Investment slump eats into Fidelity profits
UPDATED:Despite a significant increase in insurance premium income Fidelity Life has reported a $2 million profit drop over last year, largely as the result of tougher investment markets.
Thursday, November 22nd 2007, 5:22PM
by David Chaplin
In a statement Fidelity said the profit was "still ahead of budget" and increased its normal dividend to 75 cents per share from 40 cents per share last year.
"New business sales grew by 5% from 2006 and total assets grew by 76% to $564 million," Fidelity said.
According to Jennings, the firm's core risk business has been a little flat as high commissions on offer from competitors and the "distraction" of KiwiSaver hit home.
However, he said impending disclosure of insurance commissions and mooted tax changes to life business should normalise the industry.
While the group reported an $11 million profit in the 2006/7 tax year, down from just over $13 million in the previous 12-month period, its total revenue fell by $14.6 million with expenses up by $11.3 million.
The revenue decline to $97.1 million (compared to $111.7 the previous year) was mainly caused by a slump in investment returns from $42.4 million in 2005/6 to $15.6 million in the latest reporting period. Premium income markedly improved over last year jumping from $53.4 million to $66.5 million.
However, expenses rose across the board with increases in both reinsurance and commission costs particularly contributing to the $82.2 million figure versus $70.9 million in the previous year.
Fidelity was able to maintain a reasonable profit by slashing its transfer to policyholder liabilities to $4.7 million compared to a $27.7 million payment last year, reflecting the reduced investment returns.
Following the latest transfer, the group's policyholder liabilities stood at almost $340 million, up from just under $252 million in 2005/6.
Jennings said the group's leap in total assets during the year was due to its acquisition of Farmers' Mutual Life and the listing of the Capital Guaranteed Bond.
He also warned in the Fidelity annual report that the Capital Guaranteed Bond had "experienced some trading losses".
"There is the possibility that if the fund continues to suffer losses that we may have to suspend the next coupon payment," he said.
Jennings also said Fidelity had also focused on building up its KiwiSaver product and extending its assistance to financial advisers over the year.
He said about 5,000 people have signed up to Fidelity's KiwiSaver scheme, well on track to meet its forecast of 6,000 by the end of 2007.
As well Jennings said Fidelity shares have just been revalued by PriceWaterhouseCoopers at $84.50 - well up on the $72 figure used earlier this year to partially fund the Farmers' Mutual Life acquisition.
Since that deal the tightly-held Fidelity shares have been in demand as Famers' Mutual sought to lift its stake in the insurer from about 8% to 10%.
The shares last traded at $82, Jennings said.
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