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Announcement of the unaudited Group results and cash dividend declaration for the six months ended 30 June 2013
Zurich Insurance Company South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration number 1965/006764/06)
Income tax number: 9325210715
Share code: ZSA ISIN: ZAE000094496
("Zurich" or "the Group" or "the Company")
ANNOUNCEMENT OF THE UNAUDITED GROUP RESULTS AND CASH DIVIDEND DECLARATION
for the six months ended 30 June 2013
"We are pleased to see progress in various strategic initiatives aimed at investing in high-potential growth areas and streamlining the business in all other areas.
These initiatives will gain further momentum into 2014. The growth in gross written premium is in line with expectations, however, the bottom line for the first half
of the year was disappointing."
Edwyn O'Neill, Chief Executive Officer
- Interim dividend of 100 cents per share declared
- Premium volumes improved by 9%
- Solvency remains strong at 63.7%
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
for the six months ended 30 June 2013
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
Gross written insurance premium 2,048,909 1,881,783 9% 3,766,534
Insurance premium ceded to reinsurers (487,709) (438,258) (828,304)
Net written insurance premium 1,561,200 1,443,525 8% 2,938,230
Net insurance premium earned 1,553,513 1,444,581 8% 2,934,445
Reinsurance commission earned 64,254 56,904 146,366
Investment income 110,041 118,804 223,965
Other income 1,129 3,132 7,163
Net realised gains on available-for-sale financial assets 29,768 921 81,896
Gains on sale of business and associate 3,286 3,286
Net income 1,758,705 1,627,628 8% 3,397,121
Net insurance claims 1,166,476 1,006,674 16% 2,202,655
Acquisition costs 328,406 287,188 586,011
Administrative and other operating expenses 294,304 286,455 608,095
Investment expenses 2,967 2,832 5,527
Impairment of available-for-sale financial assets 4,989 2,700 6,240
Expenses 1,797,142 1,585,849 13% 3,408,528
(Loss)/profit from operating activities (38,437) 41,779 (192%) (11,407)
Finance costs (6,375) (5,500) (11,317)
Share of profit in associates 155 433 1,090
(Loss)/profit before tax (44,657) 36,712 (222%) (21,634)
Income tax 24,928 (7,182) 23,710
(Loss)/profit for the period (19,729) 29,530 (167%) 2,076
Earnings per share
Basic and diluted (cents) (162) 243 17
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the six months ended 30 June 2013
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
(Loss)/profit for the period (19,729) 29,530 2,076
Other comprehensive income
Exchange differences on translating foreign operations 1,087 (157) (4,582)
Net realised gains on available-for-sale financial assets recycled to the statement
of financial performance (29,768) (921) (81,896)
Impairment losses transferred to statement of financial performance 4,989 2,700 6,240
Net unrealised (losses)/gains on available-for-sale financial assets (10,120) 75,215 139,621
Income taxation relating to components of other comprehensive income 3,605 (10,668) (20,132)
Total comprehensive (loss)/income for the period (49,936) 95,699 (152%) 41,327
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2013
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
Assets
Land, buildings and equipment 61,063 83,781 73,049
Intangible assets 47,585 44,790 50,433
Investments in associates 9,624 5,188 5,036
Financial instruments 3,193,578 2,978,818 3,161,000
Pre-payments 125,822 141,333 141,065
Deferred acquisition costs 100,297 95,206 95,308
Reinsurance assets 1,072,267 681,102 908,562
Deferred taxation asset 31,837
Income taxation asset 1,841 5,284
Cash and cash equivalents 625,691 789,802 611,945
Total assets 5,269,605 4,820,020 9% 5,051,682
Equity and liabilities
Total equity 1,945,439 2,086,285 2,019,733
Deferred taxation liability 25,417 8,094
Employee benefit obligation 40,753 58,305 60,224
Financial liabilities held at amortised cost 107,657 117,875 109,292
Insurance liabilities 2,407,684 1,902,054 2,206,203
Deferred reinsurance commission 38,481 18,192 16,346
Income taxation liability 1,075 7,792
Trade and other payables 718,336 589,525 620,801
Provisions 10,180 14,575 10,989
Total equity and liabilities 5,269,605 4,820,020 9% 5,051,682
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 30 June 2013
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
Share capital and premium 4,650 4,650 4,650
Translation reserve (38,548) (35,210) (39,635)
Revaluation reserve 323,358 377,144 354,651
Statutory contingency reserve 35,801 32,413 34,656
Retained income 1,620,179 1,707,288 1,665,411
Balance at end of the period 1,945,440 2,086,285 (7%) 2,019,733
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2013
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
Cash effect from operating activities 76,981 (124,461) (141,573)
- Cash flows from operations (20,098) (252,013) (358,894)
- Dividend and interest income 103,666 113,304 212,648
- Taxation (paid)/refunded (6,587) 14,248 4,673
Cash effect from investing activities (39,996) (43,127) (191,707)
Cash effect from financing activities (24,359) (24,359) (36,539)
Net movement in cash and cash equivalents 12,626 (191,947) (107%) (369,819)
Translation gains/(losses) on cash and cash equivalents 1,120 (54) (39)
Cash and cash equivalents at beginning of the period 611,945 981,803 981,803
Cash and cash equivalents at end of the period 625,691 789,802 (21%) 611,945
NOTES
These Group results have been prepared under the supervision of the Chief Financial Officer (CFO), Pieter Bezuidenhout, Chartered Accountant (SA), in compliance with
the requirements of the Companies Act 71 of 2008, as amended.
1. Accounting policies and basis of preparation
These condensed consolidated interim financial results for the six months ended 30 June 2013 have been prepared in accordance with International Financial Reporting
Standards, the preparation and disclosure requirements of IAS 34 - Interim Financial Reporting, the Listings Requirements of the JSE Limited and the requirements
of the South African Companies Act 71 of 2008, as amended. The preparation of interim financial statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ
from these estimates. The principal policies used in the presentation of the unaudited results for the period ended 30 June 2013 are consistent with those applied
in the Annual Financial Statements for the year ended 31 December 2012.
Risk management
The Group is exposed to a variety of financial risks: liquidity risk, market risk (price risk, interest rate risk, currency risk) and credit risk. Insurance activities
expose the Group to insurance risk as well as operational, reputational and strategic, legal as well as regulatory risk. The capital risk management philosophy is
to maximise the return on shareholders' capital within the Group's risk framework. The interim condensed consolidated financial statements do not include all risk
management information and should be read in conjunction with the Group's Annual Financial Statements as at 31 December 2012. There have been no changes in the risk
management policies since year-end.
Segment information
The segments disclosed are reviewed on a monthly basis and are representative of the internal structure of the Group.
Six months Six months
ended ended Year ended
30 June 2013 30 June 2012 % 31 Dec 2012
Rand thousands Unaudited Unaudited Change Audited
2. Financial highlights
(Loss)/profit for the period (19,729) 29,530 (167%) 2,076
Adjusted for:
Losses on disposal of land, buildings and equipment 529 240 664
Net gains on disposal of available-for-sale financial assets (29,768) (921) (81,896)
Gains on sale of business and associate (3,286) (3,286)
Impairment of available-for-sale financial assets 4,989 2,700 6,240
Tax effect 4,527 177 14,612
Headline (loss)/earnings (39,452) 28,440 (239%) (61,590)
Headline (loss)/earnings per share (cents) (324) 234 (506)
Earnings per share (cents) (162) 243 17
Ordinary dividends declared per share (cents) 100 100 200
Dividends paid per share (cents) 200 200 300
Number of shares in issue 12,179,500 12,179,500 12,179,500
Net asset value per share (cents) 15,973 17,129 16,583
Surplus asset ratio (%) 207 240 230
International solvency margin (%) 63.7 73.1 (13%) 68.7
Combined ratio (%) 109.6 103.3 (6%) 108.8
3. Information by line of business
Gross written insurance premium
Property 798,575 695,411 15% 1,404,988
Transport 77,551 58,928 32% 114,951
Motor 868,885 839,897 3% 1,667,837
Engineering 161,386 148,320 9% 323,154
Guarantee 1,259 19 84
Liability 75,522 54,632 38% 110,701
Accident and Health 65,731 84,576 (22%) 144,819
Gross written insurance premium 2,048,909 1,881,783 9% 3,766,534
Net income
Property 524,157 459,050 953,845
Transport 50,441 41,940 83,982
Motor 842,305 794,280 1,623,315
Engineering 129,297 126,312 265,390
Guarantee 159 588 679
Liability 39,750 36,657 75,169
Accident and Health 31,658 42,658 78,431
Investment income and other 140,938 126,143 316,310
Net income 1,758,705 1,627,628 8% 3,397,121
General insurance result
Property (81,365) (47,122) (161,115)
Transport (3,893) 11,480 6,754
Motor (83,727) (38,606) (151,919)
Engineering (5,772) 5,859 22,288
Guarantee 3,471 (1,734) 108
Liability 6,396 10,038 4,478
Accident and Health 15,235 11,949 21,093
Net underwriting result (149,655) (48,136) (211%) (258,313)
Attributable investment income 43,605 47,588 89,770
General insurance result (106,050) (548) (168,543)
4. Gross written insurance premium by company
Zurich Insurance Company South Africa Limited 1,895,476 1,697,211 3,403,040
Zurich Insurance Company Botswana Limited 121,495 114,834 248,433
Zurich Risk Financing SA Limited 31,822 69,048 113,981
Zurich Life SA Limited 116 690 1,080
Gross written insurance premium 2,048,909 1,881,783 9% 3,766,534
5. Gross written insurance premium by customer segment
Corporate 235,820 159,457 48% 155,158
Commercial 1,299,021 1,269,753 2% 2,678,717
Personal 514,068 452,573 14% 932,659
Gross written insurance premium 2,048,909 1,881,783 9% 3,766,534
6. Supplementary income statement
Gross written insurance premium 2,048,909 1,881,783 9% 3,766,534
Insurance premium ceded to reinsurers (487,709) (438,258) (828,304)
Net written insurance premium 1,561,200 1,443,525 8% 2,938,230
Net insurance premium earned 1,553,513 1,444,581 8% 2,934,445
Net insurance claims (1,166,476) (1,006,674) 16% (2,202,655)
Acquisition costs (264,152) (230,284) (439,645)
Administrative and other operating expenses (272,540) (255,759) 7% (550,458)
Net underwriting result (149,655) (48,136) (211%) (258,313)
Attributable investment income 43,605 47,588 89,770
General insurance result (106,050) (548) (168,543)
Impairment of available-for-sale financial assets (4,989) (2,700) (6,240)
Non-technical expenses (20,635) (27,131) (57,638)
Other investment income 60,216 65,716 134,418
Investment expenses (2,967) (2,832) (5,527)
Net realised gains on disposal of investments 29,768 4,207 81,896
(Loss)/profit before tax (44,657) 36,712 (222%) (21,634)
Income tax 24,928 (7,182) 23,710
(Loss)/profit for the period (19,729) 29,530 (167%) 2,076
COMMENTS
Premium volumes improved by 9% to R2.0 billion compared to the prior year (2012: R1.9 billion) despite soft market conditions. This strong growth is testament to our
strategy of investing in systems and people in high-potential growth areas. Net earned premium improved by 8% to R1.6 billion (2012: R1.4 billion).
Claims however, increased by 16% to R1.2 billion (2012: R1.0 billion) driven by a sharp increase in attritional losses in the property portfolio and an increase
in the frequency of claims in the personal lines motor book.
Net acquisition costs, which increased by 14%, were impacted by a change in the portfolio mix and the introduction of regulated binder fees payable to intermediaries.
Operating expenses increased by only 7% to R272.5 million (2012: R255.8 million) in spite of the investment in systems and people in our growth areas.
The combined effect of the increased claims and binder fees contributed to the underwriting loss of R149.7 million (2012: loss of R48.1 million). Attributable investment
income at R43.6 million (2012: R47.6 million) is lower than the prior year due to lower interest rates.
Income tax is a recovery of R24.9 million compared to an expense of R7.2 million in 2012 as a result of taxable losses.
The net asset value per share at June 2013 is R160 per share (2012: R171 per share) and the international solvency is 63.7% (2012: 73.1%), with the surplus asset ratio
at 207% (2012: 240%).
Trading statement
A trading statement was published on SENS on Friday, 28 June 2013 and, although management was able to confirm that earnings for the half year would be at least 100%
lower than the previous corresponding period, a range could not be determined as uncertainty existed surrounding the potential outcome of an arbitration hearing. The
outcome of the arbitration hearing should be known on or before Tuesday, 20 August 2013 and shareholders will be informed of the outcome by an announcement released
on SENS.
Prospects
The Group remains focused on achieving profitable growth and to turning around the underwriting result. Growth is expected to come from the traditional intermediary
channel and from a number of alternative distribution channels, products and segments that are showing encouraging prospects. Stringent underwriting and rating actions
aimed at improving loss ratios and the level of binder fees, both of which are considered unsustainable in the longer term, are already receiving management attention.
Changes in Directorate
There have been no changes in the Directorate since the announcement of the full-year results on 6 February 2013.
Audit
The information set out in this announcement has not been audited or reviewed by the Company's auditors, PricewaterhouseCoopers Inc.
Compliance
The Group complies in all material respects with the King Report on Corporate Governance in South Africa and the Listings Requirements of the JSE Limited.
Cash Dividend Declaration No. 80
Notice is hereby given that the Directors have declared a gross interim cash dividend of 100 cents per ordinary share, out of income reserves for the six-month period
ended 30 June 2013.
The Company has utilised secondary tax credits amounting to 52.58201 cents per share. The balance of the dividend will be subject to a dividend withholding tax at a
rate of 15%, which will result in a net dividend of 92.88730 cents per share to those shareholders who are not exempt from the dividend tax.
The issued share capital at the declaration date is 12,179,500 ordinary shares.
The salient dates for the dividend will be as follows:
Last day to trade in order to participate in the dividend: Friday, 23 August 2013
Shares commence trading ex the dividend from the commencement of business on: Monday, 26 August 2013
Record date: Friday, 30 August 2013
Payment date: Monday, 2 September 2013
Share certificates may not be dematerialised or rematerialised between Monday, 26 August 2013 and Friday, 30 August 2013, both days inclusive.
By order of the Board
31 July 2013
Johannesburg
Board of Directors
DD Mokgatle (Independent Non-executive Chairman)
JE O'Neill (Chief Executive Officer)
P Bezuidenhout (Chief Financial Officer)
JPM Deiss (Non-executive)
S Mered (Non-executive)
MN Mbekeni (Independent Non-executive)
SG Morris (Independent Non-executive)
JM Vice (Independent Non-executive)
Transfer Secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg 2001
Group Company Secretary and Registered Office
T Heydenrych
Zurich Insurance Company South Africa Limited
Registration number 1965/006764/06
15 Marshall Street, Ferreirasdorp,
Johannesburg 2001
(PO Box 61489, Marshalltown 2107)
Sponsor
RAND MERCHANT BANK
(A division of FirstRand Bank Limited)
1 Merchant Place, Cnr Fredman Drive
and Rivonia Road, Sandton 2196
www.zurich.co.za
Date: 01/08/2013 05:11:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
