The second half of 2002 was disappointing with the year ending with an underwriting loss of R21,3m compared to a profit of R4,9m at the half year and a loss of R8,7m in 2001.

The loss resulted from the continuing poor performance of the motor account, combined with the storms in the Eastern Cape in July and August and a number of large fires towards the end of the year.

Remedial action, which includes rate increases, continues in order to meet the rising cost of claims and reinsurance. The exiting of unprofitable business with a view to improving the quality of the book will continue throughout 2003.

Growth in gross written premium was 23,1% for the year. This represented mainly pricing increases. The rapid real growth experienced by the Company in the last two years following the rationalisation in the short term industry is beginning to taper off as the industry stabilises.

The major reorganisation within the Company, known as Aquila Rex, will be completed in February 2003. The implementation of new workflow technology impacted service levels negatively during 2002. However, implementation problems are now largely resolved. The new system provides sustainable cost savings and will improve controls over claims costs in 2003 and beyond.

Investment income was R27m lower than in 2001. This shortfall was due to the receipt of special dividends and income arising from the settlement of the court case against NBS in the prior year. Underlying growth in income was satisfactory and in line with expectations.

The equity disposal programme continued with the surplus arising on disposal of investments totalling R54,8m (2001: R114,8m).

The solvency margin stands at 43,3% down from the 2001 year-end of 53,9% as a result of the substantial growth in premium income for the period and the disappointing performance of both equity markets and the underwriting account.

After taking into account the financial position following the payment of special dividends in 2000, the significant growth in premium income in the past few years and the disappointing result in the current year, the Directors have declared a final dividend of 150 cents per share (2001: 450 cents per share). This makes 400 cents per share (2001: 700 cents per share) for the year. This action is to enable the Directors to re-establish a sustainable dividend policy in the future.