M&F: 'Tough year for insurers'

Johannesburg - JSE-listed short-term insurer Mutual & Federal (M&F) has seen its share price marked down 12% in thin trade following the release of a trading statement, but the CEO remains upbeat on underwriting volumes.

CEO Keith Kennedy told Fin24.com in an interview: "We have put a lot of effort into the underwriting side of the business."

Kennedy was speaking after a trading update from the company, which said it expected headline earnings per share to be 120% lower than what was reported for the year ended December 31 2008.

According to Kennedy, the figure of 120% represents a portion of unrealised losses on the company's investment portfolio.

Typically, a short-term insurance business has three primary sources of income: underwriting activities, return on investment portfolios and interest on cash. In its announcement M&F said its underwriting results for the second half of 2008 were "significantly better than those reported for the first half of the year".

However, sharp declines in the company's investment portfolios had weighed on its results following declines in equity markets in the period October to end-December.

Boosted by clarity

Kennedy said that while he expected a "tough year" for insurers, a change of heart from majority shareholder Old Mutual and restructuring had proven timeous.

In 2008, London-listed Old Mutual announced its intention to sell its 74% stake in M&F.

The sale process dragged on for four months before Old Mutual reversed its decision to sell M&F. Concerns had been raised by insurance brokers that uncertainty over the future of the company was having a negative impact on their ability to write insurance business.

Kennedy said: "It [being taken off the market by Old Mutual] is a big plus for us and Old Mutual is now very committed to us."

Another factor Kennedy felt would keep M&F well positioned was that the company had undergone a restructuring in 2008. This could help the business control its future costs. "The restructuring could not have come at a better time, considering what is now happening in the economy," Kennedy told Fin24.com.

In 2008, M&F reduced its headcount and invested in a streamlined operational set-up as well improvements in its technology base to help it handle the administration of its insurance business effectively. M&F also made efforts to reduce its exposure to higher risk or non-profitable group business.

Areas of concern for investors would be the impact of a tightening South African economy and anticipated retrenchments which would force investors to weigh up a "grudge" purchase like insurance. Kennedy said: "I'd like to think that our target market is less price sensitive than some of our competitors."

By 15:00 on Thursday, M&F was trading 12.8% lower at 1 386c, with 22 400 shares changing hands.

- Fin24.com