INSURANCE

David Gnodde 
David Gnodde,
Chief executive officer of Regent Group. 
By merging the short-term and life businesses, we have combined the best of each operation’s resources and infrastructure to offer customers a full spectrum of convenient and competitive products under a single team operating on a common platform.
                    
   2009  2008  Change  H2  H1  Change 
   Rm  Rm  %  Rm  Rm  % 
Revenue  16 691  19 181  (13,0) 7 195  9 496  (24,2)
Operating profit  279  423  (34,0) 128  151  (15,2)
Operating margin (%) 1,7  2,2     1,8  1,6    

 


DIVISIONAL CONTRIBUTION

 

5%

 
Revenue  

13%

 
Operating profit 

17%

 
Profit before tax and exceptionals 
           
INSURANCE 
        % 
   2009 2008  change 
Revenue  2 847 2 594  10 
Operating profit  315 227  39 
Profit before tax and exceptional items  328 203  62 
Operating assets  4 080 3 942  4 
Non-interest-bearing liabilities  2 509 2 681  (6)
Capital expenditure  81 41  98 
Operating margin (%) 11,1 8,8    
Employees  1 097 937  17 

The group’s niche insurance operations are focused on a range of short-, medium- and long-term insurance and assurance products. These are predominantly associated with the automotive market and Imperial’s mobility proposition.

Effective 1 July 2008, the short-term and life businesses were merged under the Regent brand, combining the best of each operation’s resources and infrastructure:

  • Life products concentrate on convenient policies covering vehicle buyers against death and disability for the term of a finance agreement. Regent also offers group life and individual life cover to a growing base of customers.
  • Short-term products span the transport and mobility markets. Policies are sold through motor dealers and on behalf of finance institutions.
  • Regent also has a growing broker network through which it underwrites cover for various personal lines.

Regent now offers customers a full spectrum of convenient and competitive products through a single team operating on a common platform. The merger has also strengthened management resources, and enabled greater focus on strategic growth areas.

As anticipated, the introduction of the National Credit Act (NCA) in June 2007 has had a long-lasting effect on the financial services industry, leading to lower premium income flow, persistency and investment income. To counter this impact while providing vital financial security for consumers, Regent has focused on service levels, enhancing value and innovation in its product ranges, and containing costs.

During the year, the Regent group acquired the remaining minority shareholding in SA Warranties and closed a mortgage origination business unit.

 

Results

Gross premium income increased by 10%. Strong contributors to this increase were the Botswana life and short-term operations as well as the heavy commercial vehicles insurance operation where our market share increased. The depressed motor vehicle market resulted in lower premium income in the motor comprehensive and motor-related credit life products.

The operational merger of Regent Insurance and Regent Life has been completed with estimated annualised savings of R35 million. A new chief executive officer, David Gnodde, has been appointed.

A combined underwriting result of R175 million was achieved, nearly four times better than last year. The Botswana operations contributed well, although the credit life business in that country will reduce in 2010 following the loss of a large account. The short-term business in Botswana should remain strong. The underwriting result in South Africa from motor comprehensive business remained weak in line with the market, but was adequately compensated for by results from heavy commercial vehicles and warranty products.

Underwriting income was substantially higher in the second half following the actuarial review and release of approximately R57 million of life assurance reserves held at December 2008. The reduced expense base from the merger of Regent Life and Regent Insurance contributed to the release, as did changes in economic and experience assumptions. The balance of growth arose from cell captive business consolidated in the second half and an improvement in salvage and recoveries from third parties.

Subsequent to the introduction of cell captives in January, we have now accounted for our external partners’ share of such profits as income attributable to minorities. The positive impact on operating profits due to this was R30 million in the second half.

The overall investment return for the year was disappointing due to large fair value adjustments in the equities portfolio in the first half. Investment income, including fair value losses, was 23% lower than last year. The equities portfolio was reduced to 17% of total investible funds during the year. If a long-term investment return of 11,5% was applied to the portfolio, our return on embedded value would have exceeded 25% in both companies.

We invested a further R250 million of capital into the Regent group, bringing the short-term solvency margin to 47% and life capital adequacy ratio to 2,9 times at year end. The measures are well above regulatory minimum levels.

As indicated before, the recovery of our insurance division will take some time. We are satisfied with the progress since restructuring this business and after merging the two entities.

HIGHLIGHTS

  • Merger of short-term and life businesses results in estimated annualised savings of R35 million
  • Gross premium income up 10%, while underwriting results nearly four times better than last year
  • Capital base strengthened, lifting solvency margins and capital adequacy ratio well above minimum regulatory levels