Old Mutual will auction its majority stake in short term insurance company Mutual & Federal, managing director Keith Kennedy said on Tuesday after the release of his company's results for the six months ending 30 June 2008.

The M&F board had been informed by Old Mutual plc of its "intention to initiate a competitive sale process in September 2008 to dispose of its entire shareholding in the company," Kennedy said.

M&F said that while gross premium income increased by two percent to R4.7-billion and gross premiums in the commercial portfolio grew in line with inflation, the personal portfolio however, contracted following "deliberate action by management to cancel a number of underperforming blocks of business."

Risk Finance premiums also declined following lower levels of reinsurance received from insurers in the retail sector.

Claims at R2.83-billion were up six percent on 2007 fuelled by a significant increase in the number of commercial and industrial fire claims and ongoing difficulties with the motor section of the group schemes portfolio.

Consequently the underwriting result declined to a deficit of R23-million compared to a surplus of R98-million during the same period in 2007.

"It should be noted that the 2007 period was favourably impacted by a R48-million reduction in technical reserves," M&F said.

The general insurance result for the period declined to R210-million, reflecting a reduction of 32 percent, and operating income went down by 15 percent from R516-million to R438-million, "reflecting an all-round disappointing first half of 2008."

Investment income declined by 52 percent to R278-million following substantially lower returns on listed equities and reduced holdings subsequent to the disposal of investments to pay a special dividend of approximately R600-million in December 2007.

In light of the adverse trading conditions, profit after tax for the period declined by 66 percent to R172-million.

"The first-half of 2008 has been difficult due to a turn in the cycle and an unusually large number of fires," Kennedy said.

The board recognised the cyclical nature of short-term insurance results and was satisfied that the right corrective measures were being taken to improve underwriting results, Kennedy added.

Looking ahead, he said that he was "optimistic" that the corrective action underway in the business together with a positive outlook in the medium-term investment climate would result in "a return to more favourable financial results".

Sapa