Short-term insurer OUTsurance lists on the JSE

OUTsurance Group listed on the JSE on Wednesday following the transition and rebrand of Rand Merchant Investment Holdings (RMI), the investment holding company that owned OUTsurance, from RMI to OUTsurance.

The listing as OUTsurance marked the end of an era for RMI as an active investor in a portfolio of financial services businesses.

OUTsurance underwrites short-term insurance products in South Africa, Namibia and Australia.

In September last year, RMI announced its decision to unbundle its 25% shareholding in Discovery and its 27.3% stake in Momentum Metropolitan Holdings (MMH) directly to shareholders. The unbundling was finalised in April this year.

Discovery and MMH made up 39% of RMI’s total portfolio and were the group’s third- and fourth-biggest investments. The Rand Merchant group of companies held stakes in both companies since the early 1990s. The group bought a controlling interest in Momentum Metropolitan in 1992 and provided Adrian Gore and Barry Swartzberg with the seed funding and the life insurance licence to build Discovery in 1993.

The bundling was designed to reduce the large discount between RMI’s JSE-listed market value and that of its underlying assets. These big share-price discounts have become an unpopular feature of investment holding companies, such as RMI, in recent years.

At the end of last year, RMI sold its 30% stake in British insurer Hastings Plc, with the proceeds of about R14.6 billion helping it to avoid a planned rights issue needed to pay debt. RMI made a profit of R8.7bn after settling Hastings’ debt.

The unbundling and sale of Hastings reduced the discount significantly. According to RMI’s 2022 financial results, at the end of June, RMI traded at a 2% discount to its intrinsic net asset value, having traded at a 28% discount at the end of the previous financial year.

In September, RMI said the unbundling, the sale of Hastings, and the declaration of a special dividend of R2.2bn in March had collectively returned about R36bn to shareholders.

Following the unbundling and the Hastings sale, OUTsurance comprised about 95.4% of RMI’s assets.

Company structure

OUTsurance started trading on the JSE under the share code “OUT” on Wednesday, with RMI shares replaced by those of OUTsurance.

“By listing OUTsurance, RMI’s most valuable asset, shareholders get direct access to one of the biggest insurance brands in South Africa through a more efficient and well-capitalised operational structure,” OUTsurance said in a statement.

According to a “transition announcement” by RMI in September, OUTsurance Group Limited consists of two subsidiaries:

• OUTsurance, held 89.3% by OUTsurance Group Limited and 10.7% by OUTsurance management trusts and management minority shareholders.
• RMI TreasuryCo, including the assets and liabilities remaining on RMI’s balance sheet, as well as its interests in fintech AlphaCode and RMI Investment Managers.

RMI said the investments underlying the AlphaCode portfolio companies will be retained within RMI TreasuryCo. “RMI TreasuryCo remains committed to these businesses and its co-shareholders and management partners and will continue to support, drive scale, profitability, and liquidity of these businesses,” it said.

RMI said it was in “advanced-stage confidential discussions” about MMH’s interest to acquire RMI’s stake in RMI Investment Managers (excluding RMI Investment Managers Affiliates).

Benefits to shareholders

OUTsurance said the benefits to shareholders of the listing are:

• A simpler operational structure offering a single access point to OUTsurance;
• A cost-effective way to complete an initial public offering of OUTsurance;
• Retaining the group’s empowerment credentials;
• A higher dividend pay-out ratio;
• A phased reduction of the holding company and personnel costs at RMI, until March 2023, whereafter the only remaining costs will relate to the costs associated with being a listed entity; and
• A focused OUTsurance management team with direct accountability to shareholders.

RMI said the listing will not change the business of the OUTsurance Group. “The core strategic objective of the OUTsurance Group is to unlock additional runway for growth and improve diversification via the activation of a wider set of insurance products sold across a wider set of distribution channels,” it said.

OUTsurance Group offers car, home, business and pet insurance to the South African market. OUTsurance Life Insurance Company offers life and funeral policies, and OUTvest offers investment products.

Sister company Youi offers car, home, business and compulsory third-party insurance products to the Australian market.

Marthinus Visser, the chief executive of OUTsurance Holdings, said: “We are delighted to announce our listing on the JSE, which represents a new and exciting chapter in OUTsurance’s history. I am incredibly proud of our team to have reached this milestone and would like to thank RMI/RMB for a brilliant 25-year partnership. We have an experienced team with a clear strategy, and we are leveraging our established track record and significant footprint to continue building and returning value to our clients, shareholders, staff, service providers and communities. We look forward to life ahead as a public company.”