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Zurich Insurance South Africa ("Zurich") "is exactly the type of company I like analysing for personal investment - a quality company which is very illiquid, so wont interest the institutions, it only trades a handful of times a month. Zurich is the 4th biggest short-term insurance company in South Africa (after Santam, Mutual & Federal and Hollard). It is based in Joburg and listed on the JSE. It underwrites insurance products for individual, commercial and corporate customers. It has a network of sales areas and a series of service outlets across the country, and employs approximately 750 people. It has a subsidiary in Botswana.

2010 profit split

Zurich don't include the investment income in their segmental analysis, and one gets a distorted view by only looking at underwriting profit, as investment income is a large part of the picture. I have done my own apportionment of investment income & estimated the split of profit as follows in 2010:

Motor - provides benefits if loss of possession, use or ownership or a motor vehicle occurs

Property - provides benefits if there is loss of use, ownership or damage to movable or immovable property

Engineering - provides benefits on (1) loss of possession, use or ownership of machinery or equipment (other than motor vehicles) in the carrying on of a business, (2) erection of buildings or other structures, (3) installation of machinery or equipment

Accident or Health - provides benefits on disability, health or death

Transport - benefits on the loss of possession, use or ownership of a vessel, aircraft or other craft for the conveyance of people or goods.

Liability - provides benefits if an "event contemplated in the contract as a risk relating to the incurring of a liability" occurs

Guarantee - provides benefits on the failure of a person to discharge an obligation

Sales channels

Products are marketed almost exclusively through agents & brokers.

Growth prospects

At the start of 2011, Zurich South Africa was placed into the Middle East & Africa region.

In December 2010 a strategic partnership with Aquarius Underwriting Managers was set up. Aquarius brough a book of high net worth business.

Zurich SA has a strategic alliance with Standard Bank South Africa, whereby the bank provides a range of insurance solutions to commercial business customers.

Risks

Market risk

As Zurich holds shares, the value of the group fluctuates with changes in the value of the shares.

Forex risk

A large portion of the income comes from Botswana (R54m net income after tax in 2010, R32m in 2009). See exchange rate at http://www.google.com/finance?q=BWPZAR

The BWP has depreciated against the ZAR since 1 Jan 2012, reducing the value of the Botswana operations.

Key individuals

Guy Munnoch (59), CEO, BSC (Hons) MDA, joined & appointed to the Board in 2009. Guy is retiring at the end of May 2012.
Pieter Bezuidenhout (51), CFO, BCompt (Hons), CA(SA), CISA, HCiL, joined & appointed to the Board in 2009.
Gerard de Rauxville (70), Non-Executive Chairman, CA(SA), appointed to the Board in 1983 & as Chairman in 2007
Dennis Burton (63), Head of Broker Relations
Chris Grieve (51), Head of Sales & Market Underwriting
Christo Schmidt (40), BCom, FIA, joined in 2003, appointed Chief Underwriting Officer in 2008

Shareholders

Zurich Financial Services Limited owns 59% & Royal Bafokeng Finance Limited 25% of Zurich. The large holding by Zurich Financial Services Limited means that Zurich SA is unlikely to encroach on its territory, but also that it's able to "leverage the strength of the wider Zurich Group...From sharing products & propositions, through to delivery of risk management & claims expertise".

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