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Johannesburg - JSE-listed short-term insurers seem to be ignoring the stomach-curdling volatility of the markets for now.
Despite markets indulging in sharp ebbs and flows, the likes of Mutual & Federal and Santam have held up well. The illiquid Zurich Insurance hardly trades, while broker Glenrand MIB directors continue to buy stock.
Short-term insurance - often referred to as a "grudge purchase" - seems to be weathering the crisis, despite pressure on consumers and weak equity markets. Among the industry's supporters is legendary investor Warren Buffett, who has pointed to the sector's ability to sustain strong cash flows through various business cycles.
In recent interviews with Fin24.com, CEOs Keith Kennedy (Mutual & Federal) and Ian Kirk (Santam) said the threat from direct insurance competitors had levelled off over the last two years as the broker model has come to grip with it.
Fin24.com takes a look at some of the industry players and assesses their prospects:
Mutual & Federal
This is probably the most interesting stock in the sector at the moment. Analysts expect the company to be involved in corporate action at some stage. It is 72% owned by financial services group Old Mutual, which took the firm off the market in late 2008 after failed attempts to offload its holding.
The company has seen its share price rise from 1 300c in March to a high of 1 700c in June, before falling back to about 1 500c - still a 15% gain.
Investors will be watching for a change in M&F's dividend policy. The group cut its dividend completely after years of regularly paying a 5% yield.
Santam
Since the beginning of March, Santam has risen from 8 000c a share to 8 950c - a 12% gain. Analysts polled by Fin24.com described the company's long-term prospects as "solid", but warned earnings in 2009 are likely to be under pressure due to the economic slowdown as well as some large-scale commercial fires.
When the company released an operational update at the end of May, it told investors: "Premium growth to date has been healthy, but we expect the general economic slowdown to have an effect on premium growth and our ability as an industry to achieve an appropriate rate for the risk assumed."
Zurich Insurance
The highly illiquid Zurich Insurance company is an unspectacular listing. However, its share price is relatively solid due to the lack of trade as it floats around the 17 500c mark.
One eye-catching aspect of this business is its ability to grow premium revenues in 2008 in excess of 20%.
Glenrand MIB
Broking business Glenrand MIB might be of interest to some investors with a patient outlook.
The insurance broker (as opposed to underwriter) has undergone its umpteenth management change after Rand Merchant Bank Holdings sold off its interest in January.
Since March, the broker's executives have regularly bought stocks at prices of between 80c and 100c a share.
At the end of May, CEO Andrew Chislett, financial director Gordon Whitcher and company secretary Elva Price were issued a series of long-term options which incentivise management to stay on for longer than three years.
The options are exercisable as follows: 35% after three years, up to 70% after four years, and up to 100% after five years, with any unexercised options expiring after seven years. The options were issued at 100c, in line with the current share price.
- Fin24.com
