Transcript of 2000 NRMA Insurance AGM

MR MAYNE: Chairman, just three or four quick issues to rattle through. I'm a shareholder and a proxyholder for 704 shareholders with 618,792 shares. Firstly, on cash for comments, why is the NRMA still paying John Laws between $100,000 and $500,000 a year? I know the general community and certainly most people in the media were shocked to see when this disgraceful process was revealed last year, when there was a government inquiry into it, and I must say personally it's quite disappointing to see the NRMA continuing with this practice when it has now been discredited and companies such as Optus and the banks have dropped their deals. Why haven't we dropped our deal, and what is it that we do get from John Laws for this large six‑figure sum?

Could you also tell us about the NRMA's policy on its funds management division. I've never seen or heard the NRMA take a public position on anything when it comes to its investment arm, and I guess one of the great problems in Australia in the corporate scene is the lack of corporate accountability and the lack of shareholder pressure. So rather than small shareholders like myself standing up at meetings and asking questions, the whole corporate debate in Australia would be a lot better if well‑informed, well‑researched institutions such as the NRMA stood up at annual meetings across the country and took positions on things to try and drive reform, transparency and accountability. So what is your position on the question of, I guess, having a more activitist, proactive funds management division?

In relation to reinsurance, I understand that we had claims, I think, of $85 million last year, but we say that we had no larger single exposure than $10 million. Could you elaborate on perhaps what some of these global disasters were that were all under $10 million, but together came to an $85 million claim? I understand there was a story in a London insurance industry newsletter last Thursday, which was suggesting that we seem to be quietly remaining quite a significant player in reinsurance. Can you tell us whether we are getting out of the business or whether we are actually continuing to write any new business in reinsurance?

Lastly, could you give us a final precise as to what the total cost of the demutualisation process was? I read something in the press saying that it was $110 million all up, which is one of the largest troughs ever seen in corporate Australia. Is that a correct final figure, or was it in fact a little bit larger than that, and just what were the single biggest items that brought us up to that very large figure of $110 million? Thanks very much.

MR WHITLAM: Thank you, Mr Mayne. I'll answer the second question first - that's the funds management question. We actually have a policy that we will participate as a matter of course in voting at annual general meetings. Rather than not voting, we have a policy of participating, and we follow that policy, needless to say. As to speaking at those meetings, obviously we speak where appropriate. But what's important is that we participate. I shall ask the chief executive to respond to the first question, and then ask Doug Pearce to respond to the reinsurance question, he being our expert in that area. But I can assure you that, with respect to reinsurance, it is a matter that is under continuing review.

Finally, as regards the cost of demutualisation, Ann O'Driscoll is probably the right person. I'm trying to get a nod. I think the order of magnitude that you gave was right - or George Venardos may respond. I think the magnitude was about right. The break‑up of the big numbers I will leave to them. So I'll now turn to the chief executive to respond to your question on John Laws.

MR DODD: Thank you, Mr Chairman. Thank you for your question, Mr Mayne. In relation to Mr Laws and our relationship with him, as you pointed out there was an inquiry last year that covered our relationship, amongst a number of others, and we are very pleased to say that that inquiry made no adverse finding whatsoever in relation to the NRMA's relationship with Mr Laws. As we stated at the time, and since, it is a normal commercial relationship that is very effective in terms of all of our research. The effect and flow‑on benefit that we get after the endorsements by Mr Laws are certainly marked, and we will continue with that relationship as long as it continues to be as successful as it has been.

Before handing over to Doug Pearce, I'd just like to say, as I mentioned during my talk on the reinsurance side, it is certainly, as the chair has pointed out, an area that we have under review. Our participation is small. It has been a very effective part of our business over the years and, like most of these businesses, you need to understand the long‑term relationships rather than react to short‑term occurrences. But in relation to the specific issues in terms of that claims notification, I'll hand to Doug for that. Thank you.

MR PEARCE: Thank you for the question. You mentioned a number of 85 million. That was the total claims expense, thereabouts, for that portfolio, so just as we write motor vehicle insurance - we write about $800 million worth of that - and we pay out, I think, somewhere of the order of $750 million, for our reinsurance book we wrote about $85 million worth of premiums and paid claims of about the same amount. That's why it was a bad year.

The particular losses we're talking about: there was a couple of big storms worldwide, Lofa and Bart, and I know the European storms, but what's particularly meant by that we're exposed to no more than $10 million - it's actually now about $5 million - is that we take out reinsurance on our reinsurance book. We protect it so that we're absolutely limited as to our exposure on any particular storm that hits anywhere in the world. Thank you.

MR WHITLAM: Perhaps Ann O'Driscoll will respond on the total cost of demutualisation.

MS O'DRISCOLL: Mr Mayne, on the total cost of demutualisation - and this includes the period of the study that led to the information memorandum on whether we should actually proceed with the float of NRMA Insurance and the work up to 30 June on that process - NRMA Insurance as a group in the June 99 year incurred total costs of, after income tax from that respect, of $15 million, and in the year to June 2000 a further $54 million.

Those costs do not include the actual cost of flotation which, as set out in the prospectus, were in the order of about $50 million as well, on top of that. That also does not include the costs borne by NRMA Limited. They're separately disclosed in those accounts which are the subject of today's tomorrow. But just for reference they were in total - sorry, they include the NRMA Limited ones. The NRMA Limited ones were, across two years, under $5 million. So that's on top of that. Thank you.

USHER: I wish to introduce Stephen Mayne.

MR DODD: Thank you, Mr Mayne.

MR MAYNE: Thanks, Mr Acting Chair. I guess just a couple of comments: I would have thought that when having a contested election that a suitable protocol would be to ask the four candidates to speak to the meeting. It's very difficult to gauge what someone can bring to a board on two paragraphs and, particularly in the case of my paragraphs where half of the platform was actually removed from the notice of meeting. So I'd like to just very briefly speak to the meeting about why I've stood and I would suggest that you ask the other three candidates to speak briefly about what they can bring to the board.

MR DODD: I will certainly accede to the first part of your request, Mr Mayne. Please go on.

MR MAYNE: I think it's worth noting that I knew it would be very difficult to get elected here, if you think about the fact that the NRMA Limited I think had roughly 25 million shares or thereabouts to vote and voted them against me, and then you've got the open proxies which I think were 163 million in my case voted against me, and in the other directors' cases where there was about 60‑odd million voted for them. The reality of the situation is that the board was within their power to actually elect me to the board and not elect Mr Whitlam.

If the open votes had gone against Mr Whitlam and had gone for me, I would have finished slightly ahead of him and he would have been off. I think in that context, there should have been at least some dialogue between the board and me as to why I was standing and what you would bring, when ultimately the board was deciding who would be on the board here. There's been no dialogue at all; there's been no discussions; there was no invitation to speak. I think in terms of just a democratic process, it's left a lot to be desired.

The two reasons that I stood for the board were, first, that I'd been a business journalist for about 11 years and, like everyone else in the profession, was shocked to see what happened with the whole cash‑for‑comment situation, and I resolved to stand for any board of any company that was still paying the shock‑jocks - Alan Jones and John Laws - cash for comment. So I've therefore stood for the Commonwealth Bank and tried to stand for Optus on these platforms.

I was very disappointed when the board claimed that the following statement was defamatory and therefore should not be put in the notice of meeting, and it was simply a statement that said, "Mr Mayne believes that the ongoing commercial relationship between the NRMA and John Laws is inappropriate and that the contract should be terminated immediately." That's just a statement of my opinion, it's not defamatory, and I think it was ridiculous of the board to censor the platform like they did.

MR ..........: They make their own rules.

MR MAYNE: The other aspect of the reason for standing was this whole idea of having more activist institutions in Australia. I've been going to annual meetings for 10 years now, and it's dreadful that you don't get this appropriate amount of pressure being put on boards to perform and to be transparent and to be accountable, and if big institutions like the NRMA actually stood up publicly and took a position and drove the public debate about standards and performance, you'd actually have a corporate performance which is much better than we currently have in Australia. So I was interested to hear the comments earlier from the chairman about the fact that the NRMA does vote its shares, which I think is a good policy, but I think that you should be far more active and visible in that regard.

In terms of what I think I could bring to the board, I had 18 months working as a press secretary for the Victorian government in the early 90s, and had specific responsibility for their compulsory third party scheme and their WorkCover scheme, and for 12 months was actually the insurance and banking writer on The Age. So I have a little bit of industry knowledge there; had about five years as business editor of the Herald Sun and the Daily Telegraph. So I've picked up some broad business knowledge.

In terms of other boards that I've stood for, I got about 40 per cent of the vote with the Commonwealth Bank and 57 per cent of the vote at Woolworths, where the chairman used the open proxies to actually vote it down. I think that, having read the Finn review in recent weeks, the amount of new revelations that have come out, particularly about the chairman, but more importantly about the general division on the board - this ongoing fight between Nick Whitlam and Anne Keating and these ongoing disputes that arise between Eric Dodd and Nick Whitlam; that Nick Whitlam wanted Eric Dodd's job - the fact of the matter is you've got a dysfunctional board here.

I think it's terrific that three new directors have joined the board who've got the requisite industry experience. So the newcomers have been a good addition - the likes of Rowan Ross - but we've got too many of the old guard here. It's still too much a plaything of the Labor Party, the NRMA. I mean what does the former Labor mayor of Cessnock bring to a $4 billion insurance company? You don't see too many other Labor Party players on the boards of top 30 companies. So I think if the NRMA was rid of all the Labor Party associations and moved to having a completely commercially based board, you wouldn't have all the in‑fighting and you'd have a much better functioning board, with the appropriate skills to take the company forward.

I also think that the company's board is a little too Sydney centric and it's too large. There are 12 directors here. The AMP only has nine. I don't think there are any directors who actually live interstate, yet you've got a third of the business now coming from interstate. I'm not sure where Dominique is living now.

MR DODD: Mr Mayne, could you please finish up?

MR MAYNE: So I think the other directors should speak to the resolution and, as far as my advice to the shareholders today, I'd suggest that you vote against Nick Whitlam because he's just been too much of a divisive force in this company; that you vote against Maree Callaghan who's been on the NRMA association board since 1991 - is the longest serving director and doesn't really have the appropriate insurance expertise. I'd strongly support a vote for Neil Hamilton who's a former head of MMI and Challenge Bank - he's got all the appropriate skills - and I'd ask, with due deference to the shareholders, that a vote for me would perhaps be a better option than for Mr Whitlam and Ms Callaghan. Thanks for your time.

MR DODD: Thank you, Mr Mayne. I think in the interests of moving on with the meeting itself, there's no need for us to respond to much of what was said. We do have interstate representation on the board, though, Mr Mayne. I will point that out. Mr Hamilton in fact will be leaving for his home in Perth very very shortly, and we have at least two members - Mr Astbury and Ms Collins - who are in fact domiciled in Melbourne. Thank you for your comments. Does anyone wish to speak to these four resolutions?

MR MAYNE: Just a couple of points, Mr Chairman. The earlier speaker mentioned the $110 million for the demutualisation costs. I think all the figures that were read out actually added up to $125 million as the final figure. I'm interested to know if Andrew Davis, the speaker who spoke earlier before, was a participant in that trough at any point.

Full marks for John Egan for getting up and identifying himself, explaining his relationship to the company, and then speaking in support of his independent but paid advice. I'd have to say that it amazed me to see John Egan stand up. I lost all faith in John Egan when he came out and said, "A million free shares for George Trumbell at AMP is okay." On the first day they started trading, that was a $23 million gift to George Trumbell. It was the worst and most excessive options deal ever done in corporate Australian history, and John Egan was the independent consultant who said that was okay. So from my point of view he lost all credibility from that point.

But, amazingly, the man who said $23 million for George Trumbell was okay has said that our chairman's getting overpaid. According to the Financial Review in the last week or two, Nick Whitlam is lining himself up for an options issue of half of what Eric Dodd is getting tonight and, given that he's already got $500,000 last year and is lined up to be one of the highest paid non‑executive chairmen next year with $300,000, John Egan actually provided written advice to the board that this was excessive - the proposal for Nick Whitlam - and that the board should reject it. So given that Mr Egan is prepared to speak to the meeting, I'd be interested in hearing why he said that the proposal for Mr Whitlam was excessive and that he was overpaid.

I'd also like to make the point that there's a very large number of shares that have been voted against this proposition. There was 171 million in favour and 84 million against. Can I just clarify this. It's a special resolution. Does this require 75 per cent.

MR WHITLAM: I won't go into interrogatories, but as set out in the information explanatory statement, it's 50 per cent; in accordance with the ASX Rules, as set out quite clearly.

MR MAYNE: Okay. I think the ASX has just amended the listing rules to reduce the special resolutions from 75 per cent to 50 per cent. I read a story, I think a column from the Australian Shareholders Association, decrying this move, and I would make the point that if the ASX hadn't done this recently, this resolution was beaten; that including the 76 million open proxies to the chairman, which again have been put in favour of the resolution, they would have fallen about 6 million short of getting the required 75 per cent shares in favour if the stock exchange hadn't changed the rules in the last few months.

So clearly there's a lot of institutional concern about this options package, and I think it's incumbent upon the silent institutions to stand up and explain to us small shareholders who don't really know a lot about what's going on why they voted against it. I mean, good on them for voting 84 million shares against this resolution. Clearly, there's a lot of concern in the professional market. But can someone from an institutional firm stand up and tell us why, so that us small guys can know a bit about what's going on.

I'd overall like to speak against the resolution. I think that overall the votes indicate that if the big guys, the institutions, are voting against it, well, then they usually have the best‑informed advice, so I think that the small shareholders should follow their lead and vote against the resolution and it would be most interesting to hear from Mr Egan and also from any institution prepared to speak up for a change. Thank you.

MR WHITLAM: Thank you, Mr Mayne. Is there someone on microphone 4?

Go here for a full chronological list of edited AGM transcripts available from the past decade of shareholder activism.

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