Outsurance sells New Zealand insurance business
Rand Merchant Investment Holdings says the sale of Youi Holdings will release capital of up to NZ$13m
Outsurance, the 89%-held subsidiary of Rand Merchant Investment Holdings (RMI), has agreed to sell its New Zealand insurance business Youi for up to NZ$13m (R122m).
Outsurance has not had an easy ride in New Zealand where it has previously run into trouble with regulators and, in 2016, was fined NZ$100,000 for poor sales conduct.
In a statement on Wednesday, RMI said the sale provides an opportunity for Youi to unlock value on favourable terms and will allow the Youi Group to focus on its Australian business where the greater scale and diversity of the market offers more growth opportunities for the brand.
Outsurance will sell Youi Holdings to Tower Insurance, New Zealand’s third-largest general insurer. The deal involves some 34,000 active insurance policies and is expected to be finalised before the end of 2019, although it is still subject to regulatory approval.
Richard Hasson, co-head of Electus Fund Managers, said Youi New Zealand is struggling to achieve scale with low premium growth in the 2019 financial year and the business is only slightly profitable, “So the exit from New Zealand, the withdrawal of the regulatory capital that was required in New Zealand to support the business, and focusing management time on Australia strategically makes sense”.
Warwick Bam, head of research at Avior Capital Markets, said that, considering growth has been very difficult for Youi in New Zealand, divesting at this time appears appropriate. The move is immaterial from an earnings and valuation perspective, “but the decision itself signals that Outsurance is looking to optimise its efforts into geographies and businesses that are more likely to disrupt incumbents and generate returns”.
Tower CEO, Richard Harding, said in a statement that the acquisition will further accelerate the company’s growth ambitions and drive shareholder value.