Investors back off from insurers until uncertainties die down

By Peter V O'Brien

Friday 5th October 2001

INSURANCE COMPANIES' SHARE PRICES

Company	28.9.01 NZc	2.4.01 NZc	% change 2.4-28.9 NZc	2001 High NZc	2001 Low NZc

AMP	2200	2465	-10.7	2721	1900
Axa	285	338	-15.7	390	265
Tower	466	560	-16.8	591	425
Australian all ordinaries April 2001-September 2001					-5.5%
NZSE 40 capital index April 2001-September 2001					-8.1%

Insurance company shares were battered everywhere, including New Zealand after the terrorist attacks in the US.

Share prices for New Zealand listed insurance groups are in the table. They are compared with prices on April 2, the last time The National Business Review considered the sector.

General insurance companies will suffer big financial losses from claims but there will also be massive claims for life insurers.

Prices at September 28 for the New Zealand companies were well down on the situation on April 2, in reaction to the attacks.

AMP sold at $23.01 on September 11 (New Zealand time) but fell $1.81 on September 12, Axa went from $3.25 to $3.05 and Tower dropped 20c from $5.06 to $4.86.

The latter has retreated further in the ensuing two weeks but AMP recovered some of its loss.

AMP said in June it was exiting general insurance "manufacturing" selling its Australian operations to Suncorp Metway and the UK business to Churchill Insurance, a subsidiary of Credit Suisse.

Local general insurance companies could have exposure to claims through the re-insurance system but those most affected will be the substantial international groups.

The three companies in the table will face writedowns in their investment portfolios if there is another wave of declining sharemarkets either through fears of more attacks or deepening recession.

AMP reported in August for the six months ended June 30. The company said net profit was $A403 million, down 23% on the $A525 million earned in the corresponding period of previous year.

"Core recurring operating margins" of $A486 million underpinned the result but weaker investment earnings from volatile world markets offset the 20% gain from the core figures.

Investment income fell from $A292 million in the first six months of last year to $A25 million.

Chief executive Paul Batchelor said the company had made substantial progress against its strategy and achieved many of the strategies it set at the beginning of the year.

Mr Batchelor said the initiatives of the past six months (to June) put AMP in an even stronger position in key wealth- management markets worldwide, markets that were expected to experience "double-digit" growth over the next 20 years.

While that was an optimistic comment, AMP might be taking a different view of short-term outlook if there are serious economic consequences arising from the terrorist attacks.

An explanatory note about the company at the end of the interim report showed its size. AMP had about eight million customers worldwide, 20,000 employees and planners and managed assets of more than $A290 billion.

Exiting general insurance manufacturing released capital of $A1.8 billion and would have a neutral impact on profit. The company would continue to distribute general insurance products to its customers, underwritten by its alliance partners.

Sale of AMP's New Zealand general insurance operation and joint-venture interests was progressing and an announcement was expected within the next few months (from August).

Axa Asia Pacific did better than AMP on a percentage basis in terms of operating profit after tax and before abnormals in the six months ended March, with a 12% gain from $A144.9 million in 2000 to $A162.3 million. There were abnormal gains of $A109.6 million in the corresponding period of the previous year.

The company's investment earnings on net assets fell from $A126.9 million in the first six months of 2000 to $A95.8 million, due to a substantial reduction in investment earnings from Axa China region.

Axa said the return from investment fell sharply as a result of significant declines in Asian equity markets in the period.

Chief executive Les Owen said the improvement in net operating profit was further evidence of a better performance in several areas of the business.

"In Australia and New Zealand we saw increases in operating earnings in all business areas, with the health insurance operation being a very significant contributor with an increase in profits of 132% to $A52 million."

Axa provided health insurance to about one million Australians. Profit from risk business (general insurance) grew compared with the same period last year.

New Zealand's homegrown Tower had a 1% increase in net profit for the six months ended March, which group managing director James Boonzaier said was very satisfactory, given the difficult market conditions.

There was a 25% increase in operating margins across the company's four business areas. Falling sharemarkets cut into that improvement, in relation to the overall profit result.

All the comments in the latest reports were more dated than usual, given the "new world" influencing politics, economics and investment.

The next reports will be the key as to whether investment in any form of insurance company is a good bet.

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