Mutual and Federal Insurance Takes a Hard Fall

January  23 - Although predictions for the performance of Mutual and Federal Insurance co. were not spectacular, nobody expected losses to be so significant.

The Old Mutual Plc. owned property and casual insurer reported its first annual loss in six years and showed a drop so steep that the likes have not been seen since September 2006.

Over the past year, stocks at Mutual and Federal Insurance have fallen a whopping 44 percent. Shares were now trading at R13.51, showing the company to have a net value of R4.3 billion.

A fund manager at one of South Africa's top asset management funds said: "The company's management is at the mercy of the markets. If the stock market falls over 25 percent, even if you beat the benchmark, it's going to beat investment income.

Mutual and Federal Insurance said that most of the money had been lost by investing funds in the stock market and getting burnt in volatile markets abroad. As a result, all underwriting profit was wiped out last year.

South Africa's second largest short term insurer let 600 of its employees go last year (around 20 percent of its total workforce) in a bid to cut back on costs. The company also increased fire and weather related claims in the hope that it could increase income.

At one point last year, the parent company, Old Mutual Plc in the United Kingdom considered putting its subsidiary up for sale but poor market conditions meant that the company would get nowhere near the amount it was looking for and the plan was dropped.