Keith Kennedy, MD, Mutual & Federal
Mutual & Federal, one of South Africa’s most trusted and well established short-term insurers announced the group results for the half-year ended 30 June 2009.
Keith Kennedy, Mutual & Federal managing director said: “Despite facing one of the group’s most challenging trading periods in recent history, exacerbated by depressed demand and significant uncertainty in global financial markets, Mutual & Federal has posted a profit for the first-half of the year. We are confident that we will enhance future growth and profitability as the year progresses.”
Gross premium income decreased 7% to R4.36 billion following a deliberate business decision to cancel unprofitable business in 2008. Kennedy said that the global economic downturn had further impeded growth as depressed financial conditions impacted on customers in the short-term insurance industry.
The claims ratio increased from 71.4% in 2008 to 73.1% in 2009 following a number of large commercial and industrial fire claims in the period as well as a substantial number of personal lines claims emanating from widespread rains earlier in the year. In addition, the negative financial environment resulted in material losses on the credit portfolio. The net result was an underwriting deficit of R96 million compared to a deficit of R23 million during the same period in 2008.
Investment income reduced to R231 million (2008: R278 million). The company reduced its equity holdings and concentrated its investment portfolio on cash and semi-cash assets in response to the financial crisis. Interest income increased as a result of higher levels of cash holdings. Kennedy pointed out that the company had completed a review of its investment strategy and had restructured its portfolio to limit the potential negative impact of adverse movements in the equity market.
Overall profit attributable to shareholders declined by 7% to R137 million compared to R147 million during the same period in 2008. As a consequence, headline earnings per share declined by 17% to 48 cents per share.
Despite the difficulties experienced over this period, net asset value per share increased from R10.92 at 31 December 2008 to R11.44 as at 30 June 2009. Kennedy emphasised that the results indicated that the six months had been a challenging trading period where prudent management was necessary. He said that whilst he remained optimistic about the second half of the year, the company expected market volatility and recessionary trading conditions to continue for much of 2009. In line with the group’s objectives it was critical to conserve capital during this period and for that reason the company had decided not to declare an interim dividend.
Kennedy continued, “Mutual & Federal has already seen benefits from the reorganisation of the business to a regionalised business model. The partial implementation of a sophisticated new insurance system is also showing good signs of improving service delivery and efficiency. We expect further benefits to be realised as this system is deployed in other portfolios”.
Kennedy remains positive about the performance of the short-term insurer. “The executive team will be working diligently to ensure that Mutual & Federal follows through on the appropriate measures that have been implemented to improve the underwriting results. We are optimistic that these measures will show more favourable financial results going forward,” Kennedy said.
Kennedy thanked the management and staff for their commitment during a challenging first half of the year and extended his appreciation to intermediaries and clients for their continued support.
In conclusion, Mutual & Federal announced changes to the board of directors. Deborah E. H. Loxton has been appointed as the financial director, Michael J. Harper and Gavin Cookman have been appointed as non-executive directors, and Steffen Gilbert has stepped down as a director of the company.
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