31 MARCH 2015ALEXANDER FORBES GROUP HOLDINGS LIMITEDINTEGRATED ANNUAL REPORT

OPERATIONAL PERFORMANCE REVIEW

ALEXANDER FORBES INSURANCE (AFI)

Performance indicators

 

2014/15

2013/14

2012/13

2014 – 2015
% change

Headcount

590

549

541

7.5

Employee turnover (%)

13

33

11

(60.6)

Employee engagement rate (%)

65

54

57

20.4

Net operating income (Rm)

407

350

307

16.3

Recurring revenue (%)

72

77

81

(6.5)

Profit from operations (Rm)

105

88

80

19.3

Number of policies (excluding accident and health policies)

78 144

76 269

73 614

2.5

Gross written premium (Rm)

1 341

1 224

1 066

9.6

Claims ratio (%)

67

74

70

(9.5)

Customer satisfaction index (%)

82

87

88

(5.7)

 

Highlights

Challenges

  • Profit from operations up 19%
  • Recruiting business insurance skills
  • Strong growth in business insurance – gross written premiums grew by 65%
  • Improving profitability on motor standalone business
  • Profit and lead conversion rates well ahead of industry averages
  • Embedding new IT platform into operations

 

OVERVIEW

AFI generated net operating income of R407 million and operating profit of R104 million in 2014/15, representing 9% of both total group operating income and operating profit.

Own premium income increased to R1.3 billion, with  a further R215 million worth of premium being administered on behalf of partners. Net operating income grew by 16% and profit from operations by 19%, while client satisfaction averaged 82% and employee turnover reduced to 13%.

Total premium income for the year rose by 10%, outstripping the overall industry average growth rate of 7% and representing a net gain in market share. Despite outperforming the market in terms of new policies written, the overall underwriting performance was considerably improved, reflecting the increasing quality of the book.

The average severity and frequency of motor, contents and buildings claims declined over the 12 months compared to the same period a year before. During the 2014/2015 underwriting year AFI experienced a single catastrophe (an event that entails an accumulation of claims with a value in excess of R4.5 million). The total exposure relating to this event was approximately R12 million – not as severe as the catastrophes experienced over the previous two years.

BUSINESS INSURANCE

Of particular note, AFI succeeded in growing gross premiums for business insurance by 65%, from R26 million in the previous year to R43 million. In only its third year of existence, the business insurance portfolio broke even and now contributes towards the profitability of AFI. In the fourth quarter alone, the value of business insurance premiums rose by 52%, a trend that continued post-year-end.

Business insurance is sourced from within the group, through own marketing initiatives and, increasingly, from existing retail customers who run their own businesses. Across both the retail and business insurance portfolios, brokers and other intermediaries, accounted for just 8% of new premium income. AFI views business insurance as an area of potential high growth and will continue to invest in distribution capacity while remaining mindful of the need to ensure that the portfolio remains profitable.

RETAIL PERFORMANCE

This year, the total number of retail motor and household policies rose to 76 812 (2013/14: 75 197). AFI continued its preference to underwrite combined portfolios (less than 15% of the policies insured by AFI are motor standalone). Combined policy churn improved by 10% year on year.

At year-end, initial signs around the strategy to access institutional membership were positive, with AFI writing new policies with annualised premium income of R10.2 million into this base.

Reflecting AFI’s commitment to fair business practices, fewer than 1% of claims were repudiated. Our commitment to honouring our clients’ trust was also borne out by the annual statistics released by the Ombudsman for Short-term Insurance. Only 179 claims (out of the 52 179 claims handled during the year) were referred to the Ombudsman for short-term insurance.

In 2014/15, employee count rose to 590 from 550 in the previous year, premium income per person nevertheless standing at a very satisfactory R2.6 million.

Retaining engaged and skilled employees was a key management focus during the year. This was particularly important in the area of business insurance, where there is a significant shortage of experienced consultants. In an industry that is known for high employee turnover, AFI succeeded in bringing down its staff turnover rate. This year the AFI employee engagement rate improved from 59% to 64.5%.

Within South Africa, six internal assessors were appointed – which had the effect of reducing claims processing costs and cementing client relationships.

A great deal of planning went into the launch, in March 2015, of the Easisure policy, a no-frills product designed to address perceptions around affordability – the main reason for clients not renewing their policies. An affordable scratch-and-dent policy was also launched in the year, with considerable success.

Outlook

AFI’s participation in the new retail platform holds huge promise for increasing our exposure to the group’s financial services customers. While AFI consultants quoted approximately R100 million worth of new business each month in 2014/15 (at a conversion rate of 30%), there is potential to improve even further on this exceptional performance.

The new Easisure and other products are expected to promote growth.

The underwriting result is likely to improve as a critical mass is approached, with claims ratios continuing to decline (motor and household standing at 71.2% in 2014/15 and 81% the previous year). Improving loss ratios on motor insurance will be a particular priority.