FIRST Mutual Life Assurance Society (FML Life’s) demutualisation proposal has received a major boost after both the Independent and Statutory Actuaries confirmed in two separ
ate reports that the distribution of free shares was fair and equitable, and policyholder rights were fully protected.
The actuaries’ reports, which form an integral part of the demutualisation proposal and subsequent capital raising and listing process, fulfilled the requirements of Section 33 of the Insurance Act of Zimbabwe (Chapter 24:07).
The section allows the society, with the prior approval of the minister of Finance, to transfer its insurance business to a company.
Robert Williams the Independent Actuary said: “The security of all policyholders of the society is not materially affected by the proposal. The assets allocated to the policyholder fund and the shareholder fund in FML Life and the proposed profit participation rules protect the reasonable benefit expectations of policyholders.”
Williams was appointed by the Commissioner of Insurance of Zimbabwe to review the proposed demutualisation of the society.
The independent actuary’s report covered such areas as the proposed rules to govern the future financial management of First Mutual Life Assurance Company (FML Life), the successor life company of the society and the proposed restructuring of the society’s business.
It also covered the past operations of the society and its practice with respect to bonuses and marketing material and benefit illustrations to policyholders including sampling policy documents.
Williams said the assets allocated to policyholders would be equivalent to the liabilities of the policies, which are to be transferred to FML Life, calculated on the society’s current valuation basis.
These assets would include a Bonus Smoothing Reserve as is provided for in the valuation of the society.
The report says the valuation basis included additional margins that provide further security to the policyholder funds that would remain in FML Life.
Williams said: “I have reviewed the adequacy of the shareholder and policyholder funds in FML Life. In relation to the proposed business plans of this company, I am satisfied that, in my opinion, the security of policyholder benefits is not materially affected.”
The actuary said the acquisition of shares by management and the strategic partner under the private placement, as well as the proposed rights offer to all initial shareholders, would not adversely affect the interests the current members and would “have the positive effect of enhancing management focus and the diversification of earnings which would be to the benefit of those members.”
The Statutory Actuary noted that eligible policyholders’ wealth would be increased by the allocation of free shares and that the structure of business, with the creation of First Mutual Ltd and FML Life, would be more appropriate to its future development.
Statutory Actuary Giles Waugh said in his report: “The rights and reasonable benefit expectations of policyholders will not be adversely affected by the demutualisation proposal. The policyholders will have adequate security as the amount of capital retained within FML will only be marginally affected, the Capital Adequacy coverage will be satisfactory and the passing of strategic assets to the holding company will increase the diversification of investments.”
First Mutual chief executive officer Norman Sachikonye said the company was excited about the developments and changes taking place in relation to demutualisation.
He said the actuaries’ reports formed an integral part of the demutualisation proposal and was a step in the right direction.
“We are excited about the deve-lopments taking place in relationto demutualisation and the Inde-pendent and the Statutory Actua-ries’ reports provide a favourableenvironment as we seek policyholders’ approval for the process,” Sachikonye said.
The demutualisation proposal would only proceed if at least 75% of the votes cast by the members were in favour of the proposal.
The demutualisation proposal document, which has been sent to members for consideration prior to voting, is the third step in the company’s efforts to transform the life mutual society business into a shareholder-owned group of companies.
On the transformation, the society would be wound up.
FML Life would take over the running of the life insurance business and the pension schemes presently operated by the society.
The transformation will operate retrospectively from July 1 2003.
The company said membership of the society would cease when the life insurance business was transferred to FML Life, but the policies in existence would continue unaltered and all policyholder benefits would remain intact.