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Unaudited interim Group results for the six months ended 30 June 2014
Zurich Insurance Company South Africa Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1965/006764/06)
Share code: ZSA ISIN: ZAE000094496
Income tax number: 9325210715
("Zurich South Africa" or "the Group" or "the Company")
Unaudited interim Group results for the six months ended 30 June 2014
Comments:
A number of initiatives aimed at improving long-term profitability were accelerated in Q4 2013 and are starting to yield positive results. These initiatives target
specific elements in the claims and underwriting capabilities of the organisation.
These initiatives have resulted in the contraction of premium volumes due to targeted cancellation and non-renewal of underperforming portfolios within the Personal and
Commercial segments. As a result, premium volumes declined by 4% from R2.05 billion in the first six months of 2013, to R1.96 billion.
The underwriting result is a deficit of R199 million compared to a deficit of R150 million during the comparative period. The general insurance result is a deficit of
R154 million, compared to R106 million in the comparative period.
Claims expenses have increased by 6% to R1.24 billion (2013: R1.17 billion), largely due to an increase in the frequency and severity of large losses in the property
and marine portfolios. The deterioration of the rand also continues to negatively impact on the cost of motor claims during the period.
Commissions increased marginally by 1% to R332 million (2013: R328 million). Operating expenses increased by 6% to R312 million (2013: R294 million), significantly impacted
by the payment of binder and outsourcing fees and by the costs associated with the investment in turnaround and in growth initiatives.
Attributable investment income increased by 5% to R46 million (2013: R44 million), positively impacted by proactive cash management initiatives and increasing interest
rates. Net realised gains increased to R43 million (2013: R30 million) due to the sale of investments to rebalance the equity portfolio.
At 56.4% (2013: 63.7%), the international solvency margin exceeds the targeted solvency levels of between 45% and 50%. The Group's balance sheet remains strong with a net
asset value of R149 per share (2013: R160 per share).
The Board has decided to pass the payment of an interim dividend pursuant to its strategy of investing in turnaround and profitability initiatives, as well as its business
transformation programme scheduled for commencement in Q4 2014.
Changes in Directorate
S Mered resigned as a Non-executive Director with effect from 1 January 2014. P Manley was appointed as a Non-executive Director on 14 February 2014.
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 Code of Governance Principles for South Africa 2009 and the Listings Requirements of the JSE Limited.
By order of the Board
31 July 2014
Johannesburg
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
for the six months ended 30 June 2014
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Gross written insurance premium 1,957,483 2,048,909 (4%) 4,084,625
Insurance premium ceded to reinsurers (350,219) (487,709) (856,203)
Net written insurance premium 1,607,264 1,561,200 3% 3,228,422
Net insurance premium earned 1,609,048 1,553,513 3,230,185
Reinsurance commission earned 51,823 64,254 132,244
Investment income 117,168 110,041 217,682
Other income 2,742 1,129 4,417
Net realised gains on available-for-sale financial assets 43,149 29,768 105,609
Net income 1,823,930 1,758,705 4% 3,690,137
Net insurance claims 1,236,335 1,166,476 2,553,317
Acquisition costs 332,215 328,406 691,666
Administrative and other operating expenses 312,613 294,304 662,122
Investment expenses 2,333 2,967 5,923
Impairment of available-for-sale financial assets - 4,989 4,989
Expenses 1,883,496 1,797,142 5% 3,918,017
Loss from operating activities (59,566) (38,437) (227,880)
Finance costs (7,944) (6,375) (20,469)
Share of (loss)/profit in associates (83) 155 (3,832)
Loss before tax (67,593) (44,657) (252,181)
Income taxation 27,564 24,928 88,057
Loss for the period (40,029) (19,729) 103% (164,124)
Earnings per share
Basic and diluted (cents) (329) (162) (1,348)
CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the six months ended 30 June 2014
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Loss for the period (40,029) (19,729) (164,124)
Other comprehensive income net of tax* 15,713 (30,207) 59,425
Exchange differences on translating foreign operations - 1,087 7,945
Realised gains on available-for-sale financial assets recycled to the
statement of financial performance (43,149) (29,768) (105,609)
Impairment losses transferred to statement of financial performance - 4,989 4,989
Net realised and unrealised gains on available-for-sale financial assets 78,000 (10,120) 141,085
Income taxation relating to components of other comprehensive income (19,138) 3,605 11,015
Total comprehensive loss for the period (24,316) (49,936) (51%) (104,699)
*All other comprehensive income will be subsequently classified to profit/(loss) when specific conditions are met.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the six months ended 30 June 2014
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Cash effect from operating activities (154,422) 76,981 118,527
- Cash flows from operations (270,372) (20,098) (64,503)
- Dividend and interest income 109,224 103,666 197,213
- Taxation refunded/(paid) 6,726 (6,587) (14,183)
Cash effect from investing activities (6,981) (39,996) (591)
Cash effect from financing activities (24,359) (24,359) (36,539)
Net movement in cash and cash equivalents (185,762) 12,626 81,397
Exchange gains/(losses) on cash and cash equivalents 114 1,120 (63)
Cash and cash equivalents at beginning of the period 693,279 611,945 611,945
Cash and cash equivalents at end of the period 507,631 625,691 (19%) 693,279
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2014
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Assets
Land, buildings and equipment 45,694 61,063 56,217
Intangible assets 57,054 47,585 55,191
Investments in associates 5,555 9,624 5,637
Deferred taxation asset 113,155 31,837 102,463
Financial instruments 3,466,870 3,193,578 3,261,914
Prepayment of defined-contribution fund 112,155 125,822 127,694
Deferred acquisition costs 91,767 100,297 85,596
Reinsurance assets 584,438 1,072,267 657,987
Income taxation asset 1,157 1,841 11,610
Cash and cash equivalents 507,631 625,691 693,279
Total assets 4,985,476 5,269,605 (5%) 5,057,588
Equity and liabilities
Total equity 1,813,709 1,945,440 1,869,252
Employee benefit obligation 42,919 40,753 56,869
Reinsurance liability under cell management 72,911 107,657 68,292
Insurance liabilities 2,122,982 2,407,684 2,096,873
Deferred reinsurance commission 27,919 38,481 24,959
Income taxation liability 413 1,075 1,874
Trade and other payables 888,542 718,335 893,646
Provisions 16,081 10,180 45,823
Total equity and liabilities 4,985,476 5,269,605 (5%) 5,057,588
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
as at 30 June 2014
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Stated capital 4,650 4,650 4,650
Translation reserve (31,690) (38,548) (31,690)
Revaluation reserve 421,844 323,358 406,131
Share-based payment reserve (16,111) - (9,243)
Statutory contingency reserve 38,854 35,801 37,610
Retained income 1,396,162 1,620,179 1,461,794
Balance at end of the period 1,813,709 1,945,440 (7%) 1,869,252
NOTES
These Group results have been prepared under the supervision of the Chief Financial Officer, Pieter Bezuidenhout, CA(SA), in compliance with the requirements of the
Companies Act of South Africa.
1. Accounting policies and basis of preparation
These condensed interim financial results for the six months ended 30 June 2014 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 policies used in the presentation of the unaudited results for the period ended 30 June 2014 are consistent with those applied in the Annual Financial
Statements for the year ended 31 December 2013 and in accordance with International Financial Reporting Standards.
2. 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 2013. There have been no
changes in the risk management policies since year-end.
3. Segment information
The segments disclosed are reviewed on a monthly basis and are representative of the internal structure of the Group.
4. Financial highlights
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Loss for the period (40,029) (19,729) (164,124)
Adjusted for:
Losses/(gains) on disposal of property, plant and equipment 459 529 (611)
Gains on disposal of available-for-sale financial assets (43,149) (29,768) (105,609)
Impairment of available-for-sale financial assets - 4,989 4,989
Impairment of associate - - 5,124
Restructuring provision - - 38,470
Tax effect 7,166 4,527 7,169
Headline losses (75,553) (39,452) 92% (214,592)
Headline losses per share (cents) (620) (324) (1,762)
Earnings per share (cents) (329) (162) (1,348)
Ordinary dividends declared per share (cents) - 100 300
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) 14,891 15,973 (7%) 15,348
Surplus asset ratio 1.65 2.07 (20%) 1.90
International solvency margin (%) – annualised 56.4 63.7 (11%) 57.9
Combined ratio (%) (112.4) (109.6) 3% (114.1)
5. Segmental information
Gross written insurance premium
Property 687,253 798,575 1,535,451
Transport 73,444 77,551 140,669
Motor 870,087 868,885 1,777,580
Engineering 151,508 161,386 334,396
Guarantee 16,907 1,259 23,947
Liability 91,119 75,522 138,496
Accident and health 67,165 65,731 134,086
Total insurance premium income 1,957,483 2,048,909 (4%) 4,084,625
Net Income 522,510 524,157 1,056,990
Property
Transport 50,300 50,441 105,449
Motor 860,155 842,305 1,763,907
Engineering 127,313 129,297 261,641
Guarantee 15,452 159 15,899
Liability 37,347 39,750 80,855
Accident and health 47,795 31,658 77,688
Investment income and other 163,058 140,938 327,708
Net income 1,823,930 1,758,705 4% 3,690,137
General insurance result
Property (99,128) (81,365) (208,999)
Transport (11,631) (3,893) (19,084)
Motor (71,527) (83,727) (262,532)
Engineering (15,855) (5,772) (1,758)
Guarantee 1,825 3,471 (26,731)
Liability (5,835) 6,396 28,580
Accident and health 2,789 15,235 35,197
Net underwriting result (199,362) (149,655) 33% (455,327)
Attributable investment income 45,839 43,605 83,372
General insurance result (153,523) (106,050) 45% (371,955)
6. Gross written premium by company
Six months ended Six months ended Year ended
30 June 2014 30 June 2013 31 Dec 2013
Rand thousands Unaudited Unaudited % change Audited
Zurich Insurance Company South Africa Limited 1,837,397 1,895,476 3,805,906
Zurich Insurance Company Botswana Limited 99,380 121,495 237,265
Zurich Risk Financing SA Limited 17,707 31,822 41,268
Zurich Life SA Limited 2,999 116 186
Total insurance premium income 1,957,483 2,048,909 (4%) 4,084,625
7. Gross written premium by customer segment
Corporate 142,945 235,820 358,850
Commercial 1,326,448 1,299,021 2,675,982
Personal 488,090 514,068 1,049,793
Total insurance premium income 1,957,483 2,048,909 (4%) 4,084,625
8. Supplementary income statement
Gross written insurance premium 1,957,483 2,048,909 4,084,625
Insurance premium ceded to reinsurers (350,219) (487,709) (856,203)
Net written insurance premium 1,607,264 1,561,200 3% 3,228,422
Net insurance premium earned 1,609,048 1,553,513 3,230,185
Net insurance claims (1,236,335) (1,166,476) (2,553,317)
Net commission incurred (280,392) (264,152) (559,422)
Administrative and other operating expenses (291,683) (272,540) (572,773)
Net underwriting result (199,362) (149,655) 33% (455,327)
Attributable investment income 45,839 43,605 83,372
General insurance result (153,523) (106,050) 45% (371,955)
Impairment of available-for-sale-financial assets - (4,989) (4,989)
Non-technical expenses (18,188) (20,635) (84,932)
Other investment income 63,302 60,216 110,009
Investment expenses (2,333) (2,967) (5,923)
Net realised gains on disposal of investments 43,149 29,768 105,609
Loss before tax (67,593) (44,657) 51% (252,181)
Income tax 27,564 24,928 88,057
Loss for the period (40,029) (19,729) 103% (164,124)
9. FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The Group's financial instruments measured at fair value have been disclosed using a fair value hierarchy. The hierarchy has three levels that reflect the significance of
the inputs used in measuring fair value. These are as follows:
Level 1 includes financial instruments that are measured using unadjusted, quoted prices in an active market for identical financial instruments. Quoted prices are
readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly
occurring market transactions on an arm's length basis.
Level 2 includes financial instruments that are valued using techniques based significantly on observable market data. Instruments in this category are valued using:
a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or
b) valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data. These inputs
include interest rates, yield curves, bids, offers and reference data.
Level 3 includes financial instruments that are valued using valuation techniques that incorporate information other than observable market data and where at least
one input (which could have a significant effect on instruments' valuation) cannot be based on observable market data.
The Group's equity investment in a foreign unlisted insurance company consists of a 9.0% holding of the entity's common shares. During the period under review, the
fair value of the common shares held was derived using the dividend yield valuation approach. In applying this approach, the Group reviewed the historical dividend
payments, expected future dividend flows and the general future profitability of the Group and industry. The Group also adjusted the indicated fair value (risk-free rate)
to give effect to the lack of liquidity compared to the publicly traded peer group, as well as adjusting the fair value to give effect to political and business risk
associated with the foreign exposure. The valuation as determined was further compared to the net asset value of the Group to determine the reasonability thereof.
The valuation techniques used during the period under review are consistent with those applied in the Annual Financial Statements for the year ended 31 December 2013.
The valuation of all Level 3 instruments is performed on a recurring basis and reviewed by the Asset/Liability Management Investment Committee.
Total Level 1 Level 2 Level 3
Rand thousands
December 2013
Hierarchy
Land and buildings 3,538 3,538
Financial instruments - available for sale
- Debt 1,177,258 1,177,258
- Equity 708,600 578,153 93,300 37,147
Financial instruments - fair value through income 477,558 477,558
Total 2,366,954 578,153 1,751,654 37,147
June 2013
Hierarchy
Land and buildings 3,382 3,382
Financial instruments - available for sale
- Debt 1,197,950 1,189,784
- Equity 621,221 519,347 93,025 17,015
Financial instruments - fair value through income 466,546 466,546
Total 2,289,099 519,347 1,752,737 17,015
June 2014
Hierarchy
Land and buildings 3,449 3 449
Financial instruments - available for sale
- Debt 1,208,317 1,208,317
- Equity 740,269 599,651 93,359 47,259
Financial instruments - fair value through income 491,483 491,483
Total 2,443,518 599,651 1,796,608 47,259
Level 3 reconciliation Opening Purchases Closing
balance and issues balance
Financial instruments - available for sale
- Debt 37,147 10,112 47,259
Total classified at Level 3 37,147 10,112 47,259
During the period, no investments were transferred between the different categories.
Board of Directors
DD Mokgatle (Independent Non-executive Chairman), JE O'Neill (Chief Executive Officer), P Bezuidenhout (Chief Financial Officer), JPM Deiss (Non-executive),
P Manley (Non-executive) – appointed 14 February 2014, 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
The results were released on the Stock Exchange News Service on 1 August 2014.
Date: 01/08/2014 11:51:00 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,
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