A little bit of this...

Mutual and Federal announces that operating earnings are up 44%, while dividend growth is 14%.

Highlights:

* Solvency margin - 61%, up slightly from 60%

* Dividend growth of 14%

* Gross premiums were up 13%, to R6.5bn, and include risk finance premiums (3%), in the cell captive environment

* Personal premiums - up 11% - to R2.612bn, from R2.345bn

* Corporate growth has been flat, only up slightly as unprofitable business discontinued

* Underwriting surplus was pegged at R392m, of which R340m is attributable to ordinary shareholders

* Investment income earned from policy holders funds was R210m

* The business is still reporting a long-term investment return (LTIR), which has been smoothed, contrary to the recently expressed opinion of the GAAP Monitoring Panel (GMP)

* Claims down by 7%

* Claims value increased by 10%

* Tax portion increased to R198m - up from R151m

The market

The short term insurance market dynamics have changed substantially since 1998. Today there are three insurers who own some 54% of the local market.

Hollard, SA Eagle, Santam, M&F are dependent on the intermediary market, with Auto & General starting to make inroads, while M&F says that this channel accounts for some 90% of premiums.

While the M&F market share has moved from 12% to 20% since 1997, Santam climbed from 12% to 24%, while SA Eagle moved slightly from 7% to 10%.

Mutual & Federal gross premium income increased by 16% to R6.5bn whilst the General Insurance Results improved by 94% to R602m.

The final dividend increased to 48 cents bringing the total dividend for the year to 73 cents per share, an increase of 14% on 2003.

Commenting on the results, MD Bruce Campbell noted that the underwriting surplus attributable to ordinary shareholders amounted to R340m, representing an underwriting ratio of 6,6% to net earned premiums. This compared to the R116m (at a ratio of 2.5%) achieved in 2002.

He noted that the improvement in the underwriting result followed corrective action taken on poorly performing portfolios, a decline in weather-related claims and also a very firm control over operating expenses.

Campbell noted that most portfolios had returned satisfactory results but he foresaw the need for ongoing corrective action on large fire and engineering risks within the industrial and mining sector

He believed that the 16% increase in gross premiums was satisfactory. The cancellation of a number of non-performing accounts had a negative impact on premium flows but continued attention to prudent underwriting standards and selective premium increases throughout 2003 had resulted in real premium growth.

Ahead

Looking ahead at the environmental issues Campbell says that the SA market is influenced by the international insurance market. They have not recovered from 911. Locally the short term market is ahead of the international players.

Everyone is dependent on reinsurance capacity, but generally most of the international reinsurers have had their investment ratings downgraded. You need a secure reinsurance structure in place. Quality reinsurance comes at a price, which is increasing. Not much softening.

Stolen and hijacked vehicles

The number of stolen and hijacked vehicles has remained relatively unchanged, and the sample size, due to its share of the vehicle market, is large enough to place reasonable credence on the statistics.

Only 25% of claims spend is on stolen vehicles. 75% is spent on accidents and bumper bashings. Interestingly some 30% of vehicles stolen in South Africa leave the country.

Whilst the benign weather patterns during 2003 had resulted in a decline in motor vehicle claims, he reiterated his concern at the high level of motor accidents attributable to extremely poor driving standards. He expected that where loss levels remained high, premium ratings would require appropriate correction in 2004.

Investment returns

Turning to the investment results, Campbell noted the overall return for the year had been satisfactory following an improvement in the JSE in the last months of 2003 and this had positively impacted the headline earnings. Although the level of dividends on listed equities had been disappointing, interest income was satisfactory following high levels of cash holdings.

Referring to the offer by Old Mutual for the acquisition of the minority shares in Mutual & Federal, Campbell said that an independent sub-committee of the Mutual & Federal's board had appointed independent advisors and that the required procedure for the finalisation of a "fair and reasonable" opinion was progressing.

Campbell and his executive team are not on the committee, because they are not seen as independent, and the process should be concluded by mid year.

Deregulation of commissions

The expected implementation date is mid year and there is a belief that the bigger players are a cost in that chain and market pressures will prevail, with commissions will remain in the same ballpark.