New Zealand Rural Insurer FMG Renews Focus on Core Business

New Zealand-based rural financial services provider Farmer’s Mutual Group [86379] is looking to a renew its focus on core rural insurance and investment solutions businesses and to unload a noncore stand-alone finance company in a strategic answer to uncertainty raised by current economic conditions.

FMG’s chief financial officer, Dave Kibblewhite, told BestWeek Asia/Pacific that the company’s future business opportunities will come mainly from “its own organic growth and domestic rural customers who are now seeking more professional insurance and investment advice.”

The company will also grow through bancassurance distribution, which Kibblewhite said could “help FMG’s customer growth” in 2009. Currently, FMG has 53,000 customers located in rural areas of New Zealand.

Although growing through mergers and acquisitions is not the first priority of the group, the CFO said the company is “open” to appropriate opportunities that could fit its core business strategy in the country.

Focus on the Core

According to FMG, its core business strategy is to “provide best-of-breed insurance and investment solutions to rural New Zealand that best suit their individual needs and sustain their livelihood, while running a stand-alone finance company under the group providing vehicle and equipment finance does not fit with this strategy.”

In February, FMG’s chief executive, Chris Black said there will be an orderly wind-down of existing business managed by the group’s specialist finance company, Farmers’ Mutual Finance Ltd. (FMG Finance) -- “over the next two years.”

Black said service provided to existing customers under FMG Finance will be maintained, and there will be “no impact on FMG’s other areas of business and customers” while it is closed to investment from new customers.

Black said in a statement that all investments of the unit “continue to be backed” and “all debenture holders are due to be paid in full as their investments mature.” FMG will also provide alternative investment options to customers of its investment advisory service.

The chief executive said the company will also “work hard to find alternative roles for the employees impacted by the change.”

Prior to its new business strategy, FMG has offered rural, home, lifestyle and business insurance packages, as well as providing vehicle and equipment finance, investments, life insurance and investment advisory services to both rural and urban residents in New Zealand.

Limited Consolidation

Following the declaration of its business consolidation, there was market speculation about whether the vehicle and equipment finance operation had recorded a poor business performance under the recent global financial downturn that motivated FMG to cut costs by closing this noncore business.

Kibblewhite said the close of the group’s vehicle and equipment finance operation is “not related to its significant investment loss during the global financial crisis.” He added the decision was made mainly because the operation does “not fit with our strategy.”

The CFO also said the group does “not see any other business consolidations in the future,” but he believes the overall business performance in the financial year ended March 31, 2009, is “probably not good” as the increase in natural catastrophes in New Zealand during the year has pushed up the group’s insurance claims.

Kibblewhite said there were several natural disasters such as storms and flooding in the north region of New Zealand during fiscal the year, leading FMG to record about NZ$4 million (US$2.35 million) natural catastrophe-related cost.

FMG's profit for the fiscal year ended March 31, 2008, was NZ$11.7 million, down 13.5% from NZ$13.9 million a year earlier. In the year ended March 2006, FMG's profit was NZ$25.25 million.

Profit from finance activities fell to NZ$678,000 last year, from NZ$880,000 the previous year, on rising finance costs and operating expenses.

Although the uncertain global financial environment may negatively hit market demand for the offshore service in New Zealand in 2009, FMG remains positive in its businesses in the coming year since the local regulator has introduced relevant policies to encourage the business development of domestic insurers and financial institutions, said Kibblewhite.

Established in 1905 with headquarters in Palmerston North, FMG was the first mutual association for farmers founded by a small group of farmers concerned about rising insurance premiums. It claims that it is now the leading rural insurer in New Zealand with a 38% market share.

FMG has a corporate office in Wellington and another office in Christchurch.

To strengthen its support of rural New Zealand, FMG has committed to several alliances that provide relevant benefits to its clients, including life insurance, dairy insurance, arable crop insurance, horticulture and viticulture insurance, as well as lifestyle insurance for farmers and those who live in the rural sector.

(By Rebecca Ng, Hong Kong news editor: [email protected])