M&F goes under the hammer

Richard Stovin-Bradford

Richard Stovin-Bradford

Ever since community empowerment group Royal Bafokeng Holdings walked away in March from talks to buy a controlling stake in Mutual & Federal (M&F), a half-hearted "for sale" sign has hung over the country's second largest short-term insurer.

Last November, parent company Old Mutual held out hope of an offer of R25,50 a share for most of its 75percent stake in M&F, even as financial stocks tanked.

From the M&F "market value" of R18 so carefully projected at yesterday's interim results presentation, R18 could be the new R25,50 - as the insurer's share price languishes at R15,79.

But the figure is flattered by the rate that Old Mutual - and therefore M&F - uses to calculate long-term investment returns in its income statement. Old Mutual recently increased the rate to 16percent from 15percent.

Old Mutual will start seeking bids for its stake next month.

The insurer timed its disposal announcement to coincide with the release of M&F's disappointing interim results.

M&F reported an underwriting loss of 0,8percent, compared with a surplus of 2,6percent a year ago - a figure itself flattered by releases of reserves. It targets a ratio of at least four percent.

The main culprit was an increase in claims. M&F, with a market share of about 17percent, took its share of large fire and weather-related events in its corporate and commercial portfolios.

But managing director Keith Kennedy said the cycle of large losses appeared to abate in the second quarter and the downward trend had continued in July.