First Mutual Holdings Limited (FMHL) is in talks to buy the remaining 19% shareholding in NicozDiamond — which is held by minorities — with a target of completing the exercise by year-end, group chief executive officer Douglas Hoto has said.
BY TATIRA ZWINOIRA
FMHL purchased an 80,9% controlling stake in NicozDiamond Insurance last year that led to the latter delisting from the main bourse as per requirements of the Zimbabwe Stock Exchange after surpassing the 35% threshold.
Speaking at an analysts briefing of the group’s financial results for the year ended December 31, 2017 on Wednesday, Hoto said that once the talks are completed they would merge their short term insurance subsidiary Tristar Insurance with NicozDiamond Insurance.
“First Mutual Holdings has acquired 81%, using round figures in equity as of December 2017 in NicozDiamond Insurance and this business is in the same space as Tristar Insurance. At this point of time, those of you from the stockbroking fraternity know when you are on 81% you have breached the rules of the stock exchange. We are in the situation where we are making a mandatory offer and this is to acquire the remaining 19%,” he said.
“Once that is done, the two businesses of NicozDiamond and First Mutual Holdings will merge into one entity. Our inspiration is that when we do that we will create the biggest short term insurance in the market.”
FMHL wants to merge Tristar Insurance with NicozDiamond Insurance to increase its market share in the short term insurance business.
“We acquired it (stake) by issuing First Mutual shares to the National Social Security Authority who had bought the shares from the shareholders in NicozDiamond. Initially it was 50,9% then the next tranche was 30%,” Hoto said.
“If you look at Tristar Insurance, it was not even in the top 10 in the market so it was a small player. So our strategy has been that we either are first or a strong second in the areas that we operate and the reason for that is that you create critical mass and reduce the unit costs and get more efficient. Tristar is there but it was not giving us the necessary critical mass.
“In the short term insurance, we would like to see ourselves taking the pole position and writing more complex risks because we have a stronger balance sheet and team of technical managers as a result of the combination of the two teams (First Mutual Holdings and NicozDiamond Insurance.”
He said that the initial phase of the deal happened in May last year before it was concluded in the middle of August at a cost of $900 000 in transaction costs.
According to the third quarter report for 2017 by the Insurance and Pensions Commission, Tristar’s capitalisation was below the $2,5 million minimum capital threshold at $2 million. NicozDiamond, on the other hand, was the second largest capitalised firm after Old Mutual with a capital position of $16,2 million.
In the company’s report for the year ended December 31, 2017 the FMHL group recorded a 31% increase in profit after tax to $12,21 million from $9,3 million realised in 2016 on the back of an increase in investment income.