Investment income sees Zimnat FY07 profit rise 186 525%

Saturday 5th March 2005

HARARE - Zimnat (ZMAT.ZI) posted a 186 525% rise in attributable profit in the year to December 31 on the back of a 178 992% increase in investment income.

EPS in the period amounted to $70 169,56 (2006: $37,60), while the group declared a dividend of $14 732,29 per share in addition to an interim dividend of $14,41 that was paid in September.

MD Elisha Moyo said the key achievement to come out of these results was the continued achievement of a technical profit as well as the improvement on the claims and expense ratios.

Gross premium written in the period rose 38 225% to $1.8 trln (2006: $4.6 bln), while net written premium advanced to $813 bln (2006: $2.5 bln).

Financial director Anthony Makonese said the modest growth in premium was pleasing given the group's strategy to retain and acquire profitable businesses.

Underwriting profit went up by 152 842% to $20.1 trln. Makonese said this had been achieved by improvement on the claims and expense ratios. Claims ratio improved from 18% to 5% while expense ratio improved to 38% from 53% in prior year.

"Our claims control and risk management strategy is paying dividend."

Of the premium income, motor's contribution in the period advanced 45 034%, while commercial was up 33 585%. Personal lines to were up 58 248%, while farming went up 11 896%. The business mix was made up of 52% motor, 2% farming, 5% personal and 41% commercial.

Makonese said the 178 992% increase in investment income to $19.3 trln (2006: $10.8 bln) was within management's expectations. He added that the bullish performance of the stock market towards the end of the year, investment property revaluations and better cash flow management contributed to the growth in investment Income.

The bulk of the investment income came from equities at $14.4 trln or 75% of the portfolio. The portfolio has since grown up to $25 trln as of Friday February 22.

Makonese added that properties, which comprised 29% of the portfolio at Dec 31, was revalued by 169 000% to $4.9 trln.

The total investment income for the year comprised of 74% unrealised gain from equities, 29% unrealised gain from properties, and 21% realised investment income.

On the challenges faced by the group in the period Moyo said the unabated rise in inflation had increased incidences of underinsurance and no insurance.

He said the group had reduced the credit period to cash basis resulting in further difficulties in cash collection.

On the outlook, Moyo said the group would focus on profitable revenue growth as well as introducing foreign currency denominated policies. He added that the new forex denominated policy had been given the go ahead a month ago.

Moyo said the group's investments would primarily remain in equities. He said the group would maintain the same strategies as of now unless there is a change after the March 29 elections.

Analysts comment: While the gain in bottomline profit is the best seen in the reporting period to date, we need to be reminded that the Industrials index was up 333 494% in the year to December, while Minings, for which counters Zimnat indicated it had a preference for at the last briefing, was 577 286% ahead. The 178 992% increase in investment income is less than half of this, however "impressive" the headline number looks.

The most impressive thing remains Zimnat's ability to produce a technical profit in this environment with insurance spend having been cut down to the bone. You can see this from the 38 225% rise in GPW while inflation by the government measure was 66 000% (and private measures were nearly triple that). Delivering a 152 842% rise in underwriting profit (closer to the private measures of inflation) shows claims and costs were well controlled and margins rose.

Insurance companies have for a long time looked to eat into their capital base and this year is going to be no different. Success comes down to those that have managed to streamline what's left of their insurance business and then manage their funds wisely to at least maintain some kind of value in the balance sheet. Unlike other companies reporting this period, EPS is not totally irrevelent since no forex earnings are consolidated.

If it were the case for other companies, it would almost be time to introduce a new market measure that would be of use in hyperinflationary times. The forward earnings to share price ratio  (FE/SP) ratio. Zimnat is probably going to increase earnings by a factor of 150-200 in the year ahead, meaning its earnings in the year to December 2008 will probably be just shy of $3 mln, placing the group on a FE/SP ratio of 6.

Zimnat (ZMAT.ZI) year to December 31 2007 (Z$)

Historical

Gross premium written
$1.770 trln vs $4.619 bln
Net premium written
$813.3 bln vs $2.566 bln
Underwriting profit
$20.14 mln vs $13.17 mln
Investment income
$19.34 trln vs $10.80 bln
Pretax profit
$19.41 trln vs $10.67 bln
Attributable profit
$15.51 trln vs $8.309 bln
Basic EPS
$70 169,56 vs $37,60
Final dividend
$14 732,29 vs $10,34