Sound set of numbers

26 July 2004 Angelo Coppola

At another well-attended presentation in Johannesburg, Mutual and Federal MD Bruce Campbell reflected that trading conditions for the period had been abnormal, almost extraordinary, and characterised by lower claims volumes and in particular the absence o

  • Gross Premium Income increased 12 to 13%
  • The General Insurance Result improved from R213m to R445m
  • Increase in underwriting surplus from R111m to R336m
  • The Operating earnings per share for the six-months increased by 47% from 134 cents to 197 cents
  • Interim dividend of 25 cents (2003: 25 cents) per share as well as a special dividend of 350 cents per share
  • Solvency margin at 43%
  • 19% growth in premium income

“Weather conditions were benign to say the least, and there weren’t many natural or commercial fires,” says Campbell.

Approximately 213 000 claims were processed during the six month period at an average cost of R15m per working day, or R8200 per claim.”

In terms of the situation of the major shareholder, Campbell says that since 11 February Old Mutual has increased their shareholding to 88.1%.

Referring to investment income, Campbell said that interest income had declined as a result of the reduction in interest rates whilst dividend income from listed equities had increased. This investment was turned from -R280 in 2003 to -R60m for the period this year.

Campbell commented that much has been said and written about the special dividend, paid out since 1999, which has amounted to R3bn in aggregate, and yet the solvency margin was calculated to be at 43%, well above the 25% statutory requirement.

The personal segment was up 13%, a competitive sector, specifically from the direct writers, and their growth was essentially with some unit growth and inflationary increases.

The road ahead

Looking ahead, Campbell indicated that there are three or four issues for the future.

In terms of the environmental influences and the road ahead, Campbell says that the benign weather conditions can’t continue for much longer.

Underwriting income has to take the fore as interest rates would not supplement income for the foreseeable future. The heady days of 17% interest rates and interest returns at those levels won’t be seen for many years.

The IFA market

In an intermediary dominated market, Hollard is fully dependent, followed SA Eagle, M&F and then Santam, or 65% of the premium flows, generally coming from bank brokers, international broker firms and the medium to smaller IFAs.

Auto and General are moving up the market ladder, obviously off a low base.

OUTSurance has displayed impressive growth, and this is based on R14 per the M&F R1, spent on advertising. Once they stop advertising the phones stop ringing.

They should continue to grow, until the players start competing with a web-based product offering. 

He again touched on the advertising spend of the direct sellers. Saying that their strategies will remain intermediary focused. The deregulation of commission may change the landscape.

He says that he expects that a mature approach will be taken though, in terms of deregulation, and he anticipates that the cost of distribution won’t change much.

In terms of influences Campbell says that the big issues for the short term insurance industry, according to a PwC survey, focus on the financial services charter, profit performance, cost reduction, service quality, IT, risk management, and new Acts.

Claims management is an issue and important – says Campbell. Claims have increased by 1% form last year, marginally down on the pervious numbers.

An important area in claims management is the panel beating sector, and an area not for the faint-hearted.

Having said that, Campbell says that claims management is where the competitive edge is.

Stolen vehicle numbers are down since December 03, although only a marginal decline, while hijacks are marginally down. This seems to confirm the Government’s numbers, although all remain unacceptably high.

Health warning

“It was anticipated that market conditions in general would remain conducive to achieving a profitable underwriting result.” 

But he cautioned that short-term insurance results fluctuate and the results for the first six months were not necessarily indicative of the outturn for the remainder of the year.

“There is a great deal that can affect one’s results.”

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