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MAF
MAF
MAF - Mutual & Federal Insurance Company Limited - Reviewed Financial Results
For The Year Ended 31 December 2008
Mutual & Federal Insurance Company Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1970/006619/06)
JSE Share code: MAF
ISIN: ZAE000010823
NSX share code: MTF
REVIEWED FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2008
Income Statement
for the year ended 31 December 2008
31 December 31 December
2008 2007 Change
R`m R`m %
Gross premiums 9 159 9 323 (2)
Less: Reinsurance premiums (1 478) (1 320)
Net premiums 7 681 8 003 (4)
Change in provision for (12) (55)
unearned premiums net of
reinsurance
Earned premiums net of 7 669 7 948 (4)
reinsurance
Commission income on 244 249
reinsurance
Net investment (loss)/income (146) 850
Other operating income 14 4
Net income 7 781 9 051 (14)
Claims incurred net of (5 220) (5 235)
reinsurance
Acquisition costs (1 620) (1 797)
Administration expenses (990) (803)
Impairment of goodwill (6) (40)
(Loss)/profit before taxation (55) 1 176 (105)
Taxation (60) (359)
(Loss)/profit for the period (115) 817 (114)
Profit attributable to (13) (84)
minority shareholders
(Loss)/profit attributable to (128) 733 (117)
equity holders of the company
Earnings per share
(a) Headline earnings per
share are calculated on
(loss)/profit attributable to
equity holders of the company
adjusted for the impairment of
goodwill, intangibles and the
profit on sale of property and
equipment.
Determination of headline
earnings
(Loss)/profit attributable (128) 733
to equity holders of the
company
Impairment of goodwill 6 40
Impairment of intangible 21 11
assets
Profit on sale of property (3) (4)
and equipment
Total tax effect of (5) (2)
adjustments
Headline (loss)/earnings (109) 778
Headline (loss)/earnings per (41) 305 (113)
share (cents)
Diluted headline (41) 287
(loss)/earnings per share
(cents) (note 3)
(b) Basic earnings per share
are based on (loss)/profit
attributable to equity holders
of the company.
Basic earnings per share
Basic (loss)/earnings per (48) 287 (117)
share (cents)
Diluted basic (48) 271
(loss)/earnings per share
(cents) (note 3)
Ordinary dividend per share 180 180
declared in respect of the
year (cents)
Dividend per share paid in 180 180
the year (cents)
Special dividend per share - 200
Net asset value per share 1 092 1 255 (13)
(cents)
Number of shares in issue
(million)
- at period end - excluding 279,3 256,1
treasury shares
- weighted average 267,5 255,4
- diluted weighted average 268,5 270,8
(note 3)
Balance Sheet
as at 31 December 2008
As at As at
31 December 31 December
2008 2007
R`m R`m
Assets
Goodwill - 6
Intangible assets 266 185
Property and equipment 313 249
Deferred taxation 103 31
Investment in associate company 4 4
Deferred acquisition costs 204 182
Reinsurers` share of insurance 1 361 897
contract provisions
Loans and advances 32 49
Investments and securities 4 423 4 995
Ordinary shares 1 206 2 418
Money market instruments and other 3 217 2 577
Trade and other receivables 1 188 1 230
Cash and cash equivalents 1 416 1 142
Total assets 9 310 8 970
Equity and liabilities
Insurance contract provisions 4 832 4 337
Finance lease liabilities 6 3
Post retirement medical aid provision 159 155
Deferred taxation 25 34
Agents` balances, accounts payable and 1 115 1 096
provisions
Total shareholders` equity 3 173 3 345
Equity holders of the company`s 3 050 3 215
capital and reserves
Interest of minority shareholders in 123 130
subsidiary
Total equity and liabilities 9 310 8 970
Statement Of Changes In Equity
for the year ended 31 December 2008
Attributable to equity holders
of the company
Foreign Share-
currency based
Contin- trans- pay-
Share gency lation ment
R`m capital reserve reserve reserve
Balance at 31 December 377 757 (20) 158
2006
Profit for the period
Transfer to contingency 83
reserve
Current period (3) 20
movements
Dividends paid
Issue of shares 83
Balance at 31 December 460 840 (23) 178
2007
(Loss)/profit for the
period
Transfer to contingency (22)
reserve
Current period 9 31
movements
Dividends paid
Issue of shares 452
Balance at 31 December 912 818 (14) 209
2008
Attributable to equity holders
of the company
Property Minority
revalua- share-
tion Retained holders`
R`m reserve income interest Total
Balance at 31 December 19 2 126 188 3 605
2006
Profit for the period 733 84 817
Transfer to contingency (83) -
reserve
Current period (1) 1 17
movements
Dividends paid (1 035) (142) (1 177)
Issue of shares 83
Balance at 31 December 18 1 742 130 3 345
2007
(Loss)/profit for the (128) 13 (115)
period
Transfer to contingency 22 -
reserve
Current period 11 1 11 63
movements
Dividends paid (541) (31) (572)
Issue of shares 452
Balance at 31 December 29 1 096 123 3 173
2008
Cash Flow Statement
for the year ended 31 December 2008
31 December 31 December
2008 2007
R`m R`m
Cash generated from operating 500 744
activities
Investment income 458 384
Taxation paid (292) (361)
Cash inflow from operations 666 767
Cash (utilised in)/generated by (281) 310
investing activities
Decrease in funding requirements 385 1 077
Cash effects of financing activities (111) (1 094)
Dividends paid (158) (1 105)
Proceeds from issue of shares 47 11
Increase/(decrease) in cash and cash 274 (17)
equivalents
Cash and cash equivalents at 1 142 1 159
beginning of year
Cash and cash equivalents at end of 1 416 1 142
the year
Notes
1. Statement of compliance
The condensed consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRSs") and in terms of
IAS34, and its interpretations issued by the International Accounting Standards
Board (IASB), and are in compliance with the Listings Requirements of the JSE
Limited. The accounting policies applied in the preparation of these financial
statements are consistent with those used in the annual financial statements
for the year ended 31 December 2007 with the exception of the change noted in
note 2.
2. Change in accounting policy
During the year the company changed its accounting policy with regard to salvage
amounts recovered. These amounts were previously recognised only to the extent
that they were received in cash and are now brought to account as they become
due. As these amounts were previously implicitly recognised in the calculation
of the IBNR this change has not impacted the profit reflected in the income
statement.
3. Diluted basic and headline earnings per share
Diluted basic and headline earnings per share are determined by adjusting the
weighted average number of ordinary shares outstanding to assume conversion of
all dilutive potential ordinary shares.
4. Segmental analysis
Risk
Commercial Finance Personal
Divisional segments R`m R`m R`m
December 2007
Gross premiums 4 467 1 346 3 510
Profit/(loss) before 325 12 29
taxation
Total assets 1 720 316 687
Total liabilities 3 420 491 1 590
December 2008
Gross premiums 4 867 1 137 3 155
Profit/(loss) before 262 11 26
taxation
Total assets 2 265 360 820
Total liabilities 3 931 571 1 415
Investment
activities Unallocated Total
Divisional segments R`m R`m R`m
December 2007
Gross premiums 9 323
Profit/(loss) before 850 (40) 1 176
taxation
Total assets 4 995 1 252 8 970
Total liabilities 124 5 625
December 2008
Gross premiums 9 159
Profit/(loss) before (146) (208) (55)
taxation
Total assets 4 423 1 442 9 310
Total liabilities 220 6 137
Supplementary Income Statement
for the year ended 31 December 2008
31 December 31 December
2008 2007 Change
(Reflecting long-term rate of R`m R`m %
return adjustment)
Technical account (note A)
Gross premiums 9 159 9 323 (2)
Net premiums 7 681 8 003 (4)
Earned premiums net of 7 669 7 948
reinsurance
Claims incurred net of (5 148) (5 234)
reinsurance
Acquisition expenses (1 376) (1 548)
Management expenses (846) (800)
Net underwriting surplus 299 366 (18)
Investment return on insurance 476 429 11
funds (note B)
General insurance result 775 795 (3)
Long-term investment return on 468 482 (3)
shareholders` funds (note B)
Operating income based on long- 1 243 1 277 (3)
term investment return
Non-technical account (note A)
Short-term investment (1 090) (61)
fluctuations
Dividends, interest and 458 384
rentals
Realised surplus on 1 1 006
investments
Unrealised deficit on (605) (540)
investments
Allocated investment return (944) (911)
transferred to technical
account (note B)
Impairment of goodwill (6) (40)
Non-recurring items (202) -
(Loss)/profit before taxation (55) 1 176
Taxation (including dividend (60) (359)
tax)
(Loss)/profit after taxation (115) 817
Profit attributable to (13) (84)
minority shareholders
(Loss)/profit attributable to (128) 733
equity holders of the company
Operating earnings per share
Operating earnings per share
are calculated on profit
attributable to equity holders
of the company adjusted for
impairment of goodwill,non-
recurring items net of
taxation, share of associate
company`s profits, short-term
investment fluctuations net of
taxation adjusted for minority
shareholders` share and
dividend tax.
Determination of operating
earnings
(Loss)/profit attributable (128) 733
to equity holders of the
company
Impairment of goodwill 6 40
Non-recurring items (net of 145 -
taxation)
Short-term investment 1 090 61
fluctuations
Minority shareholders` short- (69) (11)
term investment fluctuations
Taxation effect of short- (150) (45)
term investment fluctuations
Dividend tax 13 134
Operating earnings 907 912 (1)
Operating earnings per share 339 357 (5)
(cents)
Diluted operating earnings 338 337
per share (cents) (note 3)
Combined ratio (%) (note C) 96,1 95,4
NOTES TO THE SUPPLEMENTARY INCOME STATEMENT
A. Presentation
The results for the period, in accordance with IFRS, are shown in the income
statement. To illustrate the results of the insurance and investment operations,
the above supplementary income statement is provided and separated into:
(a) A technical account
The technical account includes a long-term investment return which is applied to
both:
(1) funds generated by the insurance activities;
(2) shareholders` funds
This rate of return was increased from 15,6% in 2007 to 16,6% in 2008 in
accordance with the approach adopted by the holding company, Old Mutual plc.
This change in rate increased operating income by R57 million in 2008. The long-
term investment rate is not an annual guaranteed rate of return and might not
always be achieved on the group`s investments. In view of market volatility and
world economic conditions, the rate of return will be reduced with effect from 1
January 2009 to approximately 13%.
(b) A non-technical account
The non-technical account includes all non-insurance related activities
including investments, and above mentioned allocated investment returns
transferred to the technical account.
B. Allocation
The investment return on investments supporting insurance activities is
allocated to the technical account in determining the general insurance result.
In addition the long-term investment return on investments supporting
shareholders` funds is allocated from the non-technical account to the technical
account in determining an operating income based on the long-term investment
return. The allocations accordingly negate one another in the determination of
(loss)/profit before taxation.
The long-term investment return on shareholders` funds is an estimate of the
long-term trend investment return for the relevant category of investments
having regard to past performance, current trends and future expectations.
C. Combined ratio
This reflects the ratio of total insurance expenditure to net earned premiums.
Comments
The profit attributable to equity shareholders has declined by 117% primarily as
a result of a reduction in the value of listed equities.
The underwriting surplus for the year declined by 18% but the 2007 result was
positively impacted by the release of R96 million from reserves following
refinements to estimation methods. Without this adjustment, underwriting profit
increased by 11%.
Although there were further increases in the frequency and severity of
industrial fire claims in the first half of the year, trading conditions
improved during the second half. This, together with corrective measures on the
underperforming group schemes portfolio resulted in satisfactory levels of
underwriting profitability being achieved for the full year.
Gross premium income declined by 2% as growth in the commercial portfolios was
offset by the cancellation of a number of personal group schemes and a
contraction in the risk finance portfolio.
Investment income reduced sharply during the year following a decline of
approximately 27% in the value of listed equities which was in line with the
JSE. Whilst dividend income dropped slightly, interest income increased strongly
as a result of higher levels of cash holdings during the year and higher
interest rates.
During the year the company undertook a substantial restructure to promote
client service and operating efficiency. Staff numbers declined by more than 600
as a result of the restructure and R55 million in retrenchment costs were paid.
A further non-recurring expense of R147 million was incurred from the closure of
a channel development project. This project was undertaken to seek growth
opportunities from a number of different channels but was regrettably abandoned
when it proved to be too ambitious and ill-timed.
As a result of the decline in the value of investments, the net asset value per
share declined by 13% during the year to R10,92 at 31 December 2008. The
solvency margin (being the ratio of net assets to net premiums) declined to 41%
at 31 December 2008 but remains in the target range adopted by the company.
Despite significant uncertainty in world financial markets the company remains
committed to producing underwriting profits in 2009, and although the economic
downturn may subdue growth, the company`s streamlined structure should provide
it with a competitive advantage.
COMPLIANCE
The company complies in all material respects with the JSE Listings Requirements
and the King Report Code of Corporate Practices and Conduct.
REVIEW
KPMG Inc. has reviewed the financial information set out in this results
announcement with the exception of the supplementary income statement. The
unqualified review opinion is available for inspection at the company`s
registered office.
DIVIDEND
In view of the substantial instability in world markets and the current
uncertain financial environment the board has decided not to declare a final
dividend.
On behalf of the Board
JB Magwaza KN Kennedy
(Chairman) (Managing Director)
5 February 2009
Registered Office:
19th Floor, Mutual & Federal Centre, 75 President Street, Johannesburg, 2001
Transfer Secretaries:
Computershare Investor Services (Pty) Limited
70 Marshall Street, Johannesburg, 2001
Sponsor:
Nedbank Capital, 135 Rivonia Road, Sandown, 2196
Website: www.mf.co.za
E-mail: investor@mf.co.za
Authorised Financial Services Provider
A Member of the Old Mutual Group
Date: 06/02/2009 08:00:08 Produced by the JSE SENS Department.
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