If you are inclined to bet on the weather, now is the time to buy shares in short-term insurer Mutual and Federal (M&F). A shining star in the Old Mutual camp, M&F announced enviable interim results this week — and gave ”benign weather” as the reason.
MD Bruce Campbell explains: ”In the six months to June, South Africa experienced no major weather events. This means that we have not had to pay out on damages associated with such events.”
The claims experience has enabled the insurer to pay a special dividend of 350c a share, over and above the 25c regular dividend.
The point is that the entire local short-term industry will have enjoyed the same good risk, which makes it a promising investment for prospective shareholders.
With its 21% of the market, M&F is not heavily involved in the agricultural market. Its claims experience is associated with weather damage to property, not loss of earnings from crop failure.
For instance, the number of motor accidents increases in wet weather, so dry conditions translate into a drop in motor accident claims. Campbell cautions, however, that risk analysis shows that higher weather-related claims will return in the longer term.
Not so with vehicle theft — Campbell sees the overall lower number of vehicle theft claims as being a more permanent feature of the market. He notes that since 2001 the trend in vehicle hijackings and thefts has been consistently down, with the major exception being the Western Cape, where thefts are on the increase.
Campbell cites better policing and more advanced vehicle-theft prevention technology as reasons for the ongoing improvement in motor-car theft claims.
But while M&F’s operating performance is on the up, Campbell is vague about its performance against the Financial Sector Charter introduced in October last year.
Emphasising that for short-term insurers the charter will have most impact on procurement strategies, Campbell stresses that ”we are developing relationships with our supply chain that will bring us into line with the charter”.
This means that M&F is putting pressure on its suppliers — such as panel beaters, household appliance providers or windscreen vendors — to beef up its black economic empowerment profile. On the employment equity front, Campbell is even more vague — he suggests it is unfair to expect the insurer to be able to track its progress to date.
The charter requires financial institutions to make their services more available to disadvantaged communities. As M&F’s products are sold through insurance brokers, this implies that it must broaden the geographical spread of brokers selling its products.