AMI reels as markets dip and claims grow

By Chris Hutching

Friday 1st November 2002

New Zealand-owned fire and general insurer AMI Insurance's annual result was hit by a downturn in overseas investment income and adverse weather events. Its after-profit tax dropped to $12.1 million from $17 million the previous year.

There was a rise in claims after storms in the North Island in November last year, hail and rain damage in Christchurch and Dunedin in January this year, and a "weather bomb" in June mainly affecting Thames-Coromandel with an estimated cost of about $21 million.

"We also saw an increase in the incidence of vehicle accidents, and at the end of 2001 an increase in the severity of accidents in which the cost of repairs has been exacerbated by a stronger New Zealand currency making parts sourced from overseas more expensive," AMI chief executive John Balmworth said. The profit was achieved on increased revenue from premiums of $185 million ($174 million), while claims costs also increased by 10% to $129.8 million.

Investment income fell from $15.6 million to $11 million.

Mr Balmworth said the result was "excellent" in the circumstances. Total assets stand at a record $250 million.

AMI has the biggest branch network of any of the fire and general insurers. While other companies have been cutting staff, AMI retains 68 offices and two call centres manned by 585 staff while many other players have restricted their customer service and claims systems to call centres and websites. During the year the company took on more staff but Mr Balmworth said efficiency had improved, as shown by the reduction in the management expense ratio of 24.02%.

AMI chairman Kerry Nolan said he expected investment markets to be under pressure for some time. As part of a review into governance, Ernst & Young will offer only audit and tax advice from now on instead of other consulting services.

AMI has increased its reserves from $137 million to $150 million, lifting its solvency margin from 80% to 82%. International rating agency AM Best has confirmed its A (excellent) rating for AMI's ability to pay claims.

A new rental property policy was introduced to cover landlord customers and a new two-product "multi-saver" discount package was developed to acknowledge customer loyalty and return benefits to members.

The fire and vernal insurance market in New Zealand is worth about $2 billion, split almost evenly between personal and commercial lines.

Like other insurance and investment companies, AMI is not happy about the incorporation of the accounting standard for general insurers Financial Reporting Standard 35 (FRS35). Last year was the first year companies have been required to use it. Under the new standard, unrealised gains or losses are reported as part of the profit for the year. Previously, unrealised gains or losses on investments were reflected in movements in the reserves on the balance sheet.

Insurers say the change tends to over-emphasise short-term fluctuations in investments and other assets held for the long term.

* Christchurch-based health insurer UniMed has consolidated its position over the past year with an increase in membership partly thanks to its change to age-related premium banding several years ago, general manager Dermot Martin told the annual meeting last week.

In the year to June, members' premium contributions increased 6.7% to $16.45 million ($15.42 million in 2001) while consolidated total expenditure edged up 3.8%. The consolidated net surplus was steady at $3.1 million ($3.2 million last year), resulting in total member funds of $18.1 million ($15 million).

Mr Martin warned that claims costs would continue to rise because of pressure on the public health system prompting more members to turn to the private sector for medical treatment.

Mr Martin highlighted how UniMed in 1995 introduced increased premiums based on five-yearly age bands and said the move was responsible for the stability enjoyed by UniMed. It was unclear what effect the government's proposed health tax would have.

UniMed has offices in Auckland and Hamilton as well as its traditional South Island base. The Auckland region accounts for half of annual growth.

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