CALLIDEN GROUP LTD. 
By 23 August 2012
Solid Improvement in Half Year Results & Announcement of New Agency Agreements
Calliden Group Limited (Calliden) today announced a
significant turnaround in its results for the six months
ended 30 June 2012, recording a small loss of $0.2m compared
with a $4.3m loss for the same period last year.
The Group chose to increase reinsurance protections in 2012
to restrengthen its regulatory capital position following
last year's extreme catastrophe losses and ahead of the
introduction of APRA's new capital standards in January
2013.
The underwriting performance of the Group for this half year
is much improved, including favourable catastrophe experience
of $1.1m, better large and attritional claims, offset by the
following factors:
• Increased catastrophe reinsurance costs of $1.3m;
• Additional reinsurance protection covering the unexpired
risk at 31 December 2011 of
$1.2m;
• Additional proportional reinsurance of $1.1m;
• Discount rate impact on reserves of $1.0m;
• Restructuring costs of $0.6m; and
• Lower investment income of $0.5m.
The result was achieved during the first six months of
Calliden's transition to its new Managing General Agency
(MGA) business model which targets around 50% of its premiums
being underwritten on behalf of third party insurers.
Highlights of the first half include:
Implementation of the MGA strategy commencing with the
transition of the commercial business pack to Great Lakes
Australia (GLA), a subsidiary of the Munich Re Group rated
AA- (very strong) in May 2012.
Premium underwritten on behalf of third party insurers
(including GLA, Lloyd's of London and the
State Government of NSW) during the half increased by over
65% to $18.9m.
Profit of $0.8m from the insurance operations of wholly owned
insurer, Calliden Insurance Limited, compared with an
insurance loss of $3.3m for the same period in 2011.
Strong Capital Adequacy Multiple (CAM) of 1.9 in Calliden
Insurance Limited.
The new MGA business model is designed to provide the Group
with two sources of revenue, with its written premium
balanced between an agency and a smaller insurer, both
supported by Group services. The resulting benefits to
shareholders will include reduced profit volatility, a
potential reduction in the Group's reliance on more costly
reinsurance in its insurer enabling the payment of regular
dividends in the future.
New Agency Deals Agreed with GLA
Calliden has been in negotiations with third party insurers
to act as their agent in respect of a number of portfolios
within the Group. In recent days, agreement was reached to
underwrite the farm portfolio on behalf of GLA with effect
from 1 January 2013.
The farm portfolio accounts for around 10% of annualised
Gross Written Premium (GWP) and is distributed under the
ARGIS brand through professional intermediaries.
Calliden has also agreed key terms with GLA in relation to
expanding its current commercial proposition to middle market
businesses, effectively increasing the size of risks that can
be considered by more than 50%. This initiative is targeted
for implementation in the first quarter of
2013. It will complement Calliden's existing commercial
products and be distributed through the same network of
professional intermediaries. The ability to provide our
brokers with AA- (very strong) security for middle market
customers provides an opportunity for Calliden to develop
into a new area for the Group, expanding its target
market.
As a result of both the farm and middle market initiatives
being implemented in 2013, Calliden is confident of achieving
its stated target of underwriting 50% of its portfolio as an
agent on behalf of other insurers.
Detailed analysis of our portfolio's past and likely future
performance has identified where prices need to increase to
meet profit targets as well as opportunities for future new
business growth. In the first half of 2012 this has led
to:
• The finalisation of our commercial insurance pricing
algorithm, which has been implemented for our commercial pack
portfolio in August 2012;
• Further price increases being put through on our home
insurance and strata portfolios;
• The discontinuation of our domestic landlords' product to
reduce the aggregate natural perils exposure and improve
underlying profitability; and
• Reducing our exposure to flood, bushfire and other natural
perils through pricing, underwriting action and introducing
exposure limits for geographic zones across a number of
portfolios.
The focus during the second half of the year will continue to
be on achieving the Company's strategy of transitioning the
Group to an MGA, underwriting policies on behalf of both
Calliden Insurance Limited and external capital providers. In
particular management will be focusing on:
• Improving the underlying profitability of Calliden's
insurance portfolios;
• Preparing to transfer the farm book to an agency basis;
• Building a new middle market agency proposition for launch
in the first quarter 2013;
• Designing and implementing the reinsurance programme for
2013;
• Ensuring the expense base is in correct proportion to the
Company's revenue as an MGA;
and
• Continuing to prepare for APRA's new regulatory capital
regime.
Calliden believes its first half year result means it is on
track for the lower end of its $1m to $3m profit guidance for
the full year 2012.
For further information please contact:
Nick Kirk Tony Thomas
Chief Executive Officer Chief Financial Officer
(02) 9551 1111 (02) 9551 1111
For media contact: Ian Brown
FIRST Advisers
(02) 8011 0352
ENDS
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