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For sale: insurance company for a dollar or two

By Admire Mavolwane

POLITICIANS and economists both within and outside government circles of whatever form or shape agree on one basic tenet; agriculture is central to the Zimbabwean economy. It is thus obvious that the smooth functioning of major institutions — bot

h private and public — in this sector is of critical importance.

The Grain Marketing Board (GMB) is one such institution which has the legislated and sole mandate of ensuring that the country has sufficient stocks of its staple diet. Furthermore, following the move to government funded agriculture the parastatal has the responsibility of distributing inputs to farmers. With such an important role to play the lead story of Wednesday’s Herald reads like fiction — for lack of a better word. It is said that the GMB has, since 2004, been operating without a functional board and that the title “acting” is as ubiquitous as air at the company’s head office. Seventeen top managers, including the chief executive, financial director, and operations director, are all in an acting capacity. Not only is everyone “acting”, but the books have not undergone any recent scrutiny.  Out of the 83 depots, only 10 are reported to have been audited and at one depot the computer system has not been functioning for over a year. These insights into the operation of the GMB somehow intuitively explain the lack of accurate maize and wheat production figures.

After reading the story, we could not wait for yesterday’s edition of the paper as we, perhaps naively, expected an erratum message and apology tucked somewhere in a corner retracting the story or correcting some of the contents. Many were also expecting at least a statement from GMB’s “acting” spokesperson explaining the true state of affairs at Dura House, or at least a damage-limitation exercise from some of the stakeholders closer to the scene. The waiting has turned from hours to days, which leads many to grudgingly reach some sort of conclusion. Thereafter, the question that is asked is whether these revelations are not just the tip of the iceberg.

We now turn to some lighter stuff focusing on the interim results from the short-term insurance sector. The sector is uniquely composed of two short-term insurance companies both with double-barrelled names Nicozdiamond and Zimnat Lion. Both companies were borne out of the merger of two previously separate companies each going by the fore and surname of the new entities. Prior to the merger of Zimnat Lion with AIG Zimbabwe last year, some suggested tongue in cheek that the new entity should be called Zimnat Lion AIG.

The overall insurance sector, including the life assurance companies First Mutual and Fidelity as well as ZHL, has for a long time now struggled to convince the market that it is as glitzy as its cousin, the banking sector. The market is still to be convinced with three out of four players being both in the penny stock and speculators’ havens territory much to the disenchantment of management.

The fact that the counters have for a long time failed to attract the attention of “serious” investors, that is excluding obviously the major shareholders, has been a bitter pill to swallow. It pains the CEOs in the sector that they have to compete for the loose change from an investor’s pocket as it were. Having been unsuccessful in the quest to change sentiment towards the sector, attention has now turned towards convincing the market that for those seeking an exposure to investment income based earnings, one company is better than the other.

First Mutual has moved out of the penny stock range largely as a result of its “stature” and presumed underlying potential which many feel has not been fully exploited. Now that the dust seems to have settled as far as shareholder issues are concerned it remains to be seen whether the entity can live up to expectations. The counter in a way runs the danger of being another value trap after ZHL, which shed the penny stock cloak a few years back, but is still to actively compete with the rest of the market for the investor’s dollar.

We digress. Back to the financials, Nicoz’s gross written premium grew by 891% to $1, 9 trillion with the growth driven by the inflationary revaluation of assets. Outflows in the form of administration expenses and claims’ costs grew at a slower pace of 827% to $1,1 trillion, which after accounting for re-assurance costs of $685 billion ensured that an underwriting profit of $73,1 billion as compared to a loss of $1,9 billion was recorded.

Zimnat, on the other hand, managed to grow the gross premiums written by 1 085%, to $1,2 trillion, after adopting a “deliberate strategy to retain and attract only the profitable business”. As has become the norm, outflows of administration, reassurance and claim costs exceeded revenues and consequently a $38 billion underwriting loss was recorded.

On the basis of gross written premium, Nicoz is the bigger of the two, whilst at core business level of underwriting risks, Nicoz again gets the better of Zimnat. The new man directing operations at Zimnat’s parent company, TA, has been at pains to explain how the insurer always manages to lose money at this level. He has, if we remember correctly, promised to rectify the situation by the end of this year. As such the market cannot wait for March 2007.

For investment income, Nicoz booked in $1,4 trillion, of  which $1 trillion was in the form of property revaluations, whilst Zimnat only chalked in $554,2 billion, mainly from the gains in equities. The latter does not revalue properties at half year. Stripping off the properties, then the investment incomes look almost identical, with Zimnat appearing to have scored better.

Because of the different treatment of investment properties by the two rivals, the bottom lines are poles apart, with Nicoz showing attributable earnings of $1,1 trillion compared with Zimnat’s $338,9 billion.

Lastly for those who follow both the stock market and local football, the blue and green corporate colours of the two companies easily bring to mind the two Harare-based soccer clubs Dynamos and Caps United. At this stage, however, we are not sure whether the analysis can be taken any further than that.

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