Insurers face global struggle

By Peter V O'Brien

Friday 27th September 2002

The demutualised insurance and now diversified financial services companies were a sharemarket disaster over the past six months.

It was accepted wisdom six months ago that a downturn in international financial markets, accelerated in the wake of September 11 terrorist attacks, was the main reason for slow growth.

Their share prices still outperformed the main Australian and New Zealand market indices between September last year and February, after being savaged in the post-September 11 panic reaction.

The past six months' share price had more to it than weak international markets, which would affect managed funds' returns and the consequent poor revenue from financial services.

France-based Axa's control of Axa Asia Pacific (the former National Mutual) could coincidentally have something to do with the Australasian company's share price erosion being less than AMP and Tower since March.

The Axa group has a global perspective, based on its sophisticated European base.

AMP and Tower are South Pacific operations with international ambitions, possibly beyond their station in a relatively minor economic region.

Australasian companies operate successfully outside this region in industries where they have specific expertise. Agriculture in its various forms, minerals and the "four-inch nail, no 8 fencing wire" entrepreneurial approach to innovative industrial products are examples.

Finance is different. Relationships, built up painstakingly, are more important than brashness. The overseas targets see you coming and use their quiet capability to clean you out.

This has been seen in the international foul-ups of Australasian banks. It is worth noting the National Bank of New Zealand avoided much of that stuff, apart from occasional business hiccups.

Chief executive Sir John Anderson and his troops could be responsible for the phenomenon. They might also accept that Lloyds' ownership and an overall, as opposed to permissible local variable, culture imposed from London had something to do with it.

The NBNZ had hiccups in bygone days, particularly in 1987 crash days, but seemed to avoid gross excesses.

The insurers/financial services companies had a different pattern. Minnow Tower went to China. It pulled out and the share price has been in the pits since listing.

Those events, plus some general dissatisfaction, seemed responsible for the sacrifice of chief executive James Boonzaier. The directors must have approved most, if not all, of their chief executive's proposals.

We come to the hapless AMP (see below). Overlook the shambles about capital adequacy requirements in the UK subsidiary Pearl Assurance.

AMP chief executive Paul Batchelor, who resigned on Tuesday, told a meeting in Melbourne on August 29 it was difficult to appreciate "at this distance the challenges that this market currently faces" in relation to the UK financial services operations.

He went on to effectively rubbish UK financial markets from his Australian experience: "As well as a depressed FTSE the UK market is groaning under the weight of numerous government-initiated review of the reviews."

Mr Batchelor said AMP continued to "review our UK operation with an analytical unemotive focus. And we are determined not to be blinded by the size of the potential prize."

We now learn about the capital adequacy issue at Pearl, share trading suspensions and so on, leading to Mr Batchelor's eventual resignation as the share price crashed.

The lesson to all this is that investors should be wary about Australasian financial groups taking on the world. Everyone makes mistakes but their magnitude among some groups suggests there could be more "resigned to pursue other business interests" statements after a decent waiting time. Mr Batchelor had no decent waiting time but will probably walk away with a substantial payoff.

Executives will get the opprobrium. Remember the directors who approved executive actions, affirmatively or tacitly. They could retain their positions, "status" and perks.

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