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CALLIDEN GROUP LIMITED (CIX)

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CALLIDEN GROUP LIMITED (CIX) Events

Company (Stock Code)	Date/Time	Event	Timezone: Australia/NSW
CALLIDEN GROUP LIMITED (CIX)	Fri, 22 Aug 2008 08:30AM	CIX - 2008 Half Year Results - Mr Nick Kirk, CEO
CALLIDEN GROUP LIMITED (CIX)	Fri, 22 Feb 2008 08:30AM	CIX - 2007 Full Year Results - Mr Nick Kirk, MD and CEO
CALLIDEN GROUP LIMITED (CIX)	Thu, 23 Aug 2007 02:00PM	CIX - 2007 Interim Results - Mr Nick Kirk, MD and CEO
CALLIDEN GROUP LIMITED (CIX)	Mon, 9 Jul 2007 03:00PM	CIX - Investor Briefing - Mr Nick Kirk, MD and CEO
CALLIDEN GROUP LIMITED (CIX)	Thu, 21 Aug 2008	Interim Results
CALLIDEN GROUP LIMITED (CIX)	Thu, 22 May 2008 09:00AM	Annual General Meeting Level 7, 100 Arthur St, North Sydney
CALLIDEN GROUP LIMITED (CIX)	Thu, 21 Feb 2008	Full Year Results
CALLIDEN GROUP LIMITED (CIX)	Thu, 23 Aug 2007	Interim Results
CALLIDEN GROUP LIMITED (CIX)	Thu, 24 May 2007 09:00AM	Annual General Meeting Level 3, Building B, 207 Pacific Highway St Leonards NSW
CALLIDEN GROUP LIMITED (CIX)	Thu, 24 Aug 2006	Interim Results
CALLIDEN GROUP LIMITED (CIX)	Mon, 29 May 2006 09:00AM	Annual General Meeting Suite 1, Level 13, Building B, 207 Pacific Highway St Leonards NSW 2065
CALLIDEN GROUP LIMITED (CIX)	Fri, 3 Mar 2006	Full Year Results
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CALLIDEN GROUP LIMITED (CIX)

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CALLIDEN GROUP LIMITED (CIX)

2008 Half Year Results - Mr.  Nick Kirk, CEO

http://www.brr.com.au/event/48823

 

FRIDAY, AUGUST 22, 2008, 8:30 AM

 

10        CIX      Thank you, good morning and welcome to the Calliden Group 2008 Half Year Investor Briefing.  My name is Nick Kirk and I am the Managing Director and Chief Executive of Calliden Group.  My colleague, Adrian Diggelmann, Calliden's Chief Financial Officer and I, will shortly take you to a presentation on our half year results and business progress which should take around

15                    twenty minutes and then there will be an opportunity for questions.  The presentation slides were released to the ASX yesterday afternoon and they are also available on Calliden's website, www.calliden.com.au/investors/asxreleases.  Thank you.  Please familiarize yourselves with the disclaimer on Slide 2.  And Slide 3 contains some

20                    housekeeping information on how to ask questions, how to re-connect and who to call with any queries.  Slide 4 shows the stages of Calliden's development.  2008 for us is all about the extraction of value following the series of acquisitions the group has undertaken in the prior two years.  To enable us to extract value, we focused on two imperatives.  Firstly, building

25                    our financial strength which is all about building Calliden's bottom line.  This enables us to show return on the investment made to date and provides us with a solid platform for future growth, and simplifying our business.  Calliden today is the result of some 16 separate transactions making us a relatively complex company.  We are, therefore, focused on driving out unnecessary

30                    and expensive complexity to change into a simpler and more transparent group for the future.              Slide 5 shows the highlights from the first half year.  During what has remained a difficult trading environment, we've produced a net profit for the first half year of $3.6 million, up by almost 90% on the last six months of 2007 and over $4 million improvement on the same period last

35                    year.  Our focus on building financial strength is seen as exit and number of loss making portfolios and withdrawal from underwriting crop insurance while still producing some top line growth over the second half of 2007.  The overall growth loss ratio of the first half year was 45% and to reduce the impact of potential second half deterioration, we've strengthened our reinsurance

40                    coverage.  At the same time, we have further reduced volatility from our investment portfolio by exiting listed equities and consolidating into cash and fixed interest.  In terms of simplifying our business, the integration has continued to track the plan with good progress made to forming one integrated group.  In June this year for example, we purchased the remaining

45                    50% of ARGIS Limited, the regional and rural underwiting agency making it a 100% subsidiary of Calliden.  Our project to consolidate our insurance licenses into one insurer in the group has also progressed the plan.  I will now ask Adrian to provide more detail on the financial results.

            CIX      Thanks, Nick.  Slide 6 summarizes Calliden's financial results over the last

50                    three half years.  Calliden recorded a profit of $3.6 million for the first half of 2008, our second consecutive profitable sixth monthly result.  Gross written premiums stood at $97.6 million for the half year, more than three times the prior corresponding period.  Premium growth in the second half for 2007 has been modest reflecting the exit from a number of unprofitable portfolios.  In addition, we did discontinue writing out crop portfolio which contributed $7

5                      million of GWP in the second half of 2007.  These items were offset by organic growth.  The bottom line result was impacted by a number of one or more items; the release of prior period claims reserve and provision, integration cost of $3.6 million which is made up of $1.6 million from additional reinsurance premium from the alignment of the group's reinsurance

10                    arrangement plus $2 million of restructuring cost, and finally, a loss of $1.6 million in equities in the first quarter of 2008.  Total assets grew and now stand at $402 million at June 08.  Shareholders' equity has grown with increased retained earnings and the issue of share capital in the second half of 2007 to fund acquisition.  Turning to Slide 7, Calligen has a strong balance

15                    sheet  underpinned by conservative investment and reinsurance strategy.  As you can see from the slide, the group has a moderate level of gearing with a $25 million loan from Commonwealth Bank which matures in 2010.  The loan was taken out in 2007to fund acquisition.  Investible funds have reduced due to our increased reinsurance arrangements, timing differences in reinsurance

20                    recoveries following last year's storm and the acquisition of the remaining 50% of ARGIS.  Intangible assets have grown with the consolidation of the ARGIS business which was previously equity accounted as a joint venture.

            CIX      Thank you, Adrian.  Slide 8 summarizes the actions we're taking to continue to build the profitability of our insurance portfolios in what is still a tough

25                    market.  Firstly, pricing.  The pricing environment is improving slowly with progress being made in domestic, motor and regional and rural alliance.  We were expecting stronger price raises in the market during July in short held commercial, but to date increases have remained relatively modest.  We're continuing to target underperforming areas of the book and apply increased

30                    pricing and underwriting measures.  We are confident that this will lead to further improvement in underwiting performance, the majority of which will not flow through until 2009.  On claims, the first half of 2008 has been relatively benign from those of the weather and the large loss perspective for Calliden.  During the period, we had centralized all long tail claims management

35                    internally and consolidated our shorter claims management -- excuse me -- with Claim Services Australia, our 50% joint venture claims management company.  Our portfolio management, as we said, we have exited a number of poorly performing portfolios, and in July, we completed the acquisition of the Arista Motorcycle portfolio, a Bolton acquisition for our specialized motor

40                    agency doors.  We have also discontinued underwriting crop which as Adrian indicated has led to a reasonably significant effect on our GWP.  Slide 9 shows the shape of our portfolio on the progress of our loss ratio, gross and net of reinsurance.  Of the $98 million written in the first half of 2008, one third is personal lines, both household and motor, and two thirds is short and long

45                    tail commercial lines.  This provides us with a good spread of risk.  The progression of the loss ratios clearly shows the impact of the increased weather instance in 2007 and the relatively benign weather and large loss experienced in the first half of 2008.  The gross loss ratio in the       first half year has benefited from a degree of write back from the reserves for last year's storms and the continuing good performance of the long tail booked in both current and prior years.  In terms of class performance, all lines other than motor have performed well in the first six months.  Motor was impacted by the continued poor performance of a number of discontinued portfolios.  The exit

5                      from these contracts plus the introduction of price increases on the remaining business will continue to improve the motor performance over the next 12 months.  Slide 10 deals with the strengths in reinsurance cover.  While loss ratio performance in the first half year has been very good, the second half of the year has traditionally brought more weather losses and large losses

10                    particularly for our regional and rural portfolio which is around 20% of our turnover.  The overall quota share reinsurance attached to new business and renewals from October 2007 onwards increased in the level of reinsurance coverage steadily through the year which will provide increased protection for the second half of 2008.  We have also increased our catastrophe protection

15                    and purchase to stop loss arrangement for the short tail lines to reduce potential volatility in the result of the second half year.  Slide 11 deals with our investment portfolio.  We reduced our exposure to listed equities in 2007 from 12% to 5%.  This relatively small holding still led to a $1.6 million loss in the first quarter.  Given the potential for ongoing volatility, we decided to

20                    consolidate our investments into cash and fixed interest in April.  We are, therefore, 100% in cash and fixed interest other than our investments in insurance-related joint ventures.  We have completed the process of selecting an external investment manager for our fixed interest portfolio and the investment manager, Vianova, were appointed in June this year.  Slide 12

25                    deals with the integration process.  In Step 1, we had to build a new IT infrastructure, implement a new Australia-wide Internet-based network and consolidate and relocate premises.  This has been achieved.  In Step 2, we had uncoupled all of the acquired insurance systems from their vendors and relocate those systems to the new Calliden infrastructure.  This has also been

30                    achieved.  Step 3 is the conversion of the multiple platforms into a single operating insurance platform.  While this plan remains on track, it has expanded following the recent acquisition of the additional 50% of the ARGIS business and the Arista Motorcycle portfolio.  It is important to note that while the IT conversions are a major focus of our IT team, they have maintained the

35                    delivery of solutions during this process including the recent development and piloting of the electronic trading platform for our commercial package business.  Slide 13 shows how we've been rationalizing the group.  Progress on the consolidation from two to one licensed insurers potentially freeing up an excessive $10 million of regulatory capital is on track for completion in the

40                    first quarter of 2009.  We have also embarked on an exercise of eliminating nonoperating entities and consolidating smaller joint ventures to reduce the complexity in our operational and corporate structure.  The acquisition of the remaining 50% of ARGIS Limited allows the group to maximize the financial and strategic benefits of having full control of this growing and successful

45                    regional insurance business.  Slide 14 deals with the outlook for Calliden in the second half of 2008.  We will focus on three priorities; building financial strength by continuing our price increases while managing volatility through the strength from reinsurance program and conservative investment strategy.  We will focus on simplifying our operational and corporate structure while continuing the IT conversion program.  We will also unlock the potential of the consolidated group by moving to one integrated national distribution model supported by the electronic trading for both commercial and domestic packages.  We will also continue to strengthen the Calliden team.  The issue

5                      of dividends will be considered at year-end when the board has more clarity on (inaudible) (00:15:17) new capital regime for insurance groups and the progress of our insurance license consolidation, and therefore our future capital needs.  Slide 15 brings us back to Calliden's developments.  2008 is all about extracting value by building our financial strength, simplifying our

10                    business and unlocking the potential to provide a strong platform for future growth.  This concludes our half year presentation and we are now happy to take any questions you may have.  Thank you.

            BRR    The first question comes from Simon Samuel from Delta Asset Management.  Please go ahead.

 

15        DAM    Yes.  I'm wondering what the situation is with AU regarding the dispute you've got over the price that you paid for the insurance business.

            CIX      Yes, thank you, Simon.  We haven't mentioned anything in the presentation because really nothing has changed.  The dispute is progressing through that court procedure and at this stage there's really nothing more to add to what

20                    we said before.

            BRR    The next question comes from Stuart Oldfield from Baillieu Stockbroking.  Please go ahead.

            BS       Good day, fellows.  Well done on your progress so far.  Just -- Nick, on acquisitions going forward from your little sort of strategy blueprint there.  Is --

25                    you're in a consolidation phase while the looks of things is unlikely acquisitions in the second half of 08 and if that's too strong are there plenty or sort of -- there or -- yeah, what's the light on that?

            CIX      The answer to that is, that our focus really is on the consolidation.  So the building of bottom line and simplifying the business while -- sort of combining

30                    it to release its potential.  Having said that, if there were acquisitions out -- if there are acquisitions out there at the moment where the price is right, and therefore the return is right, then of course, we would still look to consider them.

            BS       But none are on the radar at the moment?

 

35        CIX      Well, none that we would -- that we'd have anything to talk about at the moment, no.

            BS       And would you be willing to script at these levels or...

            CIX      Well -- I mean, again, I think -- until there's an opportunity that we felt was in the interest of the shareholders.  It's a little bit early to talk about that.

 

40        BS       Sure, and that Com Bank facility, have you used that fully or is that -- plenty of room to expand?

            CIX      It's a $25 million loan so it's huge.

            BS       Okay. Okay. Okay.  And just on that split of your portfolio mix there, are you -- I mean, I think you said you -- it was a good split.  Is that what -- would you feel it regardless of what you do M&A wise?  Is that sort of a commercial or personal split that you'd like or you'd like to sort of rebounce it in any one direction?

            CIX      Look -- it's certainly a good spread at the moment.  It is, in fact, now mainly a short tail book actually.  If anything at the moment given the more rational

5                      pricing in domestic lines, then increasing our exposure in those lines would still be of interest to us.

            BS       Okay.  And I don't want to hold anything but -- so, what's your sort of regional/metropolitan split in terms of premiums that certainly you can talk of?

            CIX      Well, yeah, I mean -- I think if you look -- the -- if you took our regional and

10                    rural exposure to be what was written through August, the regional and rural underwriting agency, then we're about 80% suburban and metropolitan and 20% regional and rural.

            BS       Thanks, Nick.

            CIX      Thank you.

 

15        BRR    We will now move to our next question from Fred Willard from Samuel Terry Asset Management, please go ahead.

            STAM  Good morning, Nick.  I've got a few questions to ask.  The first is on the rural stuff.  You said that there's a seasonal waiting of claims towards the second half rather than the first half.  You just said there that about 20% of that

20                    business is rural.  In terms of -- it must have meant specifically this half but as a statistical expectation how much more should claims be in the second half from that segment versus the first half in a normal season?

            CIX      Yeah, look, it's a really good question.  The answer, unfortunately, is complicated.  The degree of deterioration that you're going to get really

25                    depends particularly on the weather for a whole series of different reasons.  So it's not as saying where you would expect X% increase in loss cost in the second half year.  What we can say is that over the summer months, you tend to get the losses coming in on regional and rural.  We've been very fortunate actually in the early part of 2008 but the fact has been it was

30                    relatively benign then.  But the last quarter of 2007, there were both weather losses and a series of fire losses on things like baled hay so it's not that straightforward, you would just expect more claims in the second half year and it really depends on the weather conditions.

            STAM  Second question, I’m surprised that we've -- I know in the owner changes

35                    we're still paying zero tax, what's the story there?

            CIX      Adrian?

            CIX      Okay.  Series of complex tax rules around the ability to access our historical tax losses.  The principle on at the moment is the continuity of ownership which requires 50% consistency in our shareholder base.  At the moment,

40                    we're still past that, Fred.

            STAM  Okay.  So, subject to that, can we expect to see zero tax or close to sometime to, sometime to come?

            CIX      Close to zero tax.  I would emphasize that the compliance of those tax rules is beyond our control.

 

45        STAM  Okay.  Next question.  The -- on page 15 of the half year, claims handling expense has halved.  In the claims reserve it was $4 million at the end of December and it's $2 and a bit million now.  Why is that halved and what impact, if any, does it have on our P&L?

            CIX      It's being reclassified, Fred.

            STAM  Okay.  No more than that.  Okay.

 

5          CIX      Yes.  The total consolidated growth outstanding claims liability spent which we think that presentation is more informative.

            STAM  Oh, yeah, you previously said that you estimated the $2000 million of gross written premium would require about $75 million of capital, is that still the case and to what extent in working out your -- the capital ratios to the

10                    regulators, or did yourselves take notes of the $40 million of intangibles?

            CIX      Yeah, APRA are actually in the process of coming out with some new capital rules for insurance groups.  That position's not 100% clear as yet so as soon as that's clear we'll know whether that $75 million is still the right number or not, Fred.  So it's still movable at the moment.

 

15        STAM  What about the $40 million of intangibles, how does that proceed then?

            CIX      They're not recognized under the APRA rules.  The calculation under the APRA rules is done on a very different basis to the financial reporting standards you see in our financial.

            STAM  So does that mean we're potentially short of capital on that basis?

 

20        CIX      Not that we're short of capital but it doesn't exceed the -- APRA has come out with a draft of the new rules and we're working out ways through what that means for Calliden.

            CIX      Both of the insurers agree for the moment.  They are very well capitalized, actually.

 

25        CIX      Yeah, we've got --you can see from our December accounts, we've got a margin somewhere in there, three times Calliden Limited and around two times for Calliden Insurance Limited.

            STAM  Okay.  That leads into my final question which is to say --I must admit I was --the one aspect of these results that I was personally very disappointed about

30                    -- and as you know, I've been a big supporter of your guys -- for sometime was the lack of a dividend.  You've got huge tax losses, you've got huge ranking credits, your share price in the last few years, frankly, has been pretty ordinary, I was very surprised and disappointed that there was no dividend.  Can you talk more about why -- you just said you've got plenty of capital,

35                    there's plenty of cash there but what's the rationale?

            CIX      The rationale -- I think what we've said, I think what we said in this presentation on the information somewhat is that we would look at the issue of the dividend at year end.  I think it's prudent and sensible to wait until the position on regulatory capital for the insurance groups is finalized so we know

40                    exactly what that is; we're well capitalized at the moment as you say.  And also, the progress of the push across is -- from -- to create one insurer from the two and any impact that that might have on our ability to pay dividends on our future capital needs and then it will be considered at that time.  That's just a sensible and prudent thing to do.

 

            STAM  That's all for me.

            CIX      Okay.  Thank you, Fred.

            STAM  Thank you

            BRR    We will now move to our next question from (Andre Stevens) from (Sales

5                      Funds Management).  Please go ahead.

            SFM     Hi, guys.  And, Nick, just a couple of questions.  In terms the restructuring charge of 3.6, 1.6 was due to reinsurance, can you give us a breakdown of what made up the other two, please?

            CIX      It’s a combination of factors.  There was a number of redundancy payments

10                    and obviously location costs and some -- one of assistance charges.

            SFM     And the split between them, can you give us a feel?

            CIX      It’s predominantly the redundancy line.

            SFM     Redundancy, okay.  And, is it possible --I couldn't see any fund development tables in the release so is it possible to give us a feel for what the reserve

15                    releases were in the half from central estimates?

            CIX      It's a complex one when you go from gross to net with our transitioning and reinsurance arrangements, but at the gross level it was around 5 million to 6 million.

            SFM     Five to six million from long tail classes in reserved releases?

 

20        CIX      Well, prior year positions -- long tail, short tail.

            SFM     And how is it sustainable?

            CIX      …to the bottom line would be relatively small given our insurance arrangement particularly with the storm losses where we had reinsurance arrangements that would take the majority of the storm cost.

 

25        SFM     Okay.  So, can you give us a feel for what actually flow through the bottom line following the gross (farm)?

            CIX      As I've said, it's very difficult with the complexity of our insurance arrangements but I'd say it would be a small fraction of that gross number.

            SFM     And, can you give us a feel for what the probability of that equity is at the

30                    moment?

            CIX      It's 75%.

            SFM     And just looking forward in terms of restructuring charges obviously it would (repeat the numbers) in this period.  I think you noticed that the reinsurance charges have been down so ongoing from here.  What should we be looking

35                    at for the second half and also in 2009?

            CIX      I think in terms of the second half -- and then we said in the open briefing was that, you know, the number is clearly not going to as high in the second half as it was in the first half.  It's going to a bit more than the 50% of the non-reinsurance charge.  It would be our - sort up of current sale.

 

40        SFM     Okay.  So 1 -- maybe 1.2 or something like that.

            CIX      Yeah.  Then going toward -- in 2009, I mean there are -- there is going to be some sort of ongoing restructuring cost particularly now we have bought the remaining 50% of ARGIS and that was only completed in June so there will be some integration costs involved in that too.

 

            SFM     Then one would think that in terms of materiality, it should be low looking forward into '09 as well even from the second half levels.  Is that right?

            CIX      Yeah, I think that sound reasonable.

            SFM     Just in terms of following up on the half two claims question that was asked

5                      before, the claims ratio in half two last year, I think, was 60 or 61%.  Is that a fair indication of where you'd expect it to be on a normalized basis?  Appreciate -- you've got weather factors and all those sort of things but based on your central estimates and so on, is that a reasonable expectation in terms of trying to understand the seasonality?

 

10        CIX      I think if you wanted to try and calculate something that would be a way of doing it.  It does, of course, all depend on the incidents of both of the large losses and weather losses in the second half year.  I mean, as you know, it's not a precise science there.

            SFM     I appreciate that, Nick.  Is it really just in terms of a baseline where your

15                    central estimates are based on?  Is that a reasonable sort of expectation?  Obviously, volatility exists there in insurance and that's why people have it.

            CIX      Yeah.  I mean, such is that -- the volatility of reinsurance is not a bad methodology to follow.

            SFM     Okay.  Thank you.

 

20        CIX      Okay.

            BRR    It appears there are no further questions at this time.  I'll now hand the call over to Mr. Kirk for any additional or closing remarks.

            CIX      Okay, thank you very much.  Thank you very much for your time this morning, and -- thank you and we'll talk to you again soon.

 

INTERVIEW CONCLUDED

 

 

 

 

Contact brr@brr.com.au for more information

 

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