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Saturday, September 1, 2007
New appointments

Gross Premium Income increased 8% to R4,6 billion (2006: R4,3 billion), and the general insurance result improved from R281m to R320m in spite of a reduction in the underwriting ratio from 3,9% to 2,9%.

Commenting on the results, MD Bruce Campbell said the growth in premium income was satisfactory but that a significant increase in the frequency and severity of commercial and industrial fire claims had negatively affected the results. The underwriting surplus for the six months was R109m (2006: R140m) boosted by R48m (2006: R36m) following further refinements in the setting of technical reserves.
“A number of factors have affected trading conditions for the short-term insurance industry in the first half of 2007,” he added. “In addition to the fire claims, the motor portfolio continues to under perform, because of an escalation in the incidence of motor vehicle accidents and an increase in the cost of repairing imported motor vehicles in particular.”
Severe weather in Gauteng in January, wind and storm damage on the KZN coastline in March and flooding in the Western Cape in April contributed to the deterioration in the underwriting performance.
Referring to investment income, Mr Campbell said that dividend and interest income was lower following a 40% reduction in the shareholders’ funds of the company in the prior year as a result of the payment of a special dividend of R8 per share. Although gains on the JSE were lower than in 2006, the 16% return achieved in the period contributed to the growth in net asset value per share by 2,6% to 1 377 cents. The consistently strong performance in the JSE has caused the company to change its internal long-term rate of return for attributing investment income from 11,1% to 15,6% and this added R121m to operating profits.
With effect from 16th August 2007 Mr Campbell handed over the reins to new MD Keith Kennedy. Commented Mr Kennedy, “Although an increase in the frequency of claims had been expected, the severity of the commercial losses was unusually high. Our business is that of paying claims and we should not be surprised when they occur, but it is also important that we price our products appropriately.
“The company remains committed to responsible underwriting standards and I am confident that the company will continue to be profitable throughout the cycle.”
Looking ahead, Mr Kennedy added, “The underwriting cycle has bottomed out for the industry and a period of profitable growth can be expected providing claims do not accelerate. We will continue to focus on broker relationships which are essential for success in our business. Conditions within the short-term insurance market and in the economy in general provide opportunities for business growth.”
He also felt confident that corrective action taken in the period under review, particularly related to motor business, would improve results in the second half of the year and ensure that the group continued to achieve modest underwriting profits. He cautioned however that short term insurance results fluctuate and the results for the first six months were not necessarily indicative of the outcome for the remainder of the year.

Footnote: Bruce Campbell leaves after 34 years with Mutual & Federal, nine of which were as Managing Director, to assume the new role of Executive Chairman at Alexander Forbes. During his tenure, Mr Campbell led significant achievements at Mutual & Federal including the implementation of successful empowerment transactions and several key acquisitions including CGU (Commercial General Union).
New MD Keith Kennedy has 24 years’ experience in the general insurance industry. “Some of the key areas that I will immediately focus on,” he noted, “will be positioning our company to meet the insurance needs of the broader South African market. I will also be making a commitment to further IT development to improve operational efficiency and become more innovative.
“We will continue to focus on broker relationships which are essential for the success of our business.”
Mutual & Federal also announced new executive appointments at the company. With an increasing focus on people, Jeanett Modise is promoted to Executive General Manager, still responsible for Human Resources and overseeing significant change programmes. Graham Stavridis is to replace Mr Kennedy as Executive General Manager, Claims division. The executive team has also been strengthened by the appointment of Mokaedi Dilotsotlhe as General Manager, Marketing and Strategy.

Copyright © Insurance Times and Investments® Vol:20.8 1st September, 2007
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