HomeBusiness DigestFML sets aside $1,5b for reinsurance firm

FML sets aside $1,5b for reinsurance firm

Conrad Dube

FIRST Mutual Life Assurance (FML) has set aside approximately $1,5 billion for the establishment of a reinsurance firm.

Verdana, Arial, Helvetica, sans-serif”>Proceeds of a proposed capital raising project planned for later this year were also expected to enhance the reinsurance firm’s underwriting capacity, chief executive officer Norman Sachikonye said in an interview this week.

“We have set aside approximately $1,5 billion for this giant project rollout and we are progressing satisfactorily on the planning stage,” Sachikonye said.

He said the capital-raising project would be carried out after the completion of the planning stage currently underway.

The FML board would determine the amount to be raised at the time of proposed rights offer, Sachikonye said.

He said the demutualisation of the assurance business would help reinforce the firm’s position as an insurer and create a platform from which to build future product lines and financial services.

The reinsurance business would benefit from the capital-raising programme, which would take the form of issuing of further new shares through a private placement and proposed rights offer.

FML said the private placement would be in the form of acquisition of ordinary shares by management and strategic partners, as well as the acquisition of shares by employees, in terms of an employee share trust.

The proposed rights offer will be to shareholders arising from the demutualisation, to purchase further shares in First Mutual Ltd based on the number of free shares that they had received.

“The amount of capital-raising will depend on a number of variables, including the cost of doing business at that particular time, hence at this stage it is not yet known or determined,” Sachikonye said.

He said through the reinsurance business local companies would have an opportunity to invest offshore and boost foreign currency inflows.

Sachikonye said the company had identified unexplored opportunities in the reinsurance business.

The continuing growth of the market demanded larger insurance companies with bigger balance sheets in order to effectively take advantage of the emerging opportunities.

Analysts said the Zimbabwean operating environment had become extremely hostile, undermining reinsurance business operations through the erosion of underwriting capacity and increased inflationary claims.

Strong balance sheets play a critical role in the reinsurance business as reinsurers absorb part of the risk that direct insurers cannot accommodate, analysts say.

The past three years has seen players in the insurance industry merging to enhance their competitiveness and take advantage of the synergistic benefits that come with mergers.

“Some of the notable mergers to have taken place include Zimnat Insurance and Lion Insurance to form Zimnat-Lion, Commercial Union and General Accident to form CGU whilst Nicoz merged with Diamond to form NicozDiamond. With such strong balance sheets, it is paramount for FML to enhance the reinsurance company’s balance sheet,” said an investment analyst.

With policyholders adjusting their values in line with inflation, the capacity of the market as a whole has come under fire and some reinsurance companies have resorted to rights issues to ease underwriting pressure.

Recent Posts

Stories you will enjoy

Recommended reading