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Mutual & Federal premium income hits R8.5 billion

09 February 2007 Gareth Stokes

Mutual & Federal announced their 2006 results at a press conference in Johannesburg on Thursday. The group managed a 7% increase in Gross Premium Income, bringing in R8.5 billion for the year. Significant decreases in net income, headline earnings per


Headline earnings per share came in at 361c and the group declared a final dividend of 135c. The total distribution for the year is 175c, in line with group objectives of maintaining a 40% solvency ratio.

Factors affecting the short term environment

Campbell discussed a number of factors which will impact on the short-term insurance industry in the coming year. These factors impact the insurance underwriters, insurance intermediaries and ultimately the policyholder.

Commenting on the results, Campbell spent some time explaining how the insurance industry responds to the underwriting cycle. The underwriting cycle graph (based on underwriting margins) is compiled by the Financial Services Board (FSB) which polls 20 of the largest players in the industry.

Margins have been softening since a peak at 12.1% at the beginning of 2004 and the consensus is that the margin will stabilise at the 7% level before rising again. It is important to note that the two largest underwriters surveyed experienced underwriting margins of between 3 and 4%.

Real pressure ends the claims 'holiday'

M & F's motor vehicle portfolio came under increasing pressure in 2006. Campbell says the increase in motor claims was probably due to a combination of higher traffic congestion, problems with traffic lights and appalling driving standards.

While the average motor vehicle claim in 2006 reached R11,137 the frequency of claims was more alarming. This rate hit 26.1%, indicating that one in every four insured vehicles submitted a claim in the year.

Theft continued to have a major impact, with the number of vehicle thefts in 2006 hitting an alarming 2,253 cases. Hi-jacking remained high with the number increasing to 805 from 790 claims in 2005. These numbers reflect claims initiated by M & F policyholders only.

Claims relating to freak weather are also on the rise, after a claims drought in the last few years. Campbell expects more weather catastrophe claims in the coming year and raised concern about the huge insurance risk posed by high property values and densities along popular coastal regions.

Some short-term insurance strategies

The shrinking underwriting yield has necessitated rises in premiums to the various insurance intermediaries. Campbell said that premium increases were not simply increased across the board.

Campbell mentioned that new business growth is best pursued in a hardening underwriting cycle. To try and win new business when premiums are on the rise is always a difficult task.

The current underwriting cycle favours growth through acquisition. Campbell sited various large insurance acquisitions which coincided with similar troughs in the underwriting cycle. Santam purchased Guardian National in 1999, and M & F bought CGU Holdings Limited at the end of 2000. Could M & F have its eye on another acquisition in the coming year?

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