RAND MERCHANT INVESTMENT HOLDINGS LIMITED - Voluntary announcement regarding Australian bushfires and sale of Youi New Zealands insurance portfolio

Voluntary announcement regarding Australian bushfires and sale of Youi New Zealand’s insurance portfolio

RAND MERCHANT INVESTMENT HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2010/005770/06)
ISIN: ZAE000210688
JSE ordinary share code: RMI
(“RMI”)

VOLUNTARY ANNOUNCEMENT RELATING TO YOUI AUSTRALIA’S EXPOSURE TO
THE AUSTRALIAN BUSHFIRES AND TO THE COMPLETION OF THE SALE OF YOUI
NEW ZEALAND’S INSURANCE PORTFOLIO

1. Youi Australia’s exposure to the Australian bushfires

RMI wishes to provide information regarding the exposure of its
Australian subsidiary, Youi Pty Ltd (Australia) (Youi), to the
devastating bushfire events in Australia.

Australia has experienced multiple and ongoing bushfire events
since late November 2019 affecting a number of states. The severe
drought and high temperatures have intensified the devastating
impact of the bushfires.

Youi’s CEO, Hugo Schreuder, commented as follows: “Looking after
our customers affected by these events is our first priority.
Our claims and assessing teams are doing a superb job dealing with
these   claims    under   demanding   conditions.    We   encourage
our customers to make contact at the earliest opportunity to lodge
a claim and where possible we are also proactively trying to
contact customers potentially impacted. Our thoughts are with
those communities affected by this unprecedented disaster."

Youi’s current estimate of gross losses (excluding potential
reinsurance recoveries) related to the bushfires since November
2019 and up to 8 January 2020 ranges between A$25 million and A$40
million. This wide range is reflective of the high level of
uncertainty pertaining to these estimates. The reasons for the
high level of uncertainty are inter alia:
   - access to some the affected areas is restricted preventing
     accurate assessments for many claims; and
   - longer than usual reporting delays prompted the inclusion of
     a larger than normal allowance for incurred but not reported
     claims.

Youi’s excess of loss reinsurance cover for catastrophe events is
expected to cover a proportion of these losses. The salient
features of the current excess of loss treaty are as follows:
   - “per event” cover from A$9.5 million to A$980 million;
   - an event is defined by an “hours” clause of seven days for
     the aggregation of losses as a result of fire;
   - one pre-paid reinstatement across all layers; and
   - a further A$130 million of drop-down cover to provide
     sideways cover for additional events.

The implication of the “hours” clause is that only losses in a
consecutive seven-day window can be aggregated as a single event.
With these unprecedented bushfires stretching over many weeks it
implies that several A$9.5 million deductibles could apply,
thereby materially limiting the size of the reinsurance recovery
on this treaty for the current bushfires.

Another key component of Youi’s reinsurance programme is an annual
aggregate natural perils treaty. This treaty assists in limiting
the extent of total natural perils claims incurred during a
financial year and provides protection for natural perils claims
in excess of circa A$80 million and up to circa A$108 million.
Including the estimated retained loss from the bushfires, the
retained loss from a large hailstorm on the Sunshine Coast in
November 2019 and other natural perils claims, Youi is estimated
to have incurred between A$45 million and A$60 million in net
natural perils losses to date. Depending on how much longer the
bushfires continue to rage on, the circa A$80 million attachment
point may well be reached resulting in a recovery from this
treaty.

RMI expects to publish interim results on 11 March 2020 when
further detail regarding the bushfires will be provided.

2. Completion of the sale of Youi New Zealand’s insurance portfolio

On 25 September 2019, RMI announced that Youi New Zealand will
dispose of its insurance portfolio to Tower Insurance Limited.
Shareholders are advised that this acquisition was completed
during December 2019. The final transaction proceeds were A$12.1
million (NZ$12.6 million). The discontinuance of the Youi New
Zealand insurance operation will release surplus capital of circa
A$47 million (circa NZ$50 million) which is available to Youi
Holdings Pty Ltd.

RMI owns 89.1% of OUTsurance Holdings Limited (OUTsurance).
OUTsurance owns an effective interest of 84.5% in Youi Holdings
Pty Ltd. Youi Pty Ltd (Australia) and Youi NZ Pty Ltd (New
Zealand) are wholly-owned subsidiaries of Youi Holdings Pty Ltd.


Sandton
10 January 2020

Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

Date: 10-01-2020 01:29:00
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