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| FINANCIAL OVERVIEW | |||||||||||
| The improvement in underwriting performance in the first half of 2002 was nullified by setbacks in the second half. |
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| After June the Company experienced continued increases in claims inflation, particularly in respect of the motor account because the depreciation of the rand had the effect of raising replacement parts substantially. The underwriting account was also hit by other factors including storms in the Eastern Cape and a number of large fire claims in the latter part of the year. | |||||||||||
| These negatives, combined with increased reinsurance costs following renewal of the Group's reinsurance programme, from 1 October 2002, resulted in an underwriting loss of R21,3 million for the year, compared to a profit of R4,9 million at the half year and a loss of R8,7 million in 2001. | |||||||||||
| Your Board was satisfied with premium growth of 23,1 percent. This was, however, largely the result of pricing increases. The real growth in business experienced in 2001 following the major rationalisation of the short term industry began to taper off. | |||||||||||
| Investment income, although substantially below 2001, was satisfactory and in line with expectations. Shareholders will recall that in 2001 investment income benefited from a number of special dividends and income arising from the settlement of the court case against NBS. | |||||||||||
| In spite of the disappointing performance of the JSE Securities Exchange, the investment portfolio performed above average, outperforming the exchange. Realised gains substantially matched the unrealised losses on the portfolio. Our policy is to continue to reduce exposure to the equity markets. | |||||||||||
| The Company's solvency margin fell to 43,3 percent from 53,9 percent at the end of 2001, principally because of increased premium income. This figure remains comfortably above the required statutory margin of 25 percent and is in line with international market standards for solvency. The Company has an internal target to maintain solvency within the 40 to 50 percent mark. We would regard the optimum as being around 45 percent. With this in mind the Board has set dividend policy with a view to increasing the solvency margin back to 45 percent within a 12-month period. This will clearly depend upon the absence of any major catastrophic event and of further substantial falls in equity values. | |||||||||||
| The final dividend has been reduced to R1.50 from R4.50 in 2001. The reduction should be viewed against the substantial special dividends paid in 2000. Although the Company was able to maintain the level of dividends paid in 2001 and 2002 it has now become necessary to change the base of these dividends to take account of the special dividends. We believe that the new level of dividend is now sustainable going forward and that there is a reasonable prospect of maintaining or increasing dividend levels in the future. | |||||||||||
| ECONOMIC OVERVIEW | |||||||||||
| The South African economy performed with surprising resilience during 2002 and the growth rate is expected to have been around three percent. | |||||||||||
| The extraordinary currency depreciation in 2001 affected the economy. Inflation was higher than expected and interest rates rose no less than four percentage points. The rand has been relatively stable throughout the year, although it did strengthen more than expected at the end of the year and has continued to firm further in the early part of 2003.
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| The increase in the rand's external value and continuing low inflation rates in other countries suggest that the economic climate for South Africa for 2003 is positive. It is widely expected that the inflation rate will fall further and that government will be able to return to its inflation targets in 2004. This, in turn, should reduce the rate of increase in claims costs to more normal levels in the coming year. | |||||||||||
| YEAR AHEAD | |||||||||||
| 2003 is likely to be a year of consolidation for the Company. The Aquila Rex project will be completed in February 2003. This project has seen a fundamental reorganisation of the processes and procedures in the Company with, in particular, the implementation of workflow systems. Inevitably, as with any reorganisation of this size, the changes have not been without problems and it is acknowledged that service levels have suffered. | |||||||||||
| I do thank policyholders and intermediaries for their patience during this period of change. The problems experienced are now largely resolved and we foresee that service levels will be restored in 2003. | |||||||||||
| SOCIAL RESPONSIBILITY | |||||||||||
| SA Eagle has stepped up its social responsibility investment, adding a number of bursaries, increasing contributions to universities and maintaining its conservation drive, which focuses particularly on large raptors. The Managing Director's report contains more detail. | |||||||||||
| DIRECTORATE, MANAGEMENT AND STAFF | |||||||||||
| I regret that this is my last report as Chairman of the Company as I have been allocated new responsibilities within the Zurich Insurance Group. I would like to thank the management and staff for the significant contribution they have made to the transformation of the Company over the last two years. This change has been essential to the future of the Company and I look forward to its continued success under the leadership of Mr Geoff Riddell who will be my successor as Chairman of the Company. | |||||||||||
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Patrick O'Sullivan |
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| CHAIRMAN |
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