Mutual & Federal reports tough half-year

South African short-term insurer Mutual & Federal on Tuesday reported diluted headline earnings per share of 55 cents for the six months ended June from 178 cents a year ago.

Gross premiums rose by 2% to R4,689-billion, while net premiums were up 3% at R4,026-billion.

Claims at R2,83-billion were up 6% on 2007, 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 during the first six months of 2008 and a deficit of R23-million was recorded. This compares with a surplus of R98-million in the comparable period in 2007, which was favourably affected by a R48-million reduction in technical reserves.

The group said gross premiums grew by 2% and, while growth within the commercial portfolio was in line with inflation, the personal portfolio contracted following the cancellation of a number of underperforming group schemes.

Risk finance premiums also declined following lower levels of reinsurance received from insurers in the retail sector.

Investment income declined significantly following substantially lower returns on listed equities and reduced holdings following the disposal of investments to pay a special dividend of approximately R600-million in December 2007.

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

In light of the adverse trading conditions, profit after tax for the period declined by 66% to R172-million from R501-million a year ago.

Commenting on the results, MD Keith Kennedy 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 is 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, Kennedy stated that the board has been informed by Old Mutual 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 are focused on improving performance and delivering the best possible results to 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.—I-Net Bridge

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