Promina Group Posts 53.7 Percent Net Profit Increase to $360 Million; S&P Comments

February 22, 2005

The Promina Group, Australia and New Zealand’s second largest general insurer, posted a 53.7 percent increase in net profits for 2004 to A$458 million (U.S. $360 million), despite a decision to increase its reserves for asbestos claims by A$60 million (U.S. $47 million).

Asbestos liabilities are of particular concern in Australia, which has had the highest number of deaths per capita, due to its heavy concentration in mining and construction. In December one of the country’s largest miners and processors of asbestos, the James Hardie Group, agreed to fund an additional A$1.1 billion ($865 million) for present and future claims (See IJ Website Dec.22).

Standard & Poor’s Ratings Services acknowledged the robust results and indicated that they were in line with its expectations “given the favorable insurance and investment market conditions throughout 2004.” S&P credit analyst Michael Vine singled out the “maintenance of premium levels, improvement in underlying margins, and consolidation of capital and reserve strength, as being “compatible with our decision to raise the ratings on Promina and its general insurance businesses in August 2004.”

S&P rates the Group, including Vero Insurance Ltd. and Vero Insurance (New Zealand) Ltd., as “A+” with a stable outlook.

S&P said the “strong results reflect improvement in both the general insurance and the financial services businesses across Australia and New Zealand. The move at balance-date 2004 to increase the probability of sufficiency of risk margins on reserves to 90 from 85 percent, and the 2004 boost in asbestos reserves, together consolidated the group’s strong reserving philosophy.”

In concluding its report, S&P said that the “proposed capital buyback of A$200 million-A$250 million [$157 – $196 million] in the first half of 2005 will not have a rating effect, with capital still assessed at a robust level, supported by strong earnings generation, the A$300 million [$235 million] hybrid issue in April 2004, and the recent reserve strengthening.”

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