expected cost savings or the impact on NRMA's profit.

The decision to divest the building society, purchased only four years ago from MLC for a reported $60 million, further muddies the insurer's financial services strategy. NRMA has been seen as eager to expand in financial services to diversify its earnings away from general insurance, but Mr Brown said the NRMA board had come to the conclusion its core business was general insurance.

NRMA will maintain its life operations and seek to expand via its strategy, that is still to bear fruit, of selling simple superannuation, managed investments and life insurance products.

Behind the share price rise has been anticipation of the changes, NRMA's new status in international sharemarket indices, the impact of better markets on investment earnings and clear evidence of sharply rising general insurance premiums as well as improved confidence in the insurers' leadership.

NRMA share price was also aided by a bullish report from Merrill Lynch, whose analysts said positive operating trends and greater releases from the compulsory third party reserves could add more than 30c to the broker's valuation on the shares of $3.20 a share.

Interim chairman Mr Rowan Ross is expected to step aside some time this month, in favour of a permanent chairman, possibly former Qantas chief executive Mr James Strong, who is expected to then oversee the appointment of a permanent managing director, probably not interim chief executive Mr Ian Brown, however well-regarded.

© 2001 Sydney Morning Herald

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