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FMG reports solid result & confirmation of “A” credit rating

24 June 2011

FMG reports solid result and confirmation of “A” credit rating


New Zealand’s leading rural insurer, FMG has reported a solid profit for the year ending 31 March 2011 of $10 million and confirmation of its “A” rating from ratings agency A M Best.

FMG chief executive Chris Black said the result was outstanding in the circumstances with the worst concentrated period of natural disasters the company has seen in its 106 year history, together with the high level of market and customer scrutiny of the sector in general.

“We have always had in the back of our minds that someday we would face compounding events and were prepared for the worst. The Canterbury earthquakes followed by three major storms over the last 12 months, probably gave us a 10-year hit all rolled into one and our team responded admirably,” Mr Black said.

He said the FMG reinsurance programme was structured for such occurrences and even with the intense combination of natural disasters during the year, less than 15% of the available reinsurance was called on. “The nationwide spread and mix of our portfolio, plus having a strategy of personalising our cover and pricing on a customer by customer basis, proved its worth.”

In summary, the result was:

Element 2011 2010
Net Profit (after Tax) $10m $19.3m
Total Revenue $131.4m $128.9m
Investments $190m $180m
Investment Return $14.5m $18.0m
Total Earthquake Claims $50m -
FMG Net Earthquake Cost $7.2m -

FMG stopped distributing through brokers during the year resulting in a $2 million loss in revenue.

Mr Black said the majority of FMG’s reinsurance agreements had a further two years to run.

Rating agency A M Best’s Asia Pacific unit, based in Hong Kong, recently reaffirmed its credit rating of FMG as “A” (Excellent) with a stable outlook due to the organisation’s “strong risk-adjusted capitalisation, solid operating profitability, effective catastrophe risk management and strong business profile in the rural general insurance market”.

In terms of policy pricing going forward, he noted that there is considerable speculation on future premium levels in the market.

“Market speculation includes rumours of premium increases from 20% to 60% and above.
We will certainly be reviewing the situation. However any premium increases from FMG are certainly more likely to be at the lower end of the range being predicted.

“We have also had a revitalisation of our brand during the year and a new advertising programme is in place. Results so far indicate that we will meet our target of a 5% growth in customer numbers. Another highlight in terms of innovation was the introduction of a Livestock Catastrophe Policy in response to the spring storms where farmers lost tens of thousands of head of livestock, including breeding ewes which they will take some years to replace.”

Mr Black said the investment the company has made in employee training and development over recent years showed through in this very challenging year and the commitment to supporting customers in their hour of need was testament to the calibre of the team at FMG. “We had people on the ground with customers two hours after the first Canterbury earthquake on September 4 and some were on the go non-stop for almost three days.”

Chair Greg Gent said FMG has shown it is in great shape to face the industry’s challenges. He is delighted that the company stood beside its customers during what has been a particularly difficult year, especially in the remote rural areas of the country.

“The outlook for the rural sector over the next year is positive especially with the increase in the dairy payout. Rural property seems to have turned a corner which is a bellwether indicator and the returns for meat farmers are breaking new ground.”

Mr Gent said these indicators all bode well for FMG as its business is underpinned by the rural economy.

“FMG is keen to be at the forefront of any major changes in the sector but our focus will continue to be on serving existing customers well and quality growth. FMG is the natural partner for rural people and businesses”.

ENDS

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