AMI has once again demonstrated that customer care is not only valued by our customers but can be delivered while still achieving very sound financial results.
The financial year started with customers in the upper and lower North Island and upper South Island being subjected to major storms which were particularly damaging for the Northland and Nelson and Marlborough regions. In November 2008 Ashburton was hit by a severe hail storm. While only short in duration it wreaked havoc on both dwellings and motor vehicles. Events such as these are a true test of AMI’s customer care in action and it is pleasing to report that the company passed the test with positive feedback from our customers. Whether it is responding to catastrophic events or dealing with those day-to-day situations where our customers need our help, AMI is there to put a smile on their faces.
AMI has withstood the financial impact of these events to report a sound Net Surplus After Taxation of $18.5 million. The company’s continued strong financial position is recognised by international rating agency, A.M. Best Company which has confirmed AMI’s rating of ‘A+’ (Superior).
Your Board wishes to thank all AMI staff for their continued professionalism and commitment to delivering outstanding customer care, and particularly for ‘going the extra smile’ in times of catastrophic events.
HIGHLIGHTS OF 2009
The achievements for the year included:
• Solid Net Surplus after Taxation of $18.5 million
• Substantial growth in both customer and policy numbers
• An 8.5% increase in Written Premiums to $302 million
• An increase in Members’ Trust Funds to $334 million
• Confirmation of our ‘A+’ (Superior) rating by international rating agency, A.M. Best Co.
• Maintenance of a strong Solvency Margin of 114.3%.
DELIVERING 'SMILES' TO MEMBERS
As a mutual company, with our customers as our owners, AMI’s focus is on returning value to our members and ensuring that they benefit from their ongoing support and commitment to the company. We do this through a variety of means including consistently competitive premiums, policy discounts available through our multisaver discount packages and the availability of our free maximum No Claims Bonus protection, freeBmax®.
AMI’s decision to retain and expand our nationwide network of branches continues to be a point of difference in the market and enables our customers to sit down and talk to us, face to face.
AMI’s local presence, along with the option to talk to a real person in one of our two call centres, means that customers can experience personal and professional service at all times. Advances in customer contact through technology have not been overlooked with improvements to AMI’s website, ami.co.nz providing better access to the company and our services for those who wish to use this medium.
It is AMI’s financial strength and growing market position that underpins our customer care and provides certainty and security for our members.
While increasing claims costs meant premiums had to be raised during the year, the increase of 8.5% in Written Premiums mostly reflects near record Net Policy growth. The share of business held from existing customers expanded and AMI’s growing reputation as the leading provider of customer care in the New Zealand personal lines insurance market also saw a steady stream of new customers joining AMI.
Factors influencing the 9.8% increase in the Cost of Claims to $208.4 million included increases in the replacement cost of claimed items, especially rebuilding and repair costs which have continued to rise at multiples of underlying inflation. AMI appreciates that as economic conditions tighten the number of claims increase but we are always happy to honour our commitment to meet valid claims when they occur.
Against this background the nominal increase in the Loss Ratio from 68.1% to 69.0% and retention of one of the lowest Management Expense Ratios in the industry at 25.3% is a credit to the staff’s management of claims costs and operating expenses.
While the Net Surplus After Taxation of $18.5 million was a reduction on last year’s result, it compares very favourably with that recorded by other insurance organisations in our industry.
With Total Assets at 30 June 2009 of $496.3 million and Members’ Trust Funds of $333.8 million, AMI remains in a very strong financial position.
INVESTMENTS
The global recession has had a significant impact on our investment income this year, with falling interest rates and value of equities reducing the return on our investments.
While we have not achieved the record results of the previous year we have nevertheless maintained a very sound return on investment, recording income of $27.2 million for the financial year. This is a most creditable result when compared with other insurance or financial organisations, and is the result of excellent work by the Investment Committee.
AMI’s investment policy continues to place emphasis on:
• Consistency of investment returns
• Conservatism in investment management
• Investment performance that is complementary and supportive to our insurance business
• A strong liquidity position.
While New Zealand may be showing early signs of economic recovery it is not yet clear that the worst of this recession is behind us. We anticipate that low interest rates will continue through 2010 and into 2011, affecting future interest income in a situation where we are committed to retaining a position of strong liquidity in order to provide security for our members in uncertain economic times. A reduced income from investment activities is budgeted for in the current year.
INSURANCE RATINGS
Your Board is very pleased to note that, even in these volatile economic times, the company’s financial strength has been affirmed by our continued rating as ‘A+’ (Superior) by our rating agency, A.M. Best Co. In confirming the rating, A.M. Best Co. states:
“The ratings reflect AMI’s well-established market position, solid risk-adjusted capitalisation, consistent operating performance and corresponding surplus accumulation.”
AMI remains a strong advocate of the rating regime which provides consumers with the assurance that New Zealand general insurers are benchmarked against international standards for the insurance industry. Our rating provides our customers with confidence in our financial strength which is vital for our ability to meet claims as and when they arise.
REINSURANCE - SUPPORTING POLICYHOLDER SECURITY
Underpinning our insurance operations is a comprehensive reinsurance programme which provides security for our policyholders in the event of major losses. AMI reinsures with a panel of international reinsurers, all of whom are rated ‘A’ or above and with whom we have long-standing relationships.
Aon Benfield (New Zealand) Limited and their London-based colleagues manage the placement of our reinsurance programme and their skill, experience and guidance is instrumental to the programme’s success.
We note with sadness the death during the year of Mr Tony Muldowney. For more than 15 years Tony was AMI’s lead insurance broker in Aon Benfield’s London office and his contribution to the development and placement of AMI’s reinsurance programme was immense and outstanding. To his wife and family we extend our condolences.
REGULATION
A draft of the Insurance (Prudential Supervision) Bill was recently issued, together with a draft Solvency Standard outlining the proposed minimum capital requirement calculation for non-life insurance businesses operating in New Zealand.
AMI supports the intent of the Bill in encouraging confidence in the insurance industry and looks forward to a consistent approach to the regulation and capital requirements of both local and international companies which operate within the New Zealand market.
For many years AMI has benchmarked its operations to meet or exceed the regulatory standards set by the Australian Prudential Regulatory Authority and we anticipate we will have no problem complying with the New Zealand regulatory framework when it is put in place.
Legislation has been passed to regulate the operations of financial advisers and the supporting regulations are currently awaited. AMI will be seeking Qualifying Financial Entity status under the legislation which will ensure that all our staff meet the requirements of the Act.
CORPORATE GOVERNANCE
Corporate Governance remains a high priority for your Board and the Directors continue to ensure that governance practices are in accordance with guidelines promoted by the New Zealand Institute of Directors and in line with international standards and trends.
Your Board is assisted in maintaining governance standards by our external auditors, Ernst & Young, and the Directors would like to record their appreciation for the professional oversight that Ernst & Young provide to AMI’s affairs.
In accordance with international standards, our Auditors are appointed to provide AMI with audit services and approved supporting tax advice only. Other consulting services are provided by a number of firms specialising in expert professional advice.
Our Corporate Governance regime continues to include provisions for:
• Independence of Directors
• Appointment of Non-Executive Directors (other than the CEO)
• Separate Board Committees for Risk Management, Investments, Remuneration and Information Support
• Board members who are chosen for their wide business and commercial experience
• An education process for Directors
• A Code of Ethics.
THE YEAR AHEAD
While AMI is not immune to the challenges of the current economic climate, our financial strength and commitment to Customer Care, coupled with our conservative reinsurance programme and the skills of the Investment Committee, will continue to provide certainty and security for our members.
The absolute essentials which customers are entitled to expect from AMI are:
• financial strength and security
• highest standards of Customer Care.
These expectations have again been realised for the 2009 financial year and the current financial period will be no different.
Kerry Nolan
Chairman of Directors
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