Full annual report - Zurich

chairman’s statementFINANCIAL OVERVIEWIt is with much pleasure that I submit my first report as Chairman of South African Eagle Insurance Company Limited.The improvement in underwriting performance seen in the first half of the year accelerated in the second half resulting in recordunderwriting profits of R127,7 million (2002: R21,3 million loss) for the year. This improvement can be ascribed to the rating actiontaken combined with the cancellation of unprofitable business and stabilisation of claims costs following the appreciation of the Randagainst major currencies and the consequent significant reduction in inflation. With this falling inflation and the reduction in interestrates it becomes critical that this underwriting performance continues if adequate returns are to be maintained to shareholders asinvestment income cannot be relied upon to counter poor underwriting performance.Gross premium income has grown by 8,9% in the year to R3,2 billion (2002: R2,9 billion). This growth was in line with your Board’sexpectations and reflects the cancellation of unprofitable business amounting to in excess of R100 million.SA EAGLE6With the stabilisation of reinsurance costs and reduced inflation, premium increases will moderate compared to the last two years.Investment income grew by 18,2% over 2002 due largely to the increased cash flow arising from improved underwriting performancewhich offset the impact of falling interest rates towards the end of the year.The policy to reduce the exposure to equity markets continued in 2003 with realised gains on disposal during the period of R49,9million (2002: R54,8 million).Headline earnings per share, which exclude realised gains on disposal of investments, more than doubled to 1,476 cents per sharefrom 628 cents per share in 2002.The solvency margin has recovered to 47,1% from 43,3% in line with your Board’s policy to maintain solvency within the 40 to 50percent bracket with 45% being regarded as optimum. This recovery in solvency has enabled the Board to declare a final dividend of300 cents per share making a total for the year of 450 cents per share (2002: 400 cents per share).ECONOMIC OVERVIEWThe performance of the South African economy in 2003 was characterised by a reduction in the real growth rate to around 2%, asharp decline in the inflation rate to around 4% and a consequent reduction of 5,5% in the prime overdraft rate. The slowdown ingrowth was largely attributable to the export market where the strength of the Rand impacted the competitiveness of South Africanbusinesses. Domestic demand however, remained reasonably buoyant.The outlook for 2004 is fairly optimistic for the South African market with inflation and interest rates probably close to the bottom oftheir range and the relative strength of the Rand. The Rand’s volatility remains a concern, particularly because of the impact of Randweakness on claims costs. If, as is expected, the Rand remains relatively stable during the period, the reduced rate of claims inflationexperienced in 2003 should continue in 2004.YEAR AHEADThe processes and procedures in the Company have now fully stabilised following the major reorganisation in the past few years andthe Company is well positioned to take advantage of changing market conditions.The implementation of the Financial Advisory and Intermediary Services Act (FAIS) is expected to lead to a consolidation in the brokermarket. Your Company remains committed to the broker market as its principal distribution arm and will be seeking ways of assistingbrokers in the implementation of FAIS.SA Eagle and its principal shareholder, Zurich Financial Services, are fully committed to the principles laid out in the Financial SectorCharter and are actively addressing the issues set out in the Charter. It is our intention to fully comply with the requirements of theCharter within the time scales established. Reports on progress will be included in future annual financial reports.SOCIAL RESPONSIBILITYSA Eagle continues to expand its activities in this area. A full report of these activities is contained in this Annual Report.DIRECTORATE, MANAGEMENT AND STAFFI would like to thank in particular, my predecessor as Chairman, Mr Patrick O’Sullivan who resigned earlier this year to take up a seniorposition in the Zurich Financial Services Group.My first year as Chairman has seen record profits for your Company and I would like to thank Nick Beyers, his management team andall staff for their contributions to this excellent result.Finally I would like to thank my fellow Directors for their guidance and support over the period.GM RiddellCHAIRMAN