Mutual & Federal Financial results for the six months ended 30 June 2007

02 August 2007 Mutual & Federal

MUTUAL & Federal today (Thursday, August 2) announced the group results for the six-month period ended 30th June 2007.

Gross Premium Income amounted to R4,6 billion (2006: R4,3 billion) which is an increase of 8% over the previous year.  The General Insurance Result improved from R281 million to R320 million in spite of a reduction in the underwriting ratio from 3,9% to 2,9%.

The operating earnings per share for the six months increased by 7% from 145 cents to 155 cents per share whilst basic earnings per share declined by 11% from 197 cents to 176 cents following a lower rate of growth on the JSE in 2007 than in 2006.

The company has declared an interim dividend of 45 cents per share payable on 10th September 2007.  Shareholders will be entitled to elect to receive fully paid ordinary shares in the company as a capitalisation award. Should the election by an individual shareholder cause the creation of fractions of shares these would be rounded down and the balancing figure paid out in cash. 

Commenting on the results, Managing Director Bruce Campbell said that 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 impacted the underwriting results. The underwriting surplus for the six months was R109 m (2006: R140m) boosted by R48m (2006: R36m) following further refinements in the setting of technical reserves.  

"A number of factors have impacted trading conditions for the short-term insurance industry in the first half of 2007.  In addition to the fire claims, the motor portfolio continues to under perform, impacted by an escalation in the incidence of motor vehicle accidents and an increase in the cost of repairing imported motor vehicles in particular," Campbell said. 

Adverse weather conditions in the period under review impacted the results negatively. 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, 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 R121 million to operating profits.

The company has previously announced the appointment of Keith Kennedy  as Managing Director, replacing current Managing Director Bruce Campbell with effect from 16 August 2007. MD-elect Keith Kennedy said that 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", said Kennedy. Mutual & Federal, he said, remained committed to responsible underwriting standards and accordingly he was confident that the company would continue to be profitable throughout the cycle. 

Looking ahead, Kennedy says:  "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." 

Kennedy 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.

In conclusion he thanked the group's clients, intermediaries and staff for their good wishes and ongoing support.


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