Mutual & Federal gearing up for growth

05 November 2008 Mutual & Federal

An old adage says that the only constant in life is change. This has rung true at Mutual & Federal for the past few months. Old Mutual announced its intention to actively sell the company, and Mutual & Federal is in the process of implementing a new business model.

The Mutual & Federal Executive team is confident that each element of change is done with the intention of making the company fit and competitive in the current and future environment of short-term insurance.

Keith Kennedy (pictured), CEO, Mutual & Federal, has been engaging face-to-face with brokers nationally to respond to any questions they might have with regards to the transforming Mutual & Federal. “We felt that it was highly pertinent to communicate with our brokers about the changing Mutual & Federal and shed some light on a number of important issues,” says Kennedy.

The sale of Mutual & Federal

Many brokers have expressed concern over the majority shareholder issue. Old Mutual is a large, solid company that provides a sense of stability to Mutual & Federal’s partners. “However, we can’t ignore Old Mutual’s strategy to exit short-term insurance. While a change of shareholder is disconcerting, any prospective purchaser of Mutual & Federal will require significant capital to afford the company. Therefore, that buyer is likely to be a strong player in its own right,” explains Kennedy.

In addition, Mutual & Federal pays its own claims and runs its business off its own balance sheet. Therefore, the majority shareholding company is largely irrelevant to the company’s ability to service brokers. “We will continue to focus on our broker community as we have in the past and strive to improve our service,” Kennedy assures.

The sale of Mutual & Federal should be finalised at the end of 2008 and Mutual & Federal will be able to shed more light on developments in this area early next year.

Half-year results

Mutual & Federal’s half-year results were disappointing. The reasons were identifiable: large increase in the incidence of corporate and commercial fires, increase in the severity of weather claims and poor results from personal group schemes. Kennedy highlights the fact that Mutual & Federal was first to announce their half-year results. “Being the first short term insurer to announce their half-year results, our drop in earnings was perceived as unique to Mutual & Federal. This was not the case, as we have seen with the release of other short-term insurers’ results,” Kennedy points out.

“The fact is that the underwriting cycle is tough. Mutual & Federal is in a similar place to its peers, and is a solid and profitable company that has gone through many cycles over the years,” assures Kennedy.

A new business model

Mutual & Federal has embarked on a thorough review of changing market dynamics and the way in which it conducts business. The intention is to ensure continued growth in a changing short-term insurance industry and maintain its record of consistently delivering excellent results and service.

“A thorough examination of current practices, our cost-base and operational dynamics has been conducted. We have assessed current structures, examined alternatives and considered an optimum model for transacting business in today’s South Africa – perhaps the world’s most dynamic and challenging short-term insurance market. The aim, as always, is how to best deliver the utmost value to our policyholders,” explains Kennedy.

Mutual & Federal’s current divisional structure is being replaced by a structure that primarily focuses on business development/sales on the one hand, and business support on the other, across all lines of business. The operating model will see seven regions containing sales offices, ensuring a continued focus on brokers and the broader market. In addition, five claims hubs and three business support hubs will be established to improve efficiencies in the processing of claims.

Kennedy says, “I will visit Mutual & Federal brokers on a national tour once again in February 2009 to discuss the successes of our new business model. As always, we encourage brokers to provide us with feedback and voice their concerns so we can appropriately address their trepidations.”

“Huge change is under way not only at Mutual & Federal, but in our country, economy and industry. Our strategic objective is to draw maximum advantage from those changes by creating the optimum structures and most appropriate business solutions,” concludes Kennedy.

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