Zurich Insurance earnings down

2/26/2010 12:40:01 PM

Zurich Insurance Company South Africa (ZSA) recorded a headline loss of 2 245 cents per share for the year ended December compared to headline earnings of 1 161 cents per share the previous year - a decline of 293.4%.

The group said the results reflected a continuation of the tough underwriting conditions that had impacted the insurance industry.

In addition, the company incurred a number of significant non-recurring losses unrelated to its normal underwriting activity.

Gross premium income grew by 1.7% to R5.4 billion (2008: R5.3 billion).

This follows the cancellation of underperforming blocks of business amounting to R500 million, mainly in the Personal Lines Group Schemes portfolio, which no longer met the group's stricter underwriting criteria.

Premiums in the Risk Finance division declined sharply for the same reason.

"These actions are already yielding the desired result in strengthening the underlying profitability of the business," Zurich said.

Claims at R3.7 billion (2008: R3.0 billion) have risen 18.9% (2008: 18.8%) impacted by an increase in the frequency and severity of fire losses in the commercial property account.

The largest increase in claims cost however was in the motor account that saw a sharp rise in the frequency of losses arising from motor vehicle accidents.

Non-recurring items cost the group R403 million before tax (R290 million after tax) and include, among other things, the cost of the data loss incident previously reported on, the write-off of irrecoverable reinsurance and other balances, and large losses arising from the breach of underwriting mandates by a third party underwriting manager.

The underwriting result declined to a deficit of R564 million from a deficit of R38 million in 2008.

The combined ratio for the year was 113.2% (2008: 100.9%).

The general insurance result, inclusive of attributable investment income, declined from R31.9 million to a deficit of R458 million.

Investment income was maintained despite a reduction in interest rates in the current year.

The sale of equities realised gains of R108 million (2008: R98 million).

The group's balance sheet and cash flows remain sound.

At 39.0%, the solvency ratio is broadly within the target range as set by the Board.

Net asset value decreased by 10.5% to 136.47 rand per share at the end of the year.

Having regard to the headline loss, the Directors have decided to strengthen the statutory solvency of the Company by not declaring a dividend.

Looking ahead, the company said it is taking swift and decisive action to strengthen its financial and business performance, restore profitability and ensure that the organisation develops a platform for sustainable growth.

A business transformation programme was announced on 8 February 2010, and on 16 February 2010 an increase to 25.1% of the Royal Bafokeng shareholding was confirmed.

These are expected to assist in achieving the longer term aim of positioning the company as "the leading empowered insurer in its chosen markets".

In order to achieve this goal, immediate action is being taken to reshape the Company, improving operational capability and significantly enhancing the focus around the broker and customer.