Mutual & Federal’s interim results for the six months ending 30 June 2008

Mutual & Federal announced the group results for the half-year ended 30 June 2008.

Gross premium income increased by 2% to R4.7 billion (2007: R4.6 billion). Gross premiums in the commercial portfolio grew in line with inflation, however the personal portfolio contracted following deliberate action by management to cancel a number of underperforming blocks of business. Risk Finance premiums also declined following lower levels of reinsurance received from insurers in the retail sector. Claims at R2.83 billion are up 6% on 2007 (R2.66bn) fuelled by a significant increase in the number of commercial and industrial fire claims and ongoing difficulties with the motor section of the group schemes portfolio. As a consequence the underwriting result declined to a deficit of R23 million compared to a surplus of R98 million during the same period in 2007. It should be noted that the 2007 period was favourably impacted by a R48 million reduction in technical reserves.

The general insurance result for the period declined to R210 million (2007: R309 million) reflecting a reduction of 32%, and operating income decreased by 15% from R516 million to R438 million, reflecting an all-round disappointing first half of 2008.

Investment income declined by 52% to R278 million (2007: R574 million) following substantially lower returns on listed equities and reduced holdings subsequent to the disposal of investments to pay a special dividend of approximately R600 million in December 2007.

In light of the adverse trading conditions, profit after tax for the period declined by 66% to R172 million (2007: R501 million).

Commenting on the results, Managing Director Keith Kennedy (pictured) said: “The first-half of 2008 has been difficult due to a turn in the cycle and an unusually large number of fires. The board recognises the cyclical nature of short-term insurance results and is satisfied that the appropriate corrective measures are being taken to improve underwriting results”.

Looking at the prospects for the remainder of the year, Kennedy said that he was optimistic that the corrective action underway in the business together with a positive outlook in the medium-term investment climate will result in a return to more favourable financial results.

With regard to a possible sale by Old Mutual of its majority stake in Mutual & Federal, Keith Kennedy stated that the board had been informed by Old Mutual plc of its intention to initiate a competitive sale process in September 2008 to dispose of its entire shareholding in the company. Notwithstanding that Kennedy emphasised that the executive and staff of Mutual & Federal were focused on improving performance and delivering the best possible results to the shareholders.

The company will be issuing fully paid ordinary shares as a capitalisation award to ordinary shareholders. Shareholders not electing to receive new fully paid ordinary shares will be entitled to receive a cash dividend alternative of 45 cents per share.

In conclusion Kennedy thanked staff and management for their dedication and commitment during the difficult period.