Transport and logistics group Toll Holdings Ltd says its investments in Asia are starting to pay off, and Toll will make more acquisitions in the region soon.
Toll reported a 10.3 per cent rise in first half profit to $236.7 million, saying earnings and cashflow would continue to grow.
Like-for-like net profit grew by 18 per cent to $248 million, excluding discontinued operations and development costs related to airline Virgin Blue, in which Toll holds the majority 62 per cent stake.
Toll managing director Paul Little said Toll's strategy of expanding into Asia was now delivering for the company, with strong underlying revenues being generated in Asia at the present time.
The outlook for Toll's Asian businesses was "very positive" as the group built scale and capability across the supply chain.
"We expect organic revenue and earnings growth to accelerate," Mr Little said.
Toll shares rose 8.09 per cent, or 76 cents, to end at $10.15.
Mr Little said Toll would continue to make "value-accretive acquisitions in Asia as they present themselves".
"Further acquisitions to support our international forwarding strategy are expected in coming months," he said.
Toll recently added to its Asian operations, taking control of Hong Kong-based freight forwarding and logistics company BALtrans Holdings Ltd.
Toll also has a small stake in privately owned, Hong Kong-based freight forwarder Cargo Services.
Last year, Toll acquired Singapore-based logistics provider Sembawang Kimtrans Ltd.
In 2006, Toll acquired Singaporean logistics provider SembCorp Logistics (SembLog) for about $1 billion.
Toll said that the Virgin Blue board was assessing expressions of interest designed to increase shareholder value.
Toll has previously indicated that it intends to reduce its stake in Virgin Blue to deploy capital to its logistics operations.
"In the last three months the VBA (Virgin Blue) board has initiated a detailed review to maximise shareholder value," Mr Little said.
"It is clear that the level of liquidity in the listed stock (Virgin Blue) is not supportive of shareholder value.
"A number of expressions of interest have been received designed to unlock value, and these are currently being assessed."
Mr Little said it was too sensitive at this stage to discuss valuation expectations.
Toll said it believed the development of Virgin Blue was proceeding well, even though it was heavily affected in the short term by fuel prices and a competitive market.
Toll said the volatility in global financial markets had not yet caused any slowdown in markets in which Toll operated.
"In fact, we see that the current financial global climate may well present some excellent opportunities for us," Toll chief financial officer Neil Chatfield said.
Toll's core logistics operations in Australia, Asia and New Zealand had all performed well so far in the second half and were generating the growth that Toll was looking for.
"So we expect a strong full year outlook," Mr Chatfield said.
Toll said that in the first half, underlying operations throughout the group had generally performed well ahead of last year.
The group's Australian operations had achieved record EBIT (earnings before interest) margins on the back of strong revenue growth and cost control.
Toll Australia continued to benefit from high volumes associated with the resources sector and a buoyant retail sector.
Margins in the group's New Zealand operations increased despite difficult trading conditions, reflecting cost controls and a selective capital expenditure program.
In Asia, revenue and earnings both grew, partly as a result of continued activity in the offshore supply and marine logistics sector, and new contracts and contract renewals in Malaysia, Vietnam and China.
Toll's revenue for the six months to December 31, 2007 rose by 8.3 per cent to $4.12 billion.
Group underlying EBIT from continuing operations and pre-Virgin Blue development costs was $431 million - up 13 per cent.
Toll declared an interim dividend of 13.5 cents, down from 16 cents last year.
http://news.smh.com.au/
Thursday, February 21, 2008
Porsche to use €10bn credit line for investments
Porsche showed it has as much financial opportunism as the bankers who buy its sports cars yesterday when it drew down a €10bn (£7.6bn) credit line to put it in low-risk investments.
The credit line was originally granted to the German carmaker to fund a takeover approach for Volkswagen on terms that reflected a more favourable time in credit markets. Like a sharp-eyed arbitrageur, Porsche spotted that returns from low-risk investments were now higher than the costs of borrowing the money.
"The amount borrowed will be invested free of risk at favourable interest rates and will bring in additional profit for Porsche," it said.
The move could spell trouble for banks if other companies draw down on similar credit lines, some analysts say, because they already face significant constraints on their balance sheets and the availability of funds. Also, most credit lines have covenants that restrict their use.
One London-based analystsaid: "This has to be a worrying thing for the banks involved.
"If others are also doing this it will be adding an extra strain to banks' balance sheets, on top of which you'd have to ask, 'does Porsche know what it is doing with the investments it's going to make?'"
Porsche declined to comment on how it would invest the proceeds of the loan. Originally, €35bn in credit was provided by a consortium of ABN Amro, Barclays Capital, Merrill Lynch, UBS and Commerzbank to finance a complete takeover of Volkswagen but Porsche deliberately made a low-ball offer designed to fail. However, it kept open the €10bn credit line to help it finance lifting its stake in VW from 31 per cent to more than 50 per cent.
Porsche agreed to pay interest of 20 basis points, or 0.2 percentage points, more than the euro interbank offered rate for the loan, which matures on June 27, according to Bloomberg data.
The move is another example of Porsche's use of financial trades to hunt for profit, which led to it last year making more than three times as much money - €3.6bn - from trading share options as it did from building cars.
Porsche also made large amounts of money from currency hedging earlier this decade and some analysts have suggested that it is behaving more like a hedge fund than a carmaker.
Although Porsche denied its action had any bearing on its plans for VW, it will give it a war chest on top of its considerable cash reserves to buy further shares when it pleases.
Thursday, January 3, 2008
Mackenzie Investments reports total assets under management and fund sales for December
TORONTO, Jan. 3, 2008 (Canada NewsWire via COMTEX) -- Mackenzie Financial Corporation (Mackenzie Investments), part of IGM Financial Inc. (TSX:IGM), today announced preliminary total assets under management of $61.3 billion at December 31, 2007, down 0.5% from the prior year. Mackenzie Investments also reported preliminary gross mutual fund sales and mutual fund net new money for December 2007 were $593.1 million and $(65.6) million, respectively.
<<
Further information can be found below in the tables of unaudited month-
end data:
-------------------------------------------------------------------------
Total Assets Under Management 2007 2006
(AUM) ($millions) December December % Change
-------------------------------------------------------------------------
Mutual Funds:
-------------------------------------------------------------------------
Long-term mutual funds $44,640 $44,732 (0.2)%
-------------------------------------------------------------------------
Money market mutual funds 1,832 1,761 4.0%
-------------------------------------------------------------------------
Total Mutual Funds AUM 46,472 46,493 (0.0)%
-------------------------------------------------------------------------
Institutional, sub-advised and
other 14,806 15,085 (1.8)%
-------------------------------------------------------------------------
Total Assets Under Management $61,278 $61,578 (0.5)%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales 2007
($millions) December
------------------------------------------------------------------------- Net New
Mutual Funds: Sales Redemptions Money*
-------------------------------------------------------------------------
Long-term mutual funds $420.1 $556.2 $(136.1)
-------------------------------------------------------------------------
Money market mutual funds 173.0 102.5 70.5
-------------------------------------------------------------------------
Total Mutual Fund Sales 593.1 658.7 (65.6)
-------------------------------------------------------------------------
Other retail managed products 0.0 12.5 (12.5)
-------------------------------------------------------------------------
Total Fund Sales $593.1 $671.2 $(78.1)
-------------------------------------------------------------------------
*Net New Money is defined as Sales less Redemptions and is consistent
with the terminology now used by IFIC.>>
Additional information about Mackenzie Investments' assets and fund flows will be available on the Investment Funds Institute of Canada's website (www.ific.ca) on approximately the 15th of each month as part of a Canadian industry-wide release of monthly statistics.
Mackenzie Investments: Mackenzie Investments was founded in 1967, and is a leading investment management firm providing investment advisory and related services. With $61.3 billion in assets under management, Mackenzie Investments distributes its services through a diversified network of third-party financial advisors. Mackenzie Investments is a member of the IGM Financial Inc. (TSX: IGM: 58.32, -0.16, -0.27%) group of companies. IGM Financial is one of Canada's premier financial services companies with $121 billion in total assets under management.
SOURCE: Mackenzie Investments
Catharine Marion, Environics Communications Inc., (416) 969-2809,
cmarion@environicspr.com
http://www.foxbusiness.com/markets/industries/finance/article/mackenzie-investments-reports-total-assets-management-fund-sales-december_422828_9.html
<<
Further information can be found below in the tables of unaudited month-
end data:
-------------------------------------------------------------------------
Total Assets Under Management 2007 2006
(AUM) ($millions) December December % Change
-------------------------------------------------------------------------
Mutual Funds:
-------------------------------------------------------------------------
Long-term mutual funds $44,640 $44,732 (0.2)%
-------------------------------------------------------------------------
Money market mutual funds 1,832 1,761 4.0%
-------------------------------------------------------------------------
Total Mutual Funds AUM 46,472 46,493 (0.0)%
-------------------------------------------------------------------------
Institutional, sub-advised and
other 14,806 15,085 (1.8)%
-------------------------------------------------------------------------
Total Assets Under Management $61,278 $61,578 (0.5)%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Sales 2007
($millions) December
------------------------------------------------------------------------- Net New
Mutual Funds: Sales Redemptions Money*
-------------------------------------------------------------------------
Long-term mutual funds $420.1 $556.2 $(136.1)
-------------------------------------------------------------------------
Money market mutual funds 173.0 102.5 70.5
-------------------------------------------------------------------------
Total Mutual Fund Sales 593.1 658.7 (65.6)
-------------------------------------------------------------------------
Other retail managed products 0.0 12.5 (12.5)
-------------------------------------------------------------------------
Total Fund Sales $593.1 $671.2 $(78.1)
-------------------------------------------------------------------------
*Net New Money is defined as Sales less Redemptions and is consistent
with the terminology now used by IFIC.>>
Additional information about Mackenzie Investments' assets and fund flows will be available on the Investment Funds Institute of Canada's website (www.ific.ca) on approximately the 15th of each month as part of a Canadian industry-wide release of monthly statistics.
Mackenzie Investments: Mackenzie Investments was founded in 1967, and is a leading investment management firm providing investment advisory and related services. With $61.3 billion in assets under management, Mackenzie Investments distributes its services through a diversified network of third-party financial advisors. Mackenzie Investments is a member of the IGM Financial Inc. (TSX: IGM: 58.32, -0.16, -0.27%) group of companies. IGM Financial is one of Canada's premier financial services companies with $121 billion in total assets under management.
SOURCE: Mackenzie Investments
Catharine Marion, Environics Communications Inc., (416) 969-2809,
cmarion@environicspr.com
http://www.foxbusiness.com/markets/industries/finance/article/mackenzie-investments-reports-total-assets-management-fund-sales-december_422828_9.html
Canadian General Investments: Investment Update-Unaudited
TORONTO, CANADA, Jan 3, 2008 (Marketwire via COMTEX) -- Canadian General Investments, Limited (CGI: 36.15, +0.12, +0.33%) (TSX:CGI)(TSX:CGI.PR.A)(TSX:CGI.PR.B)(TSX:CGI.PR.C)(LSE:CGI) reports on an unaudited basis that its net asset value per share (NAV) at December 31, 2007 was $31.89, resulting in a one-year NAV return with dividends reinvested of 7.2% . This compares with the 9.8% return of the benchmark S&P/TSX Composite Index on a total return basis for the same period.
The closing price for CGI's common shares at December 31, 2007 was $28.30, resulting in an annual market return, with dividends reinvested, of 9.5% .
CGI paid regular cash dividends of $0.24 and a special cash capital gains dividend of $1.36 per common share in 2007, representing a yield of 5.65% on the year-end closing market price.
The sector weightings of CGI's investment portfolio at market as of December 31, 2007 were as follows:
Financials 21.3%
Materials 21.2%
Energy 19.9%
Industrials 12.7%
Consumer Discretionary 8.0%
Information Technology 7.0%
Telecommunication Services 3.8%
Consumer Staples 2.8%
Utilities 1.6%
Cash & Cash Equivalents 0.9%
Health Care 0.8%
The top ten investments, which comprised 23.9% of the investment portfolio at market, excluding non-convertible preferred shares, as of December 31, 2007 were as follows:
Research In Motion Limited 4.0%
Urbana Corporation 3.2%
Rogers Communications Inc. 2.6%
TSX Group Inc. 2.3%
Cameco Corporation 2.2%
Labrador Iron Ore Royalty Income Fund 2.1%
BPO Properties Ltd. 2.0%
BMTC Group Inc. 1.9%
Canadian Western Bank 1.9%
Algoma Central Corporation 1.7%
SOURCE: Canadian General Investments, Limited
Canadian General Investments, Limited
Jonathan A. Morgan
President and CEO
(416) 366-2931
(416) 366-2729 (FAX: 5.92, +0.04, +0.67%)
Email: cgifund@mmainvestments.com
Website: www.mmainvestments.com
http://www.foxbusiness.com/markets/industries/finance/article/canadian-general-investments-investment-updateunaudited_423469_9.html
The closing price for CGI's common shares at December 31, 2007 was $28.30, resulting in an annual market return, with dividends reinvested, of 9.5% .
CGI paid regular cash dividends of $0.24 and a special cash capital gains dividend of $1.36 per common share in 2007, representing a yield of 5.65% on the year-end closing market price.
The sector weightings of CGI's investment portfolio at market as of December 31, 2007 were as follows:
Financials 21.3%
Materials 21.2%
Energy 19.9%
Industrials 12.7%
Consumer Discretionary 8.0%
Information Technology 7.0%
Telecommunication Services 3.8%
Consumer Staples 2.8%
Utilities 1.6%
Cash & Cash Equivalents 0.9%
Health Care 0.8%
The top ten investments, which comprised 23.9% of the investment portfolio at market, excluding non-convertible preferred shares, as of December 31, 2007 were as follows:
Research In Motion Limited 4.0%
Urbana Corporation 3.2%
Rogers Communications Inc. 2.6%
TSX Group Inc. 2.3%
Cameco Corporation 2.2%
Labrador Iron Ore Royalty Income Fund 2.1%
BPO Properties Ltd. 2.0%
BMTC Group Inc. 1.9%
Canadian Western Bank 1.9%
Algoma Central Corporation 1.7%
SOURCE: Canadian General Investments, Limited
Canadian General Investments, Limited
Jonathan A. Morgan
President and CEO
(416) 366-2931
(416) 366-2729 (FAX: 5.92, +0.04, +0.67%)
Email: cgifund@mmainvestments.com
Website: www.mmainvestments.com
http://www.foxbusiness.com/markets/industries/finance/article/canadian-general-investments-investment-updateunaudited_423469_9.html
Nuveen Investments Announces Updated Estimates of Realized Long-Term Capital Gains Retained by Certain Closed-End Funds
Nuveen Investments, a leading provider of diversified investment services, today announced the Nuveen Real Estate Income Fund (AMEX: JRS), Nuveen Diversified Dividend and Income Fund (NYSE: JDD: 14.28, -0.02, -0.13%), Nuveen Tax-Advantaged Total Return Strategy Fund (NYSE: JTA: 21.89, +0.06, +0.27%), Nuveen Global Value Opportunities Fund (NYSE: JGV: 18.96, +0.50, +2.70%), and Nuveen Multi-Currency Short-Term Government Income Fund (NYSE: JGT: 17.68, +0.33, +1.90%) have each accrued estimated tax liabilities as of December 27, 2007, in connection with its retention of realized long-term capital gains at year-end, in the amounts provided below. As a result, the funds' NAVs were reduced on that day. These accruals reflect the Federal income taxes the funds are required to pay in early 2008 in order to retain a portion of their realized long-term capital gains for the tax year ending December 31, 2007, instead of paying them out in 2007 as capital gain distributions.
Retaining realized long-term gains enables a fund to better preserve and grow its capital base for long-term investors. This increases earnings potential over time, providing the opportunity for more stable, growing distributions and a higher share price.
Per share estimates of the funds' retained long-term capital gains and corresponding Federal corporate income taxes accrued are as follows:
Per Share JRS JDD JTA JGV JGT
----------------------------------------------------------------------
Long-Term Capital Gain Retained
(est.) $3.34 $0.79 $0.64 $0.81 $0.41
----------------------------------------------------------------------
Federal Income Taxes Accrued by
Fund (1.17) (0.28) (0.22) (0.28) (0.14)
----------------------------------------------------------------------
Net Long-Term Capital Gain Retained $2.17 $0.51 $0.42 $0.53 $0.27
----------------------------------------------------------------------
The estimates of the long-term gains to be retained are updated from those announced in a press release dated December 15, 2007.
Final amounts for the retained gains and taxes paid will be reported to shareholders on IRS Form 2439, which investors who hold shares in "street name" should receive from their brokerage firm by March 31, 2008. Investors who own shares directly through the funds' transfer agent will receive Form 2439 in mid-February. These gains will not be reported on Form 1099-DIV, which will only reflect realized capital gains actually distributed to shareholders and taxable in 2007. Shareholders who hold the affected funds in a taxable account should wait to file their tax returns until both Forms 2439 and 1099-DIV are received, and should not base their tax filing on the estimated amounts set forth in this announcement. Shareholders of the funds held in a qualified non-taxable account (for example, an IRA or 401(k) account) are entitled to a refund of the taxes paid by each fund; the account's custodian is responsible for facilitating this refund. More details about these funds, as well as additional information on retained capital gains and related tax information are available on www.nuveen.com/taxinfo.
Nuveen Investments provides high-quality investment services designed to help secure the long-term goals of institutions and high-net-worth investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets its growing range of specialized investment solutions under the high-quality brands of NWQ, Santa Barbara, Tradewinds, Rittenhouse, Symphony and Nuveen, including the Nuveen HydePark Group. In total, the Company managed $170 billion in assets as of September 30, 2007. For more information, please visit the Nuveen Investments website at www.nuveen.com.
http://www.foxbusiness.com/markets/industries/finance/article/nuveen-investments-announces-updated-estimates-realized-longterm-capital-gains_423572_9.html
Retaining realized long-term gains enables a fund to better preserve and grow its capital base for long-term investors. This increases earnings potential over time, providing the opportunity for more stable, growing distributions and a higher share price.
Per share estimates of the funds' retained long-term capital gains and corresponding Federal corporate income taxes accrued are as follows:
Per Share JRS JDD JTA JGV JGT
----------------------------------------------------------------------
Long-Term Capital Gain Retained
(est.) $3.34 $0.79 $0.64 $0.81 $0.41
----------------------------------------------------------------------
Federal Income Taxes Accrued by
Fund (1.17) (0.28) (0.22) (0.28) (0.14)
----------------------------------------------------------------------
Net Long-Term Capital Gain Retained $2.17 $0.51 $0.42 $0.53 $0.27
----------------------------------------------------------------------
The estimates of the long-term gains to be retained are updated from those announced in a press release dated December 15, 2007.
Final amounts for the retained gains and taxes paid will be reported to shareholders on IRS Form 2439, which investors who hold shares in "street name" should receive from their brokerage firm by March 31, 2008. Investors who own shares directly through the funds' transfer agent will receive Form 2439 in mid-February. These gains will not be reported on Form 1099-DIV, which will only reflect realized capital gains actually distributed to shareholders and taxable in 2007. Shareholders who hold the affected funds in a taxable account should wait to file their tax returns until both Forms 2439 and 1099-DIV are received, and should not base their tax filing on the estimated amounts set forth in this announcement. Shareholders of the funds held in a qualified non-taxable account (for example, an IRA or 401(k) account) are entitled to a refund of the taxes paid by each fund; the account's custodian is responsible for facilitating this refund. More details about these funds, as well as additional information on retained capital gains and related tax information are available on www.nuveen.com/taxinfo.
Nuveen Investments provides high-quality investment services designed to help secure the long-term goals of institutions and high-net-worth investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets its growing range of specialized investment solutions under the high-quality brands of NWQ, Santa Barbara, Tradewinds, Rittenhouse, Symphony and Nuveen, including the Nuveen HydePark Group. In total, the Company managed $170 billion in assets as of September 30, 2007. For more information, please visit the Nuveen Investments website at www.nuveen.com.
http://www.foxbusiness.com/markets/industries/finance/article/nuveen-investments-announces-updated-estimates-realized-longterm-capital-gains_423572_9.html
Saturday, December 29, 2007
Investments help insurers offset underwriting losses
NEW DELHI: Even as 2007 saw plunging premiums and underwriting losses for general insurance companies, it was more than offset by the returns on their investment incomes due to the booming stock market. Companies spread their risks thinner, buoyed by the Sensex which moved above the 20,000-mark.
As equity markets have had a good run, some insurance companies have sought to offset underwriting losses with capital gains, where accounting standards allow profits to be booked in the year of sale and there is no mark-to-market accounting.
“Insurance companies do offset risks by investment incomes. In any detariffed market, losses on account of underwriting is natural. It will take some time before the market settles down. The board of every insurance company sets a mandate spelling out the quality of growth,” said IRDA chairman CS Rao.
What happens to insurance companies when the Sensex may not generate as much returns? “In the event of an equity market correction, those companies, which have excessive reliance on capital gains — say more than 25% of the Profit Before Tax (PBT) — will have to increase prices to maintain profitability as a significant source of profits dries up. However, this correction cannot be immediately done as it would affect the stability in premium rates and cannot be linked to the swings in the equity market. By the time the insurer realises this mismatch, it would be too long to make any correction,” an industry expert said.
In January 2007, general insurers were given the freedom to price policies within prescribed limits. Premiums fell as high as 60% of the original tariffs as companies rushed to sell the cheapest policies to expand the market share. Further, the industry will be ushered into complete free-pricing in January 2008. In the new year customers will need to differentiate policies not on prices alone but on various product features as well.
Bajaj Allianz General Insurance CFO S Sreenivasan said: “The question is do insurers try to offset their underwriting losses by investment income? But what needs to be considered is the sustainability of this investment income. We feel that ultimately sustainable investment income will come from a growing stream of interest and dividend income, which is driven by cash-flow generation. Bajaj Allianz General Insurance, which focuses on retaining rather than reinsuring risk with a strong underwriting basis, will be able to generate sustainable cash flows and hence, growing stream of investment income. In the ultimate analysis, shareholder value will be driven more by free cash flows than book value.” In the financial year 2006-07, Bajaj Allianz was the only company to make underwriting profits, he added.
The underwriting performance of an insurance company is measured in its combined ratio. The combined ratio is the loss ratio and the expense ratio taken together. The loss ratio is calculated by dividing the amount of losses by the amount of earned premium. The expense ratio is calculated by dividing the amount of operational expenses by the amount of earned premium.
A combined ratio of less than 100% indicates underwriting profitability, while above 100 indicates an underwriting loss. A lower number indicates a better return on the amount of capital placed at risk by an insurer. “The combined ratio reflects the health of the general insurance business and captures the impact of claims ratio, expense ratio and commission ratio. ICICI Lombard’s combined ratio for fiscal 2007 was less than 100%,” Ritesh Kumar, head of retail, rural and reinsurance at ICICI Lombard.
“The board mandate fosters quality growth. Maintaining a healthy market share as well as the bottomline are key to ICICI Lombard’s growth strategy and for leveraging the opportunities thrown up by India’s robust economic expansion. Going forward, the industry will witness a re-pricing of risks in line with the risk profile of the category,” Mr Kumar said.
http://economictimes.indiatimes.com/Personal_Finance/Insurance/Analysis/Investments_help_insurers_offset_underwriting_losses/articleshow/2659860.cms
As equity markets have had a good run, some insurance companies have sought to offset underwriting losses with capital gains, where accounting standards allow profits to be booked in the year of sale and there is no mark-to-market accounting.
“Insurance companies do offset risks by investment incomes. In any detariffed market, losses on account of underwriting is natural. It will take some time before the market settles down. The board of every insurance company sets a mandate spelling out the quality of growth,” said IRDA chairman CS Rao.
What happens to insurance companies when the Sensex may not generate as much returns? “In the event of an equity market correction, those companies, which have excessive reliance on capital gains — say more than 25% of the Profit Before Tax (PBT) — will have to increase prices to maintain profitability as a significant source of profits dries up. However, this correction cannot be immediately done as it would affect the stability in premium rates and cannot be linked to the swings in the equity market. By the time the insurer realises this mismatch, it would be too long to make any correction,” an industry expert said.
In January 2007, general insurers were given the freedom to price policies within prescribed limits. Premiums fell as high as 60% of the original tariffs as companies rushed to sell the cheapest policies to expand the market share. Further, the industry will be ushered into complete free-pricing in January 2008. In the new year customers will need to differentiate policies not on prices alone but on various product features as well.
Bajaj Allianz General Insurance CFO S Sreenivasan said: “The question is do insurers try to offset their underwriting losses by investment income? But what needs to be considered is the sustainability of this investment income. We feel that ultimately sustainable investment income will come from a growing stream of interest and dividend income, which is driven by cash-flow generation. Bajaj Allianz General Insurance, which focuses on retaining rather than reinsuring risk with a strong underwriting basis, will be able to generate sustainable cash flows and hence, growing stream of investment income. In the ultimate analysis, shareholder value will be driven more by free cash flows than book value.” In the financial year 2006-07, Bajaj Allianz was the only company to make underwriting profits, he added.
The underwriting performance of an insurance company is measured in its combined ratio. The combined ratio is the loss ratio and the expense ratio taken together. The loss ratio is calculated by dividing the amount of losses by the amount of earned premium. The expense ratio is calculated by dividing the amount of operational expenses by the amount of earned premium.
A combined ratio of less than 100% indicates underwriting profitability, while above 100 indicates an underwriting loss. A lower number indicates a better return on the amount of capital placed at risk by an insurer. “The combined ratio reflects the health of the general insurance business and captures the impact of claims ratio, expense ratio and commission ratio. ICICI Lombard’s combined ratio for fiscal 2007 was less than 100%,” Ritesh Kumar, head of retail, rural and reinsurance at ICICI Lombard.
“The board mandate fosters quality growth. Maintaining a healthy market share as well as the bottomline are key to ICICI Lombard’s growth strategy and for leveraging the opportunities thrown up by India’s robust economic expansion. Going forward, the industry will witness a re-pricing of risks in line with the risk profile of the category,” Mr Kumar said.
http://economictimes.indiatimes.com/Personal_Finance/Insurance/Analysis/Investments_help_insurers_offset_underwriting_losses/articleshow/2659860.cms
The Case for Insurance-Based Investments
"Buy term and invest the rest." That's the mantra among many experts who see term insurance as the only smart way to protect yourself and your family.
The unfortunate thing, however, is that insurance-based investments have a lot of untapped potential. Tax laws favor them, and if you need life insurance anyway, attaching investments to a policy can have some real benefits. But just as it took discount brokers like Charles Schwab (Nasdaq: SCHW) and TD Ameritrade (Nasdaq: AMTD) to take advantage of deregulation in the financial industry and challenge the expensive commission structures of big-ticket brokers like Morgan Stanley (NYSE: MS) and Citigroup's (NYSE: C) Smith Barney, it will take a new generation of "discount" insurance companies to wrest control of the profitable insurance market away from the big players, such as Prudential (NYSE: PRU) and MetLife (NYSE: MET).
The perfect insurance investment
Insurance policies enjoy benefits that many standard investments lack. Earnings within a policy grow tax-deferred, and death benefits paid to beneficiaries aren't subject to income tax at all. Some states provide limited protection from creditors' claims for insurance policies, meaning that they can be used for asset protection strategies. In addition, the federal student aid form excludes the value of life insurance policies from your assets when determining financial aid eligibility.
With these benefits in mind, we can create the perfect insurance investment. It would have the following characteristics:
* Life insurance coverage at the same cost as equivalent term policies;
* Access to low-cost investment options across the full range of asset classes and subclasses, with depth of choices similar to those offered by mutual funds;
* Loan options that give policyholders access to their money at no cost, since it's the policyholder's own money that's being used for the loan;
* Minimal administrative fees and associated costs; and
* Cash values that rise in proportion to the premiums you put in, without holdbacks for sales commissions or surrender charges.
In theory, there's nothing difficult about creating a life insurance investment vehicle like this. In reality, though, nothing currently available comes close to this ideal.
Falling short
Unfortunately, you just can't find insurance-based investments at a reasonable cost. The closest you'll get is in the variable annuity realm, where traditional discounters like Vanguard and Fidelity have offerings that cost around 0.25% more than comparable mutual funds. That's well below the average charge for mortality and expenses of about 1.2%.
Variable life insurance carries even more costs. One variable policy I looked at carried monthly administrative charges of $35 and mortality and expense charges of 0.9% for the first 10 years the policy is in force, and it charged an extra 2% for policy loans during those first 10 years. Another firm, in its 412-page prospectus, reveals monthly fees of $30 and up, 1% extra for policy loans, and 0.45% in mortality and expense charges. And in neither case do those numbers include the expenses charged by the respective investment subaccounts, which in one case ranged from 0.37% to 1.29% more.
Wait for the new model
Just as brokerage firms had to adapt to new conditions in the financial services industry, so too will life insurance companies eventually have to offer more competitive products. Although a patchwork of state regulations makes it difficult for insurance companies to evolve quickly, once customers realize how much of their money goes toward unnecessary sales and support costs, the ensuing revolt will leave insurers no choice but to create more beneficial products.
Of course, there's no guarantee that existing insurance companies will be the innovators in this arena. After all, you can still pay big commissions at some brokerage houses, so there will always be a place for high-commission life insurance. Until permanent insurance comes with a reasonable price tag, however, most people will be better served by sticking with term.
http://www.fool.com/personal-finance/insurance/2007/12/28/the-case-for-insurance-based-investments.aspx
The unfortunate thing, however, is that insurance-based investments have a lot of untapped potential. Tax laws favor them, and if you need life insurance anyway, attaching investments to a policy can have some real benefits. But just as it took discount brokers like Charles Schwab (Nasdaq: SCHW) and TD Ameritrade (Nasdaq: AMTD) to take advantage of deregulation in the financial industry and challenge the expensive commission structures of big-ticket brokers like Morgan Stanley (NYSE: MS) and Citigroup's (NYSE: C) Smith Barney, it will take a new generation of "discount" insurance companies to wrest control of the profitable insurance market away from the big players, such as Prudential (NYSE: PRU) and MetLife (NYSE: MET).
The perfect insurance investment
Insurance policies enjoy benefits that many standard investments lack. Earnings within a policy grow tax-deferred, and death benefits paid to beneficiaries aren't subject to income tax at all. Some states provide limited protection from creditors' claims for insurance policies, meaning that they can be used for asset protection strategies. In addition, the federal student aid form excludes the value of life insurance policies from your assets when determining financial aid eligibility.
With these benefits in mind, we can create the perfect insurance investment. It would have the following characteristics:
* Life insurance coverage at the same cost as equivalent term policies;
* Access to low-cost investment options across the full range of asset classes and subclasses, with depth of choices similar to those offered by mutual funds;
* Loan options that give policyholders access to their money at no cost, since it's the policyholder's own money that's being used for the loan;
* Minimal administrative fees and associated costs; and
* Cash values that rise in proportion to the premiums you put in, without holdbacks for sales commissions or surrender charges.
In theory, there's nothing difficult about creating a life insurance investment vehicle like this. In reality, though, nothing currently available comes close to this ideal.
Falling short
Unfortunately, you just can't find insurance-based investments at a reasonable cost. The closest you'll get is in the variable annuity realm, where traditional discounters like Vanguard and Fidelity have offerings that cost around 0.25% more than comparable mutual funds. That's well below the average charge for mortality and expenses of about 1.2%.
Variable life insurance carries even more costs. One variable policy I looked at carried monthly administrative charges of $35 and mortality and expense charges of 0.9% for the first 10 years the policy is in force, and it charged an extra 2% for policy loans during those first 10 years. Another firm, in its 412-page prospectus, reveals monthly fees of $30 and up, 1% extra for policy loans, and 0.45% in mortality and expense charges. And in neither case do those numbers include the expenses charged by the respective investment subaccounts, which in one case ranged from 0.37% to 1.29% more.
Wait for the new model
Just as brokerage firms had to adapt to new conditions in the financial services industry, so too will life insurance companies eventually have to offer more competitive products. Although a patchwork of state regulations makes it difficult for insurance companies to evolve quickly, once customers realize how much of their money goes toward unnecessary sales and support costs, the ensuing revolt will leave insurers no choice but to create more beneficial products.
Of course, there's no guarantee that existing insurance companies will be the innovators in this arena. After all, you can still pay big commissions at some brokerage houses, so there will always be a place for high-commission life insurance. Until permanent insurance comes with a reasonable price tag, however, most people will be better served by sticking with term.
http://www.fool.com/personal-finance/insurance/2007/12/28/the-case-for-insurance-based-investments.aspx
Subscribe to:
Posts (Atom)